Negligence Vs. Tax Fraud: How are they Different?

Cheating on your taxes is a punishable offence. However, there a few people who restore to fraudulent measures to evade taxes. Although the number of convictions for tax-related crimes and Americans convicted for tax fraud is small, it is still an ever prevailing issue. The Internal Revenue Service is tasked with administering federal tax laws enacted by the government and overseeing tax collection. One of the most significant roles of the IRS is conducting criminal investigations on taxpayers who cheat on their taxes. According to a report by the IRS, middle-income earning individual taxpayers commit 75% of tax cheating. The rest is done by big corporations. The best way to legitimately save on your taxes is to consult a tax law firm Virginia Beach.

So, how does the IRS differentiates between tax fraud and negligence? Let’s find out the answer here. 

How People Cheat on Their Taxes

The most common form of tax cheating is underreporting of income. According to a study commissioned by the government, self-employed professionals like restaurateurs, automobile dealers, cloth store owners top the list of taxpayers who underreport their income. Salespeople and telemarketers are next in the line. After them, doctors, accountants, lawyers, and hairdressers are the ones who cheat on their taxes.

Besides underreporting income, some people over-deduct their business-related expenses to save tax bills. However, according to the IRS, only 6.8% of tax deductions are overstated or phony.

If the IRS catches a person cheating taxes, they can slap penalties and civil fines on the offender. If the offense is severe, the IRS may forward the case to its criminal investigation department.

Where is the Line between Fraud and Negligence?

Tax fraud is an act of willfully and intentionally falsifying tax return information or misrepresenting tax data. A business or an individual may choose to hide some tax and income information to reduce their tax liabilities. Tax fraud may entail cheating on a tax return, claiming false tax deductions, showing personal expenses as business expenses, underreporting or not reporting income, or using forged social security numbers. These measures are used so that a person or business can avoid paying their taxes.

IRS auditors have sharp eyes and senses to track tax fraud. However, not all tax defaulters are tracked down by the auditors. Many tax defaulters don’t come under the radar of the IRS. Since tax law is complex and keeps changing, auditors expect to see mistakes and errors in the tax returns. If a taxpayer has mistakenly omitted information or missed out on specific points, the auditors will not waste their time going after such individuals.

Auditors are trained to look beyond the numbers and data given by the taxpayers. They can detect common wrongdoings like false receipts, altered deductions, claiming tax exemptions for a nonexistent dependent, two sets of bookkeeping, etc. 

However, an honest mistake on your tax return may add a 20% fine to your tax bill. But compared to the penalty for tax fraud, which is at 75%, it is still less. Thus, one must consult an IRS Lawyer Virginia Beach when dealing with tax fraud cases.

While someone is less likely to be convicted for a tax crime, one must be careful not to attract such charges on themselves.…