You made a mistake on your taxes, and that is bad enough, but when you're accused of tax fraud, that can alter your life unexpectedly. The Internal Revenue Service tries to determine a difference between fraud and negligence to prevent false accusations from moving forward. However, making mistakes on tax forms may be normal, but intentionally filing incorrectly can lead to serious penalties and even time in prison.
What is income tax fraud?
Income tax fraud is when a person willfully tries to evade paying taxes or attempts to defraud the IRS in another manner. The person may skip filing an income tax return, fail to pay taxes that are due, make false claims, file a false return or intentionally fail to report all income that has been received.
The tax code is complicated, and the IRS does recognize that careless errors can occur. In most cases, the IRS does assume that problems with tax forms are honest mistakes. The IRS can still fine you up to 20 percent of the underpayment you made, though, which is still a heavy burden for some individuals.
What kinds of actions does the IRS look for?
Some things that may signal the IRS include falsifying documents, keeping two sets of financial ledgers, using a false Social Security number or underreporting income. Overstating deductions and exemptions can also be a suspicious act and could lead to a charge for fraud. If you're told you'll be having an audit because of one of these reasons or are part of an investigation, your attorney can help you defend yourself.
Source: FindLaw, "Income Tax: Fraud vs. Negligence," accessed July 07, 2016