negligence vs tax fraud

Negligence Vs Tax Fraud: How the IRS Tells the Difference

IRS

The IRS has the challenging task of monitoring taxpayers, auditing tax returns, and detecting when someone has committed tax fraud or another type of tax offense. Each year, the IRS detects millions of dollars in fraudulent activity through its audit programs. 

But how does the IRS know when someone is committing fraud versus simply making an honest mistake? Tax fraud is a criminal act; a deliberate attempt to evade taxes that is considered corrupt and dishonest. Negligence, on the other hand, suggests that you made an error or simply overlooked something when you filed your taxes. 

Both are serious offenses with serious consequences if found guilty by the IRS. The key difference between these two offenses is negligence vs willful intent. To understand this better, let’s take a look at each one individually and see how you can protect yourself from either:

Negligence

Taxpayers can be negligent when they fail to report income, file a tax return, or claim a tax credit or deduction. When it comes to negligence and taxes, the IRS can only penalize you if they can prove that you were aware of the error and simply chose to ignore it. 

A good example of negligence is failing to report income. When you work, you are paid a certain amount, but a large portion is withheld for taxes. If you fail to report the amount you earned, you fail to submit the taxes withheld. 

Another example of negligence is failing to file a tax return. When you have a certain level of income, you are required to file a tax return by a certain date each year. If you fail to file, you are committing tax negligence.

Tax Fraud

Tax fraud is a deliberate attempt to evade taxes. The person committing the fraud may distort the truth in order to get a larger refund or fail to report taxable income. 

Because the person committing tax fraud is willfully attempting to deceive the IRS, they could face severe penalties. Tax fraud can include:

  • Underreporting or omitting income or expenses
  • Claiming false deductions or credits
  • Filing multiple false tax returns
  • Hiding income in offshore accounts 

When the IRS discovers tax fraud, they will attempt to correct your taxes and charge you severe penalties. Depending on the severity of the fraud and the amount of money involved, you could face jail time.

IRS Warnings for Tax Fraud and Negligence

The IRS has specific criteria when it comes to determining if someone committed fraud versus negligence. If the IRS believes you committed fraud, they will send you a letter informing you of their suspicions. 

If the IRS suspects you’ve overextended a deduction, taken an excessive amount of credits, or failed to report income, you will receive a bill for taxes and fines. 

But if the IRS suspects that you simply failed to report the correct information on your tax return due to negligence, such as failing to report income, mischaracterizing your spouse’s income, or failing to take an appropriate tax credit, you will not receive a letter. 

Instead, the information will be sent to an auditor for review. The IRS uses computer algorithms to detect suspicious or incorrect tax returns. As soon as you file your taxes, the computer will begin scanning your tax return to identify any errors. 

If the computer detects an error, it will send your return to an IRS auditor for further investigation.

Penalties for Tax Fraud

If you are found guilty of committing tax fraud, you will likely face severe penalties. The IRS will attempt to correct your taxes and impose fines and interest on the corrected amount. