Cheating on your taxes is considered a crime. Because of this, any person can feel anxious about filing taxes and somehow making a mistake. Nevertheless, according to a study conducted by the Internal Revenue System (IRS) only 0.022% are convicted for income tax fraud, despite the large number of taxpayers who cheat on their taxes either deliberately or through negligence.
If you are accused of making a mistake in filing your taxes, it is important to know the charge filed against you. Income tax fraud and negligence are two different felonies that a person can be charged of when he has made a mistake in filing taxes. Read Further to learn more about Income Tax Fraud and Negligence.
Tax Fraud
Income tax fraud is the willful attempt of evading or escaping tax obligations under the law to defraud the IRS. According to the IRS, income tax fraud usually occurs when a taxpayer:
- Intentionally fails to file his or her income tax return
- Makes fraud of false claims
- Fails to pay taxes that are overdue
- Fails to report all the income that received
- Prepares and files for a false income tax return
The chicago whistleblower lawyers exclaim other examples that include tax frauds include overstating or failing to declare your deductions, entering false information in the record, or even maintaining two sets of financial accounts.
Usual offenders of Income Tax Fraud
The usual offenders of income tax fraud are workers paid in cash, self-employed, or freelance workers. These workers are often guilty of unreported cash income. For example, restaurant owners, store owners, or other people working for service oriented jobs or cash based businesses.
The most common type of tax fraud is underreported income. Underreported income is usually committed by self-employed workers who find it difficult to keep track of their salaries and finances. However, in order to be convicted under this type of act, the IRS emphasizes that the prosecution must prove that the taxpayer has voluntarily, knowingly, and intentionally performed any of the precedent acts mentioned. Absent the element of voluntariness, the taxpayer may be convicted for another crime.
Penalties for income tax fraud
If you are charged with income tax fraud, make sure to avoid answering questions without a lawyer. It is best that you have an attorney to guide you in protecting your rights during investigations. An attorney can best assist you about the charge filed against you and the corresponding penalties related to it. Nonetheless, based from the information provided by the IRS, here is a quick summary of the possible penalties that you may be charged for income tax fraud:
Any person who attempts to defeat or avoid tax is punished for imprisonment of not more than 5 years or fined with not more than $250,000 for individuals ($500,000 for corporations) or could be given both penalties together with costs for prosecution.
Any individual who attempts to collect or pay over tax shall be punished with imprisonment of five years or a fine of not more than $250,000 for individuals ($500,000 for corporations) or could be given both penalties together with costs for prosecution.
Any person who willfully fails to file return, supply information, or pay tax shall be punished with imprisonment of not more than 1 year or a fine of not more than $100,000 for individuals ($200,000 for corporations) or could be given both penalties together with costs for prosecution.
Any person who is guilty of fraud or false statements by subscribing to a return, statement, or document, verified to be true when it is not in fact true and correct as to every material matter shall be imprisoned for not more than 3 years or shall be fined with a fine of not more than $250,000 for individuals ($500,000 for corporations) or could be given both penalties together with costs for prosecution.
Any person who willfully aids in the presentation of fraud or false statements as to any material matter shall be imprisoned for not more than 3 years or shall be fined with a fine of not more than $250,000 for individuals ($500,000 for corporations) or could be given both penalties together with costs for prosecution.
Any person who corruptly or through the use of force attempts to interfere with the due administration of Internal Revenue Laws shall be given a penalty of imprisonment for not more than 3 years or shall be fined with a fine of not more than $250,000 for individuals ($500,000 for corporations) or could be given both penalties.
Any person who acts in conspiracy with a person having committed any of the precedent acts mentioned above shall be punished with imprisonment for not more than 5 years or a fine of not more than $250,000 for individuals ($500,000 for corporations) or both.
Tax Negligence
The government understands that an ordinary citizen might find it overwhelming and difficult to follow the numerous and complex rules provided to regulate income tax under the tax code. Hence, when there is an absence of the element of voluntariness or willful intention to commit any of the acts punishable under income tax fraud, the tax auditor will consider the act as tax negligence with a much lower penalty.
Tax negligence refers to failure to attempt tax evasion or an honest mistake on the part of the taxpayer when filing taxes. Often times, workers, especially those working under the service industry, find it difficult to keep track of their income and often underreport their income.
The IRS provides a list of indications of negligence in filing your taxes:
Careless, improper, or exaggerated deductions.
State reports including cooperative state programs indicating a negligence party (considering other factors and not depending entirely on the assessment conducted by a taxing agency).
Inadequate books and records.
Incorrect or incomplete information provided to the return preparer for preparation of the tax returns.
Misrepresented or miscategorized deductions in such a manner as to conceal the true nature of the deduction.
Significantly overstated deductions or credits.
Substantial errors on an issue (e.g., EIC) that had been adjusted in a prior year.
Unexplainable items.
Unreported or understated income.
The IRS provides that when a taxpayer commits tax negligence, penalties are not provided if there is a reasonable basis for such negligence, if the act is based from filing a late return, or if the charge is based on a taxpayer’s failure to respond to an inquiry. Otherwise, the penalty for tax evasion brought about by negligence is 20% of the underpayment based from the negligence or disregard of the IRS rules or regulations.
Conclusion
Managing and paying your income taxes is a responsibility that every worker must perform in compliance with the rules and regulations set forth under the tax code. Otherwise, a taxpayer may be charged for income tax fraud or negligence in failing to properly file his or her income taxes. Each charge is different in their own way and each carries its own set of penalties for the offender. You can talk to a licensed attorney to help you understand the legal implications of committing tax offenses. You just have to click here for more information.
Anne McGee
Anne McGee has over 20 years of experience writing about law subjects where she hopes her knowledge can help the common reader understand law topics that may be of relevance to their daily lives. If she's not reading a good book, then chances are Anne is jogging during her free time.
