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Image of Federal PenitentiaryAre you Looking at Tax Mistake, Tax Fraud or Tax Evasion?

Tax Fraud ? In most tax audits the IRS is only interested in collecting the taxes owed, plus interest along with penalties. Generally, the typical worse case is that the IRS might impose a negligence penalty or a late filing penalty. If, however, during a tax audit, the IRS suspects that you have committed tax fraud or willful tax evasion, they can impose a civil tax fraud penalty. The civil tax fraud penalty is equal to 75% of the tax owed, plus interest on the penalty.

It can get worse though. The IRS tax auditor might then request that the tax fraud specialist to look at your case to see if it should be sent to the IRS Criminal Investigation unit for criminal tax prosecution.

Tax crimes include the filing of one or more false tax returns, actual tax evasion, or the filing of false documents; failure to collect employment taxes, failure to pay taxes, or simple failure to file a tax return. The penalties for criminal tax fraud are both significant and serious. Charges range up to 5 years in jail, plus fines of up to $500,000, plus the costs of prosecution for each tax crime.

So what is the Difference Between Fraud and Mistake?

Generally speaking, tax fraud or tax evasion involves an intentional wrongdoing on the part of the taxpayer.

We can all agree that U.S. taxes are complex and confusing. And while anyone can make an argument that anything reported (or not reported) on an individual’s or business entities’ tax return can be considered an innocent mistake, the tax law is actually quite clear.

The STATUTORY LANGUAGE of 26 U.S.C. § 7203 (tax law) draws a clear line between non-willful and willful. Willfully evading of federal income taxes is a felony. “Willful” usually means voluntary or with intent. You are willful if you intentionally violate a legal duty of which you are aware. What the IRS calls ‘willful’ can be difficult to predict. Ignorant? Even if a taxpayer is “ignorant,” the IRS can choose to say you are guilty of willful blindness in those areas where you are ignorant. You should hire a tax professional, CPA or tax attorney to guide you through complex tax return issues where you are ignorant.

Mistakes or Carelessness is NOT Tax Fraud

Simple mistakes or carelessness is not tax fraud. The IRS has rules for determining whether tax fraud has been committed by looking for prior evidence of tax fraud such as:

  • failure to file tax returns
  • concealment of assets
  • operating only in cash
  • engaging in illegal activities
  • hiding income
  • understatements of income
  • inadequate records
  • implausible explanations of behavior
  • failure to cooperate with tax authorities

If you have any of these tax serious problems and you are about to be audited by the IRS or currently undergoing an audit you really should consult with a tax fraud attorney. Comments and actions you take during the course of your tax audit can turn an “ordinary and routine” tax audit into a messy and complicated tax fraud case.

Meet Paul Raymond

Meet Paul Raymond

Mr. Raymond is a sought after speaker in tax controversy law by many attorney, accountant, and business groups and at the request of the Internal Revenue Service, has presented programs at the IRS Nationwide Tax Forum, attended by tax professionals throughout the United States.

Additionally, he continues to be an active member in the Section of Taxation, American Bar Association, where he was the Past Chair of the Employment Taxes Committee.

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Member CA Bar Member Orange County Bar US Tax Court Attorney