What Happens If You Lie on Taxes?

What Happens If You Lie on Taxes?
••• tax forms image by Chad McDermott from Fotolia.com

Some Americans have a sleight of hand that can rival the best magicians around tax time. Some common tax-filing tricks include making dependents suddenly appear and making gambling winnings disappear. Nonetheless, filing a false tax return is against the law, and the Internal Revenue Service has its own bag of tricks for catching up with tax cheats.

It's a Boy!

People who imagine the pitter-patter of little feet around their homes to claim dependents they don't have on their tax returns can get into trouble in a couple of ways. Claiming children or other people you don't support with your income as dependents in itself is tax fraud. However, people who claim imaginary dependents also may be stepping over the line into identity theft. Taxpayers are required to include the Social Security numbers of the people they claim as dependents on their tax returns. Tax filers who fraudulently use other people's Social Security numbers to boost their refunds are stealing identities, and other filers linked to those numbers may discover the theft and report it to the IRS.

Rolling the Dice

Some gamblers are pressing their luck by not claiming their winnings on their tax returns. Gambling winnings are required to be reported as income. Such winnings include winnings from lotteries and raffles as well as casinos and horse races. How will the IRS know you yelled "Bingo!" at your county's fair and raked in $1,500 you didn't claim as income? The fair, casinos and other entities that pay out winnings are required to have the winners fill out form W-2G, which is sent to the IRS to reveal winners' windfalls. Requirements to submit the form are based on the amount of the payout and the type of activity involved. Generally, gamblers must fill out a W-2G if they win $600 or more, and the payout is at least 300 times the amount of the wager.

Uncle Sam's Whistleblowers

Tax cheats can be their own worst enemies. Some get such a thrill out of sticking it to Uncle Sam that they brag to others about how they lied on their tax returns to avoid paying taxes. What they may not know is that the IRS Whistleblower Office pays rewards to people who turn in a tax cheat. According to the IRS, the office looks for solid information, not unsupported speculation, about people who fail to pay their taxes. Whistle blowers who have details deemed useful by the IRS can get up to 30 percent of the additional taxes, penalties and other amounts the agency collects due to the information provided.

Audits by Mail

You may not end up in a formal audit in which you're face to face with an IRS agent who is questioning claims you made on your tax return. However, the agency also has an audit by mail process in which tax filers are required to submit additional information about the deductions listed on their returns. Those deductions can be denied if filers fail to send the IRS acceptable information to justify them. Tax cheats caught by an auditor can be fined, but more serious cases may rise to the level of a criminal investigation. The penalty applied by the IRS for tax fraud amounts to 75 percent of the unpaid taxes linked to the fraudulent activity.