2024 What Is Tax Fraud? Types, Penalties, and Examples

When preparing taxes, many people may ask, “What is tax fraud?” The concept seems straightforward: anyone who illegally shirks their tax liability or otherwise abuses the tax system for their own gain is committing tax fraud.

However, when you consider the range of different taxes, tax systems, and tax-levying bodies at different levels of government, it can be difficult to envision just what tax fraud looks like in a practical sense. This is because “tax fraud” can be seen as a category of crime more than a specific criminal act that looks exactly the same in every instance.

What Is Tax Fraud?

Speaking broadly, tax fraud is a serious criminal offense, often prosecuted on the federal level, which involves intentionally deceiving the IRS, or other government officials, to avoid paying taxes or erroneously inflate tax credits. Other common forms of tax fraud involve preying on individuals to intercept their tax refunds. Conviction for this crime can carry severe consequences, like financial restitution or even imprisonment, not to mention the indirect harm to your reputation and personal life.

Gaining a better understanding of tax fraud and its various forms can help you avoid falling into legal trouble. It can also help you know when to recognize when you need to reach out to a qualified tax fraud defense attorney. It is useful to review several types of tax fraud, with practical examples, as well as examine some of the potential penalties after a tax fraud conviction.

Types of Tax Fraud

Tax fraud can come in many different forms. The common denominator is that they all involve deception and an attempt to abuse the tax system for one’s own personal gain. Some common ways that tax fraud can manifest in the real world include:

• Underreported Income – Simply failing to report all the income you have earned is one of the simplest and most common ways to try to illegally reduce tax liability. This could involve leaving “under-the-table” cash payments off a tax return, failing to disclose investments, or “fudging the numbers” in other ways to lower the tax burden of an individual or business enterprise.
• Claiming Fraudulent Deductions – Listing non-existent or inflated deductions on a tax return is another way to quickly and artificially reduce someone’s total tax burden. While this may seem like an easy way to cut costs at the time, this practice can cause major problems, and criminal liability, if the IRS decides that a closer look is in order.
• Falsifying Documents – Individuals and businesses may find any number of other ways to use falsified documents or records to reduce tax burdens. Any misrepresentation of financial information intended to illegally shirk taxes constitutes tax fraud, whether it happens directly within a tax return or stems from some other key document.
• Concealing Assets – Hiding taxable assets in non-taxable instruments or offshore accounts is a common form of tax evasion that can lead to serious consequences for those who are caught and convicted.
• Using False Identifying Information – Using a fraudulent Social Security number to access someone else’s tax refund, for example, is another form of tax fraud that is increasingly prevalent in our society.

Examples of Tax Fraud

Here are some broad examples of what tax fraud and the ensuing legal battles can look like in the real world:

Corporate Tax Fraud

Tax fraud cases are not always a matter of the government going after a single wrongdoing individual. Some of the largest and most well-known tax fraud cases involve entire corporations. These cases often require a long process. Which includes hearing testimony from company personnel and outside auditors, before matters are resolved. In one of the most ubiquitous corporate scandals in United States history, the company Enron manipulated its financial records to evade taxes.

Fictitious Deductions

Sometimes, a fraudulent tax return is part of a larger scheme for an individual to portray themselves a certain way, such as wealthier, poorer, or, in this case, more charitable than they actually are. Fictional charity payments can be easily added to a tax return, instantly (and illegally) lowering tax liability, but the penalties for getting caught are substantial.

Fraudulent Credits and Refunds

Some individuals don’t use their own returns to commit fraud. Instead, they will fraudulently steal other people’s identities to file fraudulent tax returns on their behalf, maximizing credits and deductions and then redirecting the ensuing refunds to their own accounts.

These cases often begin with email phishing schemes, phone calls impersonating IRS agents, or someone receiving an unexpected notice that their tax return has already been filed. (If the latter happens to you, it is advisable to notify the IRS immediately for assistance.)

Penalties for Tax Fraud

The consequences of a tax fraud conviction can be substantial and are usually commensurate with the severity of the offense. Some of the punishments you can face if convicted of tax fraud on the federal level include:

• Restitution of up to 75% of the amount of unpaid taxes, plus repaying the owed amount in full, with additional fines possible
• Interest charges on unpaid taxes, accruing from the date they would have originally been due
• Denial of future tax benefits (e.g., deductions, credits, and special tax programs)
• Imprisonment for up to 5 years for each offense, depending on the nature of the fraud and the judge’s discretion
• Loss of professional licenses, particularly for individuals employed in the legal, financial, or accounting sectors

In addition to these formal penalties levied by the government, it’s also important to consider the indirect damage that a tax evasion conviction can do to your personal relationships, career path, and overall reputation.

FAQs

What Is Tax Fraud, and What Are Some Examples of This Offense?

Tax fraud is the act of falsifying a tax return or another official tax instrument for one’s own financial gain, such as by adding deductions or hiding income on a tax return, to minimize liability or maximize a refund. Some common examples of tax fraud include corporate tax fraud, false deductions, and hiding assets.

How Do You Determine Tax Fraud?

Tax fraud is determined through the presentation of evidence and arguments in a court of law. This is much like any other criminal charge. However, cases of tax fraud usually involve a thorough investigation by the IRS (Internal Revenue Service), which is the government agency responsible for administrating and collecting federal income taxes. This process typically includes a detail-oriented audit of financial records and gathering testimony from relevant parties.

What Happens If You Suspect That Tax Fraud Is Occurring?

If you suspect that tax fraud may be occurring and wish to report it, you can contact the IRS directly. It has a website set up with information for individuals who wish to blow the whistle on suspected tax fraud activities. If you’re unsure how to proceed, or you are not ready to go to the IRS, it’s recommended to discuss your situation with a qualified tax fraud attorney, like the one at The Law Offices of Richard Kuniansky.

How Much Do You Have to Owe the IRS Before You Go to Jail?

You do not have to owe the IRS any specific amount to face penalties, including incarceration, upon conviction for tax fraud. The exact penalties for a tax fraud conviction will be based on the unique circumstances of each case. How much money you owe is indeed one of the most important factors, but other elements, such as any prior history of financial crimes and the quality of your criminal defense strategy, will also have a role in whether you face jail time.

The Law Offices of Richard Kuniansky – Swift, Effective Assistance for Tax Fraud Cases

If you’re facing federal tax fraud charges in the state of Texas, the criminal defense team at The Law Offices of Richard Kuniansky is standing by to help. Contact us today to get started with a totally confidential and judgment-free consultation.