Many people are audited by the IRS for suspected tax fraud each year. Auditors are well trained and know exactly what to look for. There is a big difference between willful acts of fraud and honest mistakes. Tax law is complicated and auditors expect to find an error or two in almost every tax return, most of the time they will give you the benefit of the doubt, but if you have been accused of tax fraud this can be a very stressful experience.
Common Types of Tax Fraud
Some of the most common types of tax fraud offenses include:
Tax refund fraud: this occurs when someone fills out a tax return with inaccurate information and requests a refund from the IRS.
Child tax credit fraud: this occurs when married couples both file as head of household and split qualifying children between them to claim more earned income tax credit.
Tax preparer fraud: usually this takes the form of claims for improper deductions, inaccurate business losses, and excessive expenses.
Corporate tax fraud: this type of fraud takes many different forms including failure to report income earned in exchange for stock, inflation of losses and overstated deductions.
Employer tax fraud: this includes falsifying payroll tax returns and paying employees with cash.
What to Do If you Have Been Accused of Tax Fraud
Here are some tips to help you in this circumstance.
Retain legal help: Although many people are found guilty of tax fraud each year, others are wrongfully subjected to invasive IRS investigations, which sometimes may lead to wrongful allegations of fraud. If you’ve been charged with tax fraud, you should retain a tax fraud attorney as soon as possible. Always hire a specialist tax fraud attorney. In this case, not just any attorney will suffice. You need one that is expert in this type of law.
Do not talk to Federal agents: If Federal agents show up at your place of business, you are not required to talk to them. The responsibility is upon the IRS to prove beyond a reasonable doubt that you knew that your tax return understated your tax. All communication with Federal agents should be done through your counsel.
Don’t ignore the problem: Talk to your attorney, don’t just ignore the problem it will not go away.
Stay calm: Because tax laws are complicated, the IRS has a heavy burden in trying to prove you have purposefully understated your tax.
Don’t destroy or alter records: under no circumstances should you attempt to alter or destroy any of your financial records. This will only worsen your situation. This applies to both paper and electronic documents.
Always tell the truth: do not lie to your attorney or to investigators. Lying, avoiding answering questions and giving evasive answers will immediately indicate to investigators that you are trying to hide fraudulent activity. Do not speak to investigators without the presence of your attorney.
Think about making a voluntary disclosure: If it is clear that your tax was underreported, you should consider making a voluntary disclosure as soon as possible. The IRS will only consider a voluntary disclosure prior to them opening an official investigation into your tax returns.
The Difference Between Tax Fraud and Tax Negligence
Tax negligence is the lesser of the two offenses. It refers to acts of carelessness and accidental errors made on your tax return. If you are faced with allegations of negligence, you may face a fine of 20 percent of the amount you underpaid. This is much more desirable than the penalty for tax fraud which can amount to hefty fines and time in prison.
Your Federal income tax is due on April 15. You can get an automatic extension to delay the due date until October 15th. This does not extend the due date for paying your taxes. If you fail to file you will not get arrested but your situation will worsen over time. It is better to file and not pay than not to file at all as the penalties are less. When you fail to file, the IRS may file a substitute return for you. When the IRS calculates your income it will not give you credit for any deductions or exemptions you may be entitled to.
You should never take an accusation of tax fraud lightly. If the IRS has contacted you, or you have been charged with a tax fraud crime, you should speak to a tax fraud attorney straight away.
Alfie Mitchell works as an accountant for small/medium sized business owners and takes to the web to share his top tax tips each year.