What is Tax Fraud? Tax fraud is defined as such: when an individual or business deliberately falsifies any information on a tax return with the intention of limiting tax liability. The term applies to many different activities that violate laws found in the Internal Revenue Code (known as Title 26) or the United States Code (Title 18). Someone who is convicted of IRS tax fraud is found guilty of cheating on their tax return to get undeserved returns or not pay the entire amount due. There are many actions that fall under the umbrella of tax fraud, and it’s critical to avoid these tempting practices at all costs.
Negligence vs. Income Tax Fraud
To convict a person of tax fraud, the IRS has to prove the person had intent to misrepresent or provide incomplete data on a tax return. Generally, proving the intent of a taxpayer to violate tax law is difficult to prove. The IRS Criminal Investigation unit has to prove intent by providing very specific evidence as to your motives. This is why the government often chooses to pursue the taxpayer with a civil matter by simply presenting information that they underpaid their taxes. Typically, if the taxpayer has any legal argument as to why they didn’t pay their taxes they’ll usually win the criminal charge.
Types of Tax Fraud
- Deliberately Underreporting or Omitting Income
- Hiding or Transferring Assets or Income
- Overstating the Amount of Deductions
- Claiming False Deductions
- Claiming Personal Expenses as Business Expenses
- Creating False Entries in Books and Records
- Keeping Two Sets of Books
- Tax Evasion
- And Anything Else that Violates Codes Title 18 or Title 26
Can You Go to Jail for Tax Fraud?
If you are convicted of tax fraud it’s possible you’ll face jail time. Tax evasion and some cases of tax fraud can convict you of a felony and see you put in prison for no more than five years. Once you have a federal felony conviction you forfeit your voting rights, jury service, your right to federal employment, right to hold federal office, right to obtain federal licenses, and right to obtain a pilot’s license. You cannot join the armed forces, you forfeit your right to own firearms, and may forfeit certain travel opportunities and more if you live in certain states.
Penalties for Income Tax Fraud
Different types of tax fraud incite different kinds of punishment from the IRS. If you willfully attempt to evade paying income taxes then you’re subject to criminal and civil penalties. Below are just a few examples of the types of possible punishments you may receive.
Fraud or False Statements
If found guilty, the taxpayer is convicted of a felony and is subject to no more than three years in prison, a fine of no more than $250,000 for individuals or $500,000 for corporations including the cost of the prosecution.
Tax Evasion or Frivolous Tax Arguments
Upon conviction the taxpayer is now guilty of a felony and may be imprisoned for no more than five years, and pay a fine of no more than $250,000 for individuals and $500,000 for corporations plus the cost of prosecution.
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The “Dirty Dozen” Tax Frauds and Scams
Every year the IRS creates a list of the infamous “Dirty Dozen”— the top 12 tax scams of the year. Some trends rise and fall with new technology and easily accessible information while other patterns stay the same. Remember that the IRS has dealt with tax frauds for over a hundred years so they’re well versed and adaptable to tax fraud schemes. Avoid making erroneous claims and only confide in an ethical tax preparer to avoid penalties, back payments and possible jail time.
You can’t trick the IRS. It’s easy to inflate the amount of deductions or expenses on a tax return to pay less than you actually owe or receive larger refunds. Always double check your return to make sure you didn’t misinterpret or unintentionally pad deductions to avoid fraud accusations.
- Excessive Claims for Business Credits
If you own your own business, it’s especially important to learn the applicable tax codes. It’s not uncommon for new business owners to improperly file their taxes and penalties that present a huge blow to their business. Always keep up to date on IRS laws for business tax credits to make sure you file appropriately. A common example of excessive claims is the fuel tax credit. Contrary to popular belief, this credit isn’t always available for taxpayers. If you do think you qualify for this credit then take careful notes of your mileage and present it to an ethical tax preparer for examination.
- Falsely Inflating Refund Claims
Unethical tax preparers will promise more than they can deliver. If anyone approaches you promising inflated tax refunds before examining your information then you should steer clear. These con artists are out to steal your information and your information at your expense. Typically you can spot frauds because they advertise through flyers, advertisements and community groups where they’re most likely to find trusting taxpayers they can prey upon.
