Tax fraud is the crime of willfully failing to pay taxes to the IRS or your state’s taxing entity. It’s not tax fraud if you make a good-faith mistake on a tax return, forget to file a document with the IRS on time, or send a tax payment check in a little late. You may owe some large financial penalties (in addition to the amount of whatever back taxes you owe) as a result of any of these lapses, but you won’t be charged with a crime.
What Constitutes Tax Fraud
Examples of tax fraud include:
- failing to file a return or supply required information
- not paying tax due
- not making required estimated tax payments
- making false statements on a tax document or during an audit
- filing a fraudulent tax return
- filing a return using a false or stolen identity, in order to receive a refund
- destroying evidence
- helping or advising someone else to file a fraudulent return or other document
Common kinds of tax fraud include failing to report all income earned, falsely claiming deductions you’re not entitled to, or having two different sets of books for accounting purposes. Tax fraud can also include concealing or transferring assets in an attempt to avoid paying the required tax.
The IRS investigates tax fraud through its Crime Investigation division. It conducts thousands of investigations each year. Usually, investigations begin when the IRS receives a tip about fraud (from a former employee or ex-spouse, for example) or discovers fraud during an audit. The IRS looks for telltale signs of fraudulent activity such as failure to file returns, large cash transactions, inadequate recordkeeping, offshore accounts, and repeated failure to make estimated tax payments.
An individual, business, organization, or other entity can be guilty of tax fraud. Every instance of fraud can be prosecuted, and punished, as a separate crime.
Tax Fraud Penalties
There can be severe civil and criminal penalties for federal tax fraud.
If the IRS concludes that you have committed tax fraud, it can impose a civil tax fraud penalty—that is, it can essentially fine you, without charging you with a crime. The civil tax penalty is a steep 75% of the tax you owe, plus interest.
If however, your conduct is serious enough, the IRS will refer your case to its Criminal Investigation unit for investigation and possible criminal prosecution. If you’re convicted, the penalties for criminal tax fraud can be up to five years in jail, plus fines of up to $250,000 ($500,000 for corporations). You may also have to pay for the costs of prosecution for each separate tax crime you were convicted of. Criminal penalties will be imposed in addition to the civil penalties.
Getting an Attorney’s Help With a Tax Fraud Charge
Tax fraud is a serious matter, and if you’re charged with it you should immediately consult an attorney who has experience in working with individuals or companies charged with this crime. The attorney may also be able to work with the IRS to get criminal charges dropped and perhaps even get civil penalties decreased.
