Negligence vs Tax Fraud

Cheating on your taxes is a crime, but being found as filing taxes negligently is not a crime but considered a mistake. As many people know, lying on tax returns will land them in jail or having to pay hundreds of dollars in fines if they are caught by the IRS. Defrauding the IRS is a federal crime and can cause someone to spend anywhere from 5 to 20 years in prison for tax evasion. Lying to the IRS on a tax return happens not as often as many people would think. In recent years only a little over 2,000 Americans were convicted of lying on their tax return. That is .0022 percent of all taxpayers. This number is shockingly small since the IRS estimates that close to 17 percent of all Americans are not complying with tax laws in one way or another. This number does include taxpayers that make honest mistakes on their returns. The IRS claims that 75 percent of taxpayers cheating on their returns are individuals and not businesses. The worst offenders of tax fraud according to the IRS are doctors, handy people, and any business that is cash-intensive. The IRS also claims that waiters and waitresses underreport their tips by 84 percent. Cheating on taxes is a federal crime and it occurs quite easily. The easiest way to cheat on taxes is to underreport income for the previous year. The majority of businesses that underreport their income are self-employed restaurateurs, clothing store owners, and car dealerships.

If an auditor of the IRS catches a taxpayer cheating on their income tax return the lease he or she can do is impose fines and penalties. The worst he or she can do is refer the case to the IRS’s Criminal Investigation Division. If your case goes to the Criminal Investigation Division this is where you will receive the most problems. Once the investigation is complete and the IRS makes a judgment on your case you will be notified whether or not you lied on your return. If the IRS determines that you were negligent, made an honest mistake, you will not be sent to jail for tax fraud. If the IRS determines that you were negligent then you will be charged a 20 percent penalty on your tax bill which is different from the 75 percent that will be incurred on the bill if the IRS determines that you defrauded the return. Forms of fraud that the IRS auditor is trained to look for are:

• A business that has two sets of books or no books at all
• Freshly made false receipts
• Checks altered to increase deductions

Taxpayers need to be aware that the difference between negligence and fraud is great and that they are separate entities. Negligence is a mistake made, an honest mistake, on an income tax return. Fraud is the outright lying about income made in the previous year on an income e tax return. A handful of cases of tax fraud will be sent to tax courts across the country if the IRS wishes to prosecute the offender to the fullest extent of the law.