- Falsifying Income to Claim Credits
Don’t be tempted to make up false income to qualify for tax credits. Con artists will sometimes bait taxpayers into doing this even though it’s unethical and illegal. Always file the most accurate tax return possible because you are legally held responsible for the information on the return regardless of who prepared it. When the IRS finds out, they’ll force you to pay back taxes, interest and penalties.
The IRS is experienced in unravelling complex tax avoidance schemes and prosecuting the people who create them. If you’re offered a complex tax package or service you should seek a third party opinion before accepting it.
- Claiming Donations to Fake Charities
Unfortunately there are plenty of false charities on the market looking to make a quick buck off your good intentions. If you’re considering donating to a charity, always check the authentication to make sure it’s a legitimate organization. One way to spot a fraudulent charity is to recognize if its name is similar to that of another charity. The IRS provides the tools you can use to know the current status of charitable organizations.
- Unscrupulous Tax Preparer Fraud
There are plenty of qualified tax preparers but not all of them are ethical. Be wary of tax preparers who cut close corners and try to find loopholes within the tax code. The IRS will still pursue legal action even if you used the help of someone else. You’re still held responsible for the inaccurate information on your file, so you want to use a trusted source to file your taxes.
Frivolous tax arguments aren’t a scam per se, but they are grounds for an accusation of tax fraud. Using arguments like claiming a tax law is unconstitutional is not grounds to not pay taxes. Refusal to pay for an argument like this is no excuse and it can see you facing criminal prosecution.
This is a common problem that may be simply due to negligence, but there are still many who commit fraud with offshore status. It may seem easy, but the IRS now understands how to take down offshore tax cheats and participating organizations. If you’ve committed fraud or you simply failed to pay your taxes then it’s best to come in voluntarily to become up to date with tax files.
- Identity Theft
Identity theft is rampant around tax season. A criminal simply needs your social security number in order to obtain sensitive information. Although the IRS does aggressively pursue criminals who file false returns under another taxpayer’s social security number, taxpayers are urged to protect their information as much as possible—it can take years to get back what’s stolen, if at all.
- Phone Scams
These criminals impersonate IRS agents to urge sensitive financial information from taxpayers. This trend has escalated into threatening calls from con artists claiming police arrests, deportation, license revocation, kidnapping and many other tactics.
- Phishing Schemes
Be wary of websites and emails that are scams. IRS Phishers will sometimes pose as the IRS to initiate contact with taxpayers about a bill or refund. Never click on an email claiming to be from the IRS. The IRS will always send you information by mail to prevent fraud.
The IRS Whistleblower Program
The IRS Whistleblower Office is a branch of the IRS that handles tips provided by individuals who spot tax problems within their workplace. The individual might find an unethical tax issue while conducting day-to-day personal business or even outside the office. Individuals are protected from workplace retaliation under the Whistleblower Program in order to encourage whistleblowers to report questionable and possible tax fraud issues with the IRS. Employers are prohibited from discriminating against their employees for exercising their rights under the OSH Act. If you see or perceive tax fraud in the workplace, don’t hesitate to contact the IRS Whistleblower Office and you’ll be protected from discrimination in compliance to OSHA’s 22 federal laws.
How to Avoid Tax Scams
If it seems too good to be true, it probably is. Con artists abound looking for naïve and trusting individuals that they can rip-off with false claims. You can avoid scams by being highly critical of those who approach you and advertisements you see online. To prevent tax fraud, be sure to do thorough research on the service provider beforehand. Always choose someone with proven experience in the field.
Ensure that you’re avoiding all tax scams by working with a tax expert.
Community Tax can help you prevent tax fraud.
