Tax fraud is bad….but what is tax fraud, exactly?

Everyone knows it’s a crime to cheat on your taxes. Thankfully, the number of reported cases of tax fraud – as well as convictions for tax crimes – has decreased significantly over the past decade.

Under Title 26 of the IRS and Title 18 of U.S. Courts, tax fraud is a taxpayer’s intent to defraud the government by not paying taxes that he or she knows are lawfully due. 

What, exactly, constitutes tax fraud? A common form of tax fraud is tax evasion, a deliberate act of misrepresentation of taxable income to the IRS. For example, not declaring all your income, deliberately overstating expenses or deductions —  or simply gambling (erroneously!) that you’ll fall “under the radar” if you don’t file a tax return at all.

The folks who tend to commit tax fraud…and the ways they do it.

Using a false Social Security number, keeping two sets of financial books, or claiming a blind spouse as a dependent when you are single are examples of tax fraud. So are running a business with two sets of books or without any records at all, making false receipts and altering checks to increase deductions.

Most cases of income tax fraud are committed by individual, middle income taxpayers: These are typically workers in the service industry who fail to report their cash tips. self-employed restaurateurs, clothing store owners, car dealers, telemarketers, salespeople, hairdressers .. even doctors and lawyers!

Tax fraud comes with stiff penalties, but negligence can be pricey, too!

Unfortunately, tax fraud cases are difficult to prosecute because the government must prove the taxpayer’s intent to defraud; All too often, defendants come to court armed with solid legal reasons for not paying their taxes. The charges of tax fraud are then reduced to charges of negligence – defined as cases of careless errors on the part of the taxpayers.

While IRS auditors are trained to look for tax fraud, they do not, contrary to conventional wisdom, approach each case with a “guilty until proven innocent” mindset. Quite the opposite, in fact. Auditors, aware that tax laws are complex, expect to find a few errors in every tax return – and, as a “slap on the wrist,” may add as much as a 20% penalty to the tax bill.  But – be aware – these very same auditors are experienced in detecting egregious mistakes – incorrect numbers that are more a product of greed than of careless math.  Your tax return is not the place to bet your odds ….if you’re caught and the courts don’t buy your rationale for stretching your numbers, you could be fined hundreds of thousands of dollars …and, possibly, face some jail time.

Don’t gamble away your angel wings! Get help from an IRS enrolled agent before you submit your tax return!

Even if you’ve applied honest due diligence on your tax return, why gamble that inadvertent errors won’t raise a red flag …and cost you hundreds – even thousands of extra dollars in fines?  Look to an expert for help, ideally an IRS enrolled agent who knows what mistakes to look for, before you submit your return. Everyone knows that crime doesn’t pay, but when it comes to taxes, even honesty and integrity can’t trump accuracy. Why not earn your wings and call an IRS enrolled agent today?