No one really wants to pay taxes. Unfortunately, it is a necessary evil in order to keep the government running. With tax filing time right around the corner, you are going to have to present your income and allowable expenses on your tax return. While it is not uncommon to make a mistake when you fill in your tax forms, there is a line where some “mistakes” become fraud.
A conviction for tax fraud can land you in prison and cost you thousands in legal fees and fines. This is why it is important to understand the difference between tax fraud and negligence if you find yourself facing this kind of criminal charge.
Tax fraud
Tax fraud usually occurs when an individual purposely tries to defraud the Internal Revenue Service (IRS) or evade any aspect of tax law. Examples of tax fraud include intentionally not filing a tax return or paying taxes due, not reporting all the income received or filing a false tax return.
Negligence
The tax law is so complex that even IRS agents and certified public accountants (CPAs) sometimes make mistakes. This makes it even more common for people who are not tax professionals to make an error during tax preparation. For example, perhaps you did some contract work early in the year and only earned less than $1,000 dollars for the job. If you have other sources of income, it might be easy to overlook these particular earnings. The IRS might catch the error and simply request that you amend your tax return and pay the correct amount of tax. However, if you refuse to comply, then you might cross the line into tax fraud.
Signs of tax fraud
The IRS looks for certain red flags in order to determine if a return is at risk for fraud. The agent will examine the return for things like an overstatement of deductions or exemptions. For instance, if you claim a $10,000 mortgage interest deduction but the bank that owns the loan submits a Form 1098-INT that lists your mortgage interest at only $6,500, then the IRS will more than likely consider your return fraudulent. Other red flags include falsifying documents, hiding income or having two sets of books (if you have a business).
If you are facing charges for tax fraud, keep in mind that you still have rights and options. You can fight back against the charges with the right defense, especially if the error in your return was the result of a simple mistake.