A letter from the Internal Revenue Service might come in the mail one day, and a California taxpayer could feel upset that the agency proposes an additional tax assessment. Perhaps the IRS intends to disallow a deduction or discovered underreported income. Many times, disputes with the IRS end with the taxpayer making payments and little else. However, there are other situations where someone faces tax fraud charges.
Dealing with claims of tax fraud
Tax fraud involves an attempt to lower tax liability due to intentionally and deliberately providing false information. Sometimes, a person could make an honest mistake that erroneously reduces tax obligations. However, an “honest mistake” is not the same thing as deliberate fraud.
For example, someone may earn $1,000 performing rideshare work in January. When tax time comes on April 15 of the next year, the taxpayer may forget about the money earned. The IRS could later attempt to collect the debt when 1099s reveal underreported income. The taxpayer may face an additional assessment, interest, and penalties for the error.
Someone who deliberately underreported $100,000 in cash income each year for five years would likely cross a line into tax fraud. If the same person attempted to take false business deductions to further lower tax liability, expect the person to get into worse trouble.
Addressing criminal tax fraud penalties
A taxpayer might fall behind on filing returns and fail to pay his or her taxes. The IRS could pursue tax fraud or evasion charges, but criminal defense investigations could reveal proof that the taxpayer relied on wrong advice from the tax office. Such a revelation could complicate a prosecutor’s case.
If a taxpayer did not willfully or intentionally attempt to cheat the IRS, they might not be guilty of tax fraud. As with other criminal charges, the prosecutor must prove tax fraud beyond a reasonable doubt.