What to Do if You’re Accused of Tax Fraud
If you believe you’ve been unjustly accused of tax fraud, the tax experts at Community Tax are ready to help. Our professionals have decades of experience working with our clients to resolve their tax burdens and settle legal issues with the IRS. All of our CPAs, tax professionals and enrolled agents are able to help you achieve your goal of financial freedom by easing allegations and devising plans to help you pay off debt should the need arise.
Never resort to tax fraud to evade taxes or inflate your tax return. At Community Tax, we have high ethical standards. Our team prepares honest returns and fights for fair settlements with the IRS. Work with us and we will get you the best out of your return. If you need to negotiate a payment plan for back taxes you owe the IRS, we will represent you on your behalf to get you started on the right track.
Should you choose Community Tax for your tax concerns, you’ll be in good hands with a trusted team of tax professionals. Reach out to us with your concerns so we can work with you every step of the way. Let us prepare your taxes to avoid any allegations of tax fraud and minimize any risk of penalties. Below are just a few reasons you should have a professional handle your tax returns.
- You Don’t Have Time
- You Don’t Have the Patience
- You Need to Correct Old Tax Return Mistakes
- You’ve Changed Your Marital Status within the Year
- You Provide Financial Support to an Immediate Family Member
- You’re a Business Owner
- You Moved to a Different City or State
- You’ve Bought or Sold Large Investments
- You Want to Reach a Financial Goal
Prepare Your Taxes and Avoid Harsh Penalties
We understand that even the slightest mistake can come with harsh penalties. When you avoid paying taxes or commit tax fraud, you risk felonies, prison and fines that will affect you the rest of your life. If you’re in hot water and you need help with your taxes fast, our team of advanced tax professionals will negotiate a payment plan that works best for you. All of our CPAs, tax professionals and enrolled agents have unlimited right to represent you on your behalf in front of the IRS. If you’re accused of tax fraud and you need tax help fast, we are here to guide you through. Should the IRS decide you owe back taxes and you’re not sure what to do next, let us take care of it for you. Here are just a few of the options available that we’ve negotiated to resolve tax issues.
- Guaranteed Installment Agreement. A Guaranteed Installment Agreement permits you to pay off all of your debt within three years. If you’re approved by the IRS, they will remit your tax lien (if you have one) and you are allowed to pay off your debt in the timeframe mentioned. You are required to pay at least $25 a month for the duration of the plan, and you must owe no more than $10,000 including interest and penalties. In order to qualify, you also have to have all of your past tax returns filed and you must have paid taxes on time every year the past five years.
- Non-Disclosure Installment Agreement. If you apply for this negotiation, you won’t be required to provide any financial information including all accounts, lines of credit, credit cards, business information, non-wage household income, monthly living expenses, and all other assets. In order to be approved, you must owe no more than $25,000 and be able to pay within 72 months. Another benefit is that you won’t suffer from a tax lien, your creditors won’t be alerted, and you’ll still be able to obtain credit.
- Streamlined Installment Agreements. This agreement was designed for those that owe between $25,000 and $50,000. Like Non-Disclosure Agreement, you must pay within 72 months and you promise the IRS to file all future tax returns on time.
- Partial Payment Installment Agreements. Not everyone can afford to pay their debt in full. If the IRS determines that they can’t receive payment for your back taxes in a reasonable amount of time they’ll settle for a lesser amount. This agreement is more difficult to obtain, but if this is a realistic option for your financial situation, the IRS is willing to put this plan into place. Keep in mind that if you do settle for a Partial Installment Agreement, all creditors will be notified of your current status and it will be more difficult to obtain credit in the future.
If you are the victim of tax fraud or you’re considering illicit behavior to inflate revenue or avoid payment, contact us right away. At Community Tax, we offer solutions. If you feel that you’ve been wrongly accused of tax fraud, we’ll analyze your case and represent on your behalf before the IRS to acquit you of any wrong doing.
When your financial life gets complicated it’s time to hire a tax professional. Reach out to our team to help prepare your taxes well ahead of time to prevent any mistakes that can compromise your status. Tax fraud is a serious offense and even an accusation can disrupt your livelihood. Secure your finances and your future by using our trusted team of tax experts at Community Tax today.