Filing an income tax return with intentional falsification can carry stiff penalties. The Internal Revenue Service doesn’t take kindly to fraud, so if you’re accused of it, take the situation seriously. The short- and long-term ramifications of filing a false income tax return can be severe.
A computer scans every income tax return the IRS receives. This computer assigns a score to every return and either flags it as a potential audit candidate or releases it for general processing. A return with mistakes likely will receive a flag and an auditor will examine it to determine whether the issues are a result of negligence or fraud. Auditors expect mistakes and typically give taxpayers the benefit of the doubt. Auditors won’t classify a tax return as fraud unless specific “badges of fraud” are present that suggest wrongdoing. Examples of badges of fraud include falsifying a Social Security number or claiming false dependents. If you simply made a mistake on your income tax return, expect the IRS to send you a letter and tack on penalties and interest to your tax bill to resolve the error.
The IRS lists various types of fraudulent activities that would be in violation of tax laws. Examples of fraudulent activities include omitting or intentionally underreporting income, overstating deductions, maintaining two sets of financial records, entering false information in records, claiming false deductions, claiming business exemptions that are personal expenses and hiding income or assets.
If criminal investigators contact you, don’t answer any questions. Tell the investigators that you need to speak with an attorney before you communicate anything. The IRS investigators may also have a search warrant. If this is the case, cooperate with the search, but do not speak with the investigators without an attorney present.
If you are found guilty of misdemeanor tax fraud for willful failure to file a tax return, supply information or pay taxes due, you might face up to one year in prison and/or be fined up to $100,000. If you are found guilty of felony fraud and/or false statements, you might face up to three years in prison and a fine of up to $250,000.
Tax Preparer Fraud
If a hired tax preparer commits fraud with your tax return, the IRS holds you responsible for additional taxes, interest and penalties -- even if you did not know the tax preparer committed fraud. Choose a tax preparer carefully, so you know the professional you use is honest and reputable. Review your return carefully before you sign it. A criminal tax preparer may face felony charges with penalties of incarceration and fines.
- Dixon Hughes Goodman: The Internal Revenue Service’s Tax Return Selection Process
- Nolo: Negligence Versus Tax Fraud: How the IRS Tells the Difference
- IRS.gov: Types of Fraudulent Activities -- General Fraud
- Howard S. Levy: What an IRS Criminal Investigation for Tax Fraud Looks Like
- Sage Investigations: What to Do When IRS Criminal Investigation Contacts You
- IRS.gov: Related Statutes and Penalties -- General Fraud
- IRS.gov: Tax Return Preparer Fraud
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