The IRS doesn’t take kindly to individuals and businesses that attempt to defraud the tax system. Just the same, they keep a close eye out for those who make mistakes on their tax return.
However, it’s critical to understand that income tax fraud is not the same as negligence. These are two entirely different things, with fraud much more serious than negligence.
Tax fraud is often the result of the following:
- Filing a false return with the IRS
- Making false claims
- Hiding income so that you owe less in taxes
- Willfully neglecting to pay your taxes
- Willfully neglecting to file a tax return
- Using a false Social Security number
With all of these, you are intentionally taking steps to defraud the IRS for your own gain.
What about negligence?
Negligence is not as serious as fraud, but that doesn’t mean it can’t affect you. The IRS has a strict tax code which it expects you to adhere to. Even so, they realize that mistakes can and do happen, all without fraudulent activity.
Here are some of the circumstances that fit within the category of negligence:
- Math mistakes
- Miscalculating a deduction or credit
- Taking advantage of a credit that you don’t qualify for
- Failure to complete all the required forms
- Entering your income on the wrong lines
- Incorrect declaration of exemptions
What happens next?
The answer to this question depends on whether the IRS is investigating you for fraud or simply auditing your return.
For example, if they spot an error with your math, you may receive a letter in the mail informing you of this. You can then make the necessary changes and refile your return. That should bring an end to the process.
Conversely, if the IRS opens a criminal investigation as a result of alleged violations of the tax code, the process is much more detailed. Depending on what they find, consequences can range from fines as high as $500,000 to imprisonment.
If the IRS reaches out to you for any reason, take the time to fully understand the circumstances of their request. This will help you decide what to do next and how to protect your legal rights as a taxpayer.