Income Tax: Fraud vs. Negligence

Disclaimer: The contents of this article have been written to provide general information about the difference between tax fraud and tax negligence. If you want to get an in-depth understanding of the subject matter, do contact a licensed tax attorney in your state.

Did you know that payment of taxes is a social obligation that each citizen must comply with for the betterment of their state? It’s true because taxes are considered lifeblood of the government – and cheating on your taxes, on the other hand, is a criminal act punishable under the law. If you’re dishonest about your income taxes, the auditor might charge you with fraud or negligence. Below are some things and ways to remember in distinguishing tax fraud from tax negligence.

Tax Fraud And How It’s Being Committed

Although income tax fraud and income tax negligence can result in excessive fines and penalties, both concepts do not operate in the same manner.

  • When we’re talking about tax fraud, the Internal Revenue Service defines it as intentional wrongdoing on the part of the taxpayer to avoid the payment of the entire tax obligation.
  • In other words, for tax fraud to be committed, the intention to defraud the tax law must be deliberate on the part of the taxpayer. That’s why it can’t be considered as a careless mistake on your tax return.
  • In most cases, you can be found guilty of tax fraud if you willfully commit the following acts:
    • You failed to pay your overdue taxes.
    • You file a fraudulent income tax return.
    • You intentionally did not file your income tax return which has already become due and demandable.
    • You intentionally underreport the income that you receive.
    • You make fraudulent claims.
  • While there is a significant number of taxpayers in the U.S., it has been reported that self-employed people, workers who are paid in cash and owners of retail and restaurant stores are the ones who who can be held liable for tax fraud. It’s because these individuals easily understate their income on their tax returns. When it comes to professions, the commission of tax fraud is typical to accountants, doctors, and hairdressers because they receive higher earnings than other professionals in the industry.
  • In tax fraud cases, the auditor can determine through sophisticated ways as to whether you’ve committed tax fraud or not. Take note that the Internal Revenue Service investigates to identify fraudulent acts by several taxpayers through IRS Criminal Investigation.
  • In fact, the IRS investigators are knowledgeable and trained in applying effective methods to discover information from taxpayers. They are even well-equipped in spotting common types of tax wrongdoings. For that reason alone, you’ll never escape from tax authorities if you intend to evade your state’s tax laws.
  • Keep in mind that committing tax fraud involves complex and time-consuming criminal prosecutions which you have to deal with when you’re charged with tax fraud. The publicity of prison sentences, and the massive fines and penalties are always in place to ensure taxpayers’ compliance with tax rules and regulations at all times.

Tax Negligence And How It’s Being Done

You have to remember that tax laws consist of complicated rules and regulations which most of the people don’t easily understand. Dealing with tax obligations might be challenging, and any error found on your tax return might cause you trouble in the long run.

  • However, keep in mind that errors without any sign of fraudulence can only be considered as tax negligence. Tax negligence is defined by the Internal Revenue Service as the careless disregard for the tax rules and regulations. In other words, the taxpayer’s conduct is not tantamount to fraud, but it’s only a product of negligence thus you can’t be charged with tax fraud.
  • To know whether a tax return error is a result of negligence, here are the things you have to consider:
    • You understate or hide your real and actual income.
    • You use a false Social Security Number.
    • You keep numerous financial journals.
    • You provide fabricated documents.
    • You make wrong claims of personal expenses and make it appear that it’s part of the business expenditures.
    • You overstate deductions.
    • You make a false exemption for a dependent who doesn’t exist.
  • Keep in mind that being subjected to tax negligence might mean that you’ve made a tax return error unintentionally and it’s not something that you willfully do to deceive IRS and your tax laws.
  • If you’ve been charged with tax negligence, the Internal Revenue Service will not bring up the case for a criminal investigation. In other words, the IRS investigators are not required to check and divulge any information concerning your income tax returns.

If you’re facing a tax crime nowadays, it’s essential that you’re familiar with how tax fraud differs from tax negligence. While there’s always a possibility of you being charged with tax fraud or tax negligence, it’s best if you hire a tax attorney in your state. Getting the services of an experienced lawyer can help you defend yourself in stressful tax cases.

Anne McGee

Anne McGee has over 20 years of experience writing about law subjects where she hopes her knowledge can help the common reader understand law topics that may be of relevance to their daily lives. If she’s not reading a good book, then chances are Anne is jogging during her free time.