Understanding Different Types of Tax Frauds

Calculating taxes

Tax fraud is more than just a mistake in judgment. There are different kinds of tax frauds, each with different penalties.

Filing a fraudulent tax return is considered a criminal offense by the Internal Revenue Service, and may lead to a criminal tax investigation.

Tax Fraud:

Tax fraud refers to an intentional attempt to avoid tax obligations. This may include not filing an income tax return or filing a fake return.

There is a severe penalty for those who fail to file, including a monetary fine of $100,000 and imprisonment for a year. Those who attempt to evade taxes altogether may face a fine of $250,000 and imprisonment of up to 5 years.

Types of Tax Fraud:

Willful Failure To Pay Income Tax:

The Internal Revenue Service states that 1 out of 6 taxpayers intentionally doesn’t comply with the tax code. But if this estimate is correct, why isn’t every 6th person you know facing tax-related criminal charges?

This is because the federal agency distinguishes between tax negligence and tax fraud. Tax fraud is an intentional attempt to forego taxes or to mislead the IRS.

This happens when a company or individual willfully fails to pay taxes owed, fails to file a federal income tax return, makes false claims, or fails to report their actual income.

However, since tax codes are lengthy and complicated, the IRS also states that mistakes are bound to happen. If your record comes clean and you haven’t engaged in any other fraud or criminal activity, the IRS will let you go on account of an honest mistake.

However, even these can result in a 20% penalty. But if the IRS suspects an illegal and intentional attempt to evade taxes, the taxpayer can face severe penalties.

Filing income taxes

Making An Incorrect Tax Claim:

The USA has granted all its citizens the right to freedom of speech, even if their opinions are against official government policies.

As a result, some people may argue that federal income tax is unlawful and violates some Constitution amendments. However, while people can argue about it, they are still liable to pay income tax.

Those who claim income tax is illegal and immoral may file returns with frivolous tax claims to avoid paying the amount they owe. However, the IRS is likely to have a counterargument ready, and in such a case, the filer can face harsh penalties.

Employment And Payroll Tax Fraud:

Payroll tax frauds are becoming increasingly common. Companies may understate the number of employees they have, collect payroll taxes and not pay them to the IRS, or pay their employees in cash to avoid tax charges.

Refund Fraud:

Most people are aware that filing fraudulent income tax returns can cause tax litigation. Those who engage in refund fraud do so to get an unearned tax refund.

As a result, this may lead to identity theft, fake deductions, exemptions, and false business expenses being reported.

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