Tax fraud is a type of federal crime that involves intentionally failing to comply with tax law. This does not involve simple mistakes when filing taxes; If you make simple mistakes that were simply overlooked unintentionally when filing your taxes, the IRS may charge you with civil penalties, but you will not face any criminal charges.
However, if the IRS believes that you intentionally filed your taxes incorrectly and failed to meet your obligations as a taxpaying citizen, you could face criminal penalties, including jail time. Tax fraud can result in up to five years in federal person and up to a $500,000 fine. If you are accused of tax fraud, you’ll need to consult a criminal defense attorney as soon as possible so you can begin developing your defense.
The IRS Investigation
When investigating someone for fraud, the IRS will pull your tax returns and send you a notice. In most cases, for lesser amounts, the IRS will simply request that the issue is addressed and payment is made immediately. Refusal will then result in a formal investigation.
If the amount is larger than $100,000, the IRS will contact you in person to ask you questions. If this happens to you, it’s time to hire an attorney because they are actively pursuing a case against you. Be polite to the agents and respond to any questions that may incriminate you by telling them you prefer not to answer without an attorney present.
I was accused of tax fraud. What should I do?
If you have given falsified records to the IRS, you can easily make your situation worse. If you make incriminating statements to your accountant, you can also make your situation worse.
If you are being investigated for tax fraud, you should never volunteer any information to the IRS. Even if you have not yet been charged with tax fraud, by volunteering information, you could be inhibiting your and negatively impacting your defense. A routine audit from the IRS can turn into a criminal investigation if you lie to or hide information from the IRS. If you even so much as to say something that can be used as evidence of intent to commit this type of federal tax crime, the IRS can use that to charge you with criminal penalties.
You should also be careful with what you say to your accountant or whoever does your tax preparations. These professionals may have helped you with your tax issues in the past, but communication with them is not privileged like it would be with a lawyer. They are usually not under any law to keep your conversations quiet and can be questioned by the IRS. They can also testify against you in your court case, so it’s important to be mindful of all of your communication with your accountant after being accused of tax fraud.
Know the Penalties
If you are convicted, penalties may range from 20 percent of tax underpayment to five years imprisonment. Lying on your tax returns or filing a fraudulent return is considered misreporting your income and can result in these penalties. There are different levels of accuracy-related penalties for understating your income; Negligence, the failure to reasonably attempt to comply with tax laws and substantial understatement of income are the most common accuracy-related aspects of tax fraud and carry a penalty of 20 percent of the portion of the tax underpayment.
Civil fraud is even more serious. If there is evidence that some aspect of the understatement of tax was due to fraud and the taxpayer had clear intent to evade the assessment of tax that the taxpayer believed was owed, it could be considered a case of civil fraud. The penalty for civil fraud amounts to 75 percent of the tax underpayment.
Keep Detailed Files
Keep detailed files on all of your past taxes, income, and deductions. If you’re at the point to hire an attorney, your tax fraud lawyer will need to know everything about the situation. If you are guilty of committing tax fraud and your attorney is able to figure this out with your paperwork, then you can bet the IRS has already built their case. Your lawyer will still be able to do their best to plea brain and mitigate the amount of time served. If you haven’t committed fraud, your paperwork will prove your innocence to the attorney who will then have the means to obtain the IRS’ information and continue to investigate further.
Examples of Tax Fraud
While there are many different ways to commit tax fraud, here a few of the most common:
Filing status and claiming children for exemptions and tax credits
Married taxpayers may commit low dollar tax fraud by filing head of household instead of filing jointly and receive heftier refunds that they are not actually eligible to receive. People may also claim children that they don’t have in the hopes of getting more money back when they file their returns.
Self-Employed Tax Fraud
Self-employed individuals may create fictional expenses or include personal expenses and claim that they are for their business. Significant tax fraud can occur when you claim something as simple as a cell phone or internet is used 100% for business when the IRS knows that you are using those things for personal use as well. It can be tempting to do this, but it is tax fraud and completely illegal.
Lying about income
Believe it or not, it is easy to lie on your taxes about your income. What many people don’t know is that any cash payments you receive are taxable, and hiding those from the IRS can result in tax fraud conviction. What you don’t know is that your employer may pay you cash, but they are still reporting it on their own taxes, so it’s easy for the IRS to follow the money and find out just how much you are hiding from them. While many people do get W-2’s from their employers, it is still possible to lie when filing your taxes. It’s easy for the IRS to get the information they need from your employer, so lying about your income to get a greater return is unwise.