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Income Tax Fraud vs. Negligence: Things You Need to Know


As frustrating as it may be, you know you have obligations to pay federal, state and local income taxes.

While it's not always easy to stay current with the tax code, it's always in your best interest to have a basic understanding of how it works and what's required of you to stay in compliance with the law.

As a taxpayer, it's possible you could make a mistake on your tax return. This is something the IRS expects, and it doesn't mean you will receive a punishment.

Conversely, income tax fraud is an entirely different beast. This is more than a mistake. This is a calculated attempt to evade tax law.

Income tax fraud comes into play if you do one or more of the following:

  • Intentionally avoid filing an income tax return
  • Fail to pay taxes due
  • Make false or fraudulent claims on your tax return
  • Prepare and file a false tax return
  • Intentionally avoid reporting all earned income

For example, a taxpayer may attempt to hide income in offshore accounts, with the idea that doing so will save him or her from paying income tax.

Is it an honest mistake?

The IRS is skilled at differentiating between income tax fraud and negligence.

Negligence is often nothing more than an honest error, such as a mistake when adding or subtracting numbers. You didn't have any intention of making the mistake in an attempt to avoid paying taxes.

What is the penalty for income tax fraud?

If you willfully attempt to evade paying taxes, you are subject to both civil and criminal penalties. The punishment depends on a variety of factors, including the type of fraud and the extent of the scheme.

Potential consequences include:

  • Imprisonment
  • Monetary fine
  • Imprisonment plus a fine
  • Cost of prosecution

If you're charged with tax fraud it's important to take a detailed look at what went wrong, with the idea of better understanding how to move forward.

Knowing your legal rights can help you devise a strategy that works in your favor, such as one that shows you were negligent but not attempting to commit a crime.

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