No one wants to pay taxes, but if you earn a living in the United States you're required by law to abide by federal, state and local tax codes. The Internal Revenue Service (IRS) doesn't turn a blind eye to tax evasion and fraud, but instead pays close attention to anyone who is breaking the law.
If you're convicted of tax evasion or fraud, the penalties can be quite serious. In addition to a hefty fine, there's a chance you could be sentenced to prison time.
Is it fraud or negligence?
The IRS understand that its tax code is extremely complex, thus leading to mistakes. In fact, the agency estimates that roughly 17 percent of individual taxpayers neglect to comply with code in some form.
If you make a mistake on your tax return, such as failing to accurately add or subtract numbers, the IRS may notify you of the error and impact on your tax situation. However, this doesn't result in a serious penalty, such as prison time.
Fraud, on the other hand, comes into play when you intentionally take action to lessen the amount of tax that you pay. This can include but is not limited to:
- Making false claims
- Failing to report all your income
- Preparing a false income tax return
Tax auditors are skilled in digging up both evasion and fraud, such as by watching for red flags like:
- Claiming an exemption for a child that doesn't exist
- Overstating exemptions and deductions
- Falsifying documents, such as mortgage and bank statements
- Keeping two sets of books
- Using personal expenses as business expenses
- Using a fake Social Security number
If you receive any type of notice from the IRS, it's important to read the letter from beginning to end to understand exactly what's happening. It shouldn't take long to understand if you're accused of evasion/fraud or basic negligence.
Rather than attempt to fight serious allegations on your own, you should review your legal rights and consider the many types of professionals who can provide assistance. If you want to learn more about tax fraud, visit the many pages of our website and blog dedicated to white collar crimes.