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Differentiating between tax evasion and negligence

According to some estimates, individual taxpayers commit more tax fraud than corporations. The IRS estimates show non-conformance of the tax code by taxpayers. Not all violations can be associated with tax fraud. To understand this, one needs to understand the difference between tax fraud and negligence.

The term income tax fraud indicates an attempt to deliberately avoid tax or defraud the IRS in the following manner:

  • Deliberately fails to pay taxes.
  • Makes deceitful or untrue claims.
  • Deliberately fails to file an income tax return.
  • Intentionally does not report all received income.

The rules and regulations mentioned in the tax code are difficult to interpret. In case a blunder is made while filing, the IRS might consider it as an honest mistake. This can be attributed to negligence. Still, the taxpayer might have to pay a fine of 20% of the underpayment. The IRS might look for the following signs:

  • Fabricated documents.
  • Exaggeration of deductions and exemptions.
  • Concealment or transfer of income.
  • Having multiple financial ledgers.
  • Fake social security number.

The tax system assumes that taxpayers will stay in compliance with tax laws and report their incomes accurately. The IRS discourages these violations by penalties.

In an effort to evade taxes you might have to face jail time of up to 5 years. In other cases, you may incur hefty fines. If a fake statement is caught, you might be facing up to 3 years in prison. Deliberate failure to file taxes and show profits can also result in a conviction. Although the punishment is less severe, and you could still face up to one year in prison.  The fine for this mistake is much lower compared to more serious offenses. In some cases, you may be given both penalties plus the cost of prosecution.

Being accused of tax evasion might get you in heaps of trouble that may be difficult to get out of. It is advisable to contact an attorney as soon as possible. An experienced attorney could help you stay out of trouble and fight the charges.

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