Preparing taxes and filing tax returns can be an overwhelming experience. Whether you are running a business or a salaried professional, your priority should be to avoid any mistakes when filing the tax return. Since any error or omissions can lead to tax fraud, tax law firm Virginia Beach recommends hiring a professional tax specialist.
Tax fraud is a serious federal offense and can land one behind bars. Internal Revenue Service keeps an eye on every individual taxpayer and business. If they detect any discrepancies in the income and tax returns, they will take legal actions against the perpetrator. Committing a tax fraud can result in civil and criminal lawsuits. One can either get fined or penalized according to the fraud committed.
In this blog, we will look into what Tax Fraud is and what its consequences are.
Understanding Tax Fraud
When an individual, company, or business uses any method to evade the government’s taxes intentionally, it’s considered tax fraud. Such strategies include misrepresentation of the income, under-declaring profits, hiding income, or overstating tax deductions. Tax fraud is different from tax avoidance as in the latter case; one makes the lawful use of tax code to minimize the tax liabilities.
However, simple mistakes or unintentional omission of income is not considered tax fraud. To be considered civilly or criminally liable, the taxpayer must have intentionally defrauded the IRS. Establishing direct intent to defraud the IRS is often challenging since finding evidence is not easy. IRS and their investigators search for badges of fraud to determine whether the taxpayer has intentionally evaded the tax liabilities.
There are times when government officials misinterpret the smallest mistakes as tax fraud. Thus, if you or someone you know is facing tax fraud charges, you must hire an sales tax Virginia Beach professional.
Badges of fraud include the following things:
- Understating the income
- Stating Improper or fictitious tax deductions
- Irregularities in accounting
- Actions that determine intentions to evade taxes
- History of under-reporting of income
- Hiding assets
- Discrepancies in records
- Failing to cooperate with IRS examiner
- Not filing tax returns
- Cash dealings
Individuals, companies, and corporations facing tax fraud charges can be penalized for either civil or criminal offenses. A taxpayer may be subjected to both criminal and civil investigation. Such a situation is referred to as parallel investigation.
Civil IRS Investigations of Tax Fraud
The IRS will set up a civil investigation on a taxpayer if the facts of the case indicate fraud has been committed. To impose civil penalties, the IRS must have convincing evidence to prove that the taxpayer has engaged in tax fraud.
Criminal IRS Investigations of Tax Fraud
The tax fraud case is passed on to the Internal Revenue Service Criminal Investigation Division when the tax matter escalates into potential criminal misconduct. The Criminal Investigation Division of IRS is tasked to investigate alleged taxpayers who have violated IRS code and Bank Secrecy Act.
The auditor revenue officer who believes that an individual has committed tax fraud initiates the criminal IRS investigation.…