Avoiding Tax Fraud, Tax Evasion and Everything In-Between

You no doubt understand the basics when it comes to tax filing. In fact, you may fancy yourself experienced enough to file error-free each tax season. But there are some aspects to handling your taxes that you might not even consider as potential problems – until you're notified by the IRS. No matter how savvy you perceive your tax skill set to be, it never hurts to review some avoidable errors. After all, what you deem a simple mistake the IRS may classify as tax evasion, or even fraud.

A Debatable Distinction

So you know not to run afoul of the IRS, but the difference between negligence and willful intent can come down to a matter of perception. As such, it's essential to understand that tax evasion indicates that you intentionally (or, perhaps, unintentionally) avoided filing and/or paying taxes. Tax fraud, on the other hand, denotes a more insidious endeavor: cheating the government for financial gain by falsifying tax information.

The bad news is that you can be subject to severe penalties in either case, including legal prosecution and time behind bars. Given the surge in instances of tax fraud over recent years, the IRS is becoming increasingly intolerant of scammers and cheats. And while you would likely never engage in an underhanded enterprise against the government, you might want to consider some ill-advised scenarios:

  • Phantom Claims – Make sure that the number of dependents you claim matches those you actually care for. Similarly, attempt to claim non-existent dependents at your own peril. Trying to pad your wallet this way can lead to an audit or worse.
  • Erroneous Deductions – Another area to beware are deductions, particularly if you itemize. While it's important to take legitimate deductions to offset any potential liability, make sure you can verify each one. Documentation is critical in the event that the IRS decides to examine your deductions more closely. And make sure anything you write off is going to pass muster. Deductions for your vacation or entertainment expenses aren't going to fly.
  • Counterfeit Returns – An obvious tax mistake you want to avoid is filing a false return. This can include filing on behalf of another person or attempting to file more than one return. As badly as you may need a little extra cash, the reality is that sending in a fraudulent return can lead to costly legal trouble. If you're caught, you could face jail time.
  • Filing Neglect – As much as you may dislike filing and paying taxes on time, opting out can trigger back taxes, as well as penalties and interest. If it becomes a pattern, the IRS may perceive your choice as tax evasion which, again, can lead to criminal prosecution. Simply having a tax debt can be problematic, but failing to file leaves you vulnerable to a whole other level of trouble.

Resolving an Issue

Regardless of the type of IRS issue you're grappling with, a smart move is to enlist a licensed tax professional. No matter how much debt you have or how aggressive the collection action, accepting assistance from a seasoned professional can support the perception that you're working to resolve the issue. And as long as you make smart, well-informed decisions when it comes to your filing habits, there's no IRS problem that can't be handled.

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