Tax fraud occurs when a business or individual willfully and intentionally provides false information on their tax return in order to reduce their federal tax obligations.
In other words, tax fraud is cheating and/or lying on your tax return in order to eliminate or substantially reduce the amount of tax you are required to pay.
This is usually done in one of two ways, either by understating your income or overstating your expenses, both of which result in an incorrect calculation of taxable income and therefore an incorrect calculation of tax due.
For example, if a business owner were to purposefully state on their tax return that their insurance expense, rent expense, costs of goods, materials expense, supplies expense, wage expense, etc., is more than what they actually paid, this would result in a decreased taxable income and decreased tax due. This business owner would have committed tax fraud.
Tax fraud carries a hefty 75% penalty, may be criminal in nature, and may carry a 5-year federal prison sentence for each count, plus thousands of dollars in fines.
On the other hand, a mistake on your tax return is not tax fraud. For example, if a bookkeeper were to accidentally transpose numbers while entering them in the books, which results in a reduced calculation of taxable income and tax, this would be a mistake and is not tax fraud. However, a mistake is subject to a 20% accuracy related penalty.
If you are being audited by the IRS, or if you are being investigated by the U.S. Department of Justice on suspicions of tax fraud, or if you have been indicted on allegations of tax fraud, be sure to contact the Law Office of Casais and Prias. We can help you develop a legal defense and reduce your exposure and liability.