Income Tax Fraud vs. Income Tax Negligence

The are only about 0.022 percent of the tax payers that undergo tax crime convictions. However, the IRS estimates that out of the 0.022%, 17% of it fails to comply with the tax code. The tax payers commit the highest tax fraud thus the question is that are all tax code fraud? For all that matters, there are also a large number of taxpayers who neglect their obligations.

Here are some of the definitions in which the IRS attempts to identify between negligence and fraud.

Defining Income Tax Fraud

The income tax fraud is a willful attempt to get away from paying tax. This often occurs when a particular person or a business entity does the following things:

– Intentionally not filing an income tax return
– Not paying taxes that are over due
– Not reporting all the income that received
– Making fraud of false claims
– Preparing and filing for a false income tax return

Determining the boundary of negligence and income tax fraud

The IRS knows that the tax code is comprised of complex regulations and rules that are difficult for a lot of people to understand. Once there are errors but the signs of fraudulence is absent, then the IRS will only assume that you have made an honest mistake thus you are not subjected to tax fraud. The tax auditor considers it a mistake if the mistake is attributed to negligence on the part of the tax payer. Even though it is unintentional, the IRS can fine the tax payer with penalty that which is about 20 percent of the underpayment.

Here are the things that IRS distinguishes the tax return error as a result of negligence.

– Stating too much deductions as well as exemptions
– Providing false documents
– Hiding your true income
– Keeping multiple financial ledgers
– Making false claims of personal expenses as part of business expenses
– Using erroneous Social Security Number
– Claiming exemption for a dependent that do not exist
– Underreporting an income

Who Commits Fraud?

There are a lot of tax payers that exist in the United States of America but who are liable to commit fraud? It has been found out that service workers who are paid in cash as well as self-employed individuals commit fraud since they easily underreport their earnings. Moreover, the restaurant as well as retail store owners, doctors, accountants and even hair dressers are professions that commit a lot of tax fraud.

The Income Tax Fraud And The Criminal Investigation Of IRS

The IRS usually conducts investigation on reported violations of the income tax return by means of the IRS Criminal Investigation. This is the law enforcing branch of the agency wherein several CI agents investigate crimes like money laundering, tax evasion and others. The investigators are well-adept in using sophisticated methods in order to divulge computer information from the tax payers.

Since the tax system relies on the compliance of the tax payer, the IRS usually discourages publicizing convictions against the taxpayer such as imprisonment to the offenders and giving other inhumane penalties.

What Are The Penalties Of Tax Fraud?

A taxpayer who commits tax fraud face civil penalties and thus there are penalties that are incurred to the erring taxpayers. Here are the examples of the punishments of tax fraud:

Evading or defeating tax payments: Once convicted, the taxpayer is guilty of felony and will be subjected to other penalties that are allowed by the law which include the imprisonment of a maximum of 5 years and a fine of $250,000 for individual taxpayers while a total of $500,000 fine for corporations. On the other hand, some tax payers are required to pay both penalties and the cost of the prosecution (26 USC § 7201).

Making fraud statements: Once convicted, the taxpayer is guilty of felony and will be subjected to other penalties that are allowed by the law which include the imprisonment of a maximum of 3 years and a fine of $250,000 for individual taxpayers while a total of $500,000 fine for corporations. On the other hand, some tax payers are required to pay both penalties and the cost of the prosecution (26 USC § 7206(1)).

Intentional failure to file for return or supply the necessary information required by the law: This particular penalty encompasses the failure to pay the estimated tax as well as the failure to make the return. Once convicted, the taxpayer is guilty of felony and will be subjected to other penalties that are allowed by the law which include the imprisonment of a maximum of 1 years and a fine of $250,000 for individual taxpayers while a total of $500,000 fine for corporations. On the other hand, some tax payers are required to pay both penalties and the cost of the prosecution (26 USC § 7203).

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