Tax fraud is an offense that comes with severe penalties. The Internal Revenue Service estimates that about 17 percent of taxpayers violate tax laws in some form of tax fraud. A majority of tax fraud cases involve individuals rather than corporations. But do all failures to comply with tax code amount to tax fraud? To make this determination, it is important to first get a good understanding of what constitutes tax fraud.

Income tax fraud is defined as the deliberate or willful attempt to evade tax law or defraud the IRS. Tax fraud is said to have occurred when a taxpayer intentionally doesn’t file an income tax return; deliberately fails to pay taxes that are owed; intentionally fails to report all income earned or received; makes fraudulent claims in the tax return; and prepares and files an inaccurate or false return.

Avoiding Tax Fraud

Criminal Investigation and Consequences

IRS investigators conduct probes of tax crimes, money laundering and other violations of the tax code. During the course of their investigation, they may use sophisticated methods to uncover information. If you are convicted of tax fraud, you face both civil and criminal penalties depending on the type of fraud that is alleged. For example, if a taxpayer is guilty of felony tax fraud, he or she may be looking at up to five years in federal prison and a fine of up to $250,000.

If convicted of making fraudulent or false claims, which is also a felony, taxpayers could face up to three years in prison and a fine of up to $250,000. When you fail to file a return or pay taxes in a timely manner, which are misdemeanor offenses, taxpayers could face up to a year in prison and a fine of up to $100,000. These are without question extremely serious consequences that could affect your life in every possible way.

Tips to Avoid Tax Fraud

  • Make sure your tax returns are complete, accurate and are filed on time. If you are claiming credits, make sure you use the appropriate accompanying forms and paperwork.
  • Be sure that you are claiming income tax credits and deductions for which you are eligible.
  • Claiming incorrect deductions often gets taxpayers into trouble with the IRS. Commonly misused deductions include writing off items such as groceries, which you did not buy for a business.
  • Taking bloated deductions is another problem people face. Inflated deductions are against the law. If the IRS decides to audit you, it might become a problem.
  • Make sure you are reporting ALL of your income. If you work for tips, keep a daily record of all the tips you get and use the appropriate form to report your tip income.
  • Finally, choose your tax preparer carefully. While a vast majority of these professionals are honest people, there are a few bad apples, and you certainly want to avoid them. Before choosing a tax preparer, make sure he or she has the proper credentials by going to the IRS’s website.

If you are being audited by the IRS or have been accused of tax fraud or are being investigated for tax fraud, contact an experienced Virginia tax evasion attorney who can guide you through this difficult and stressful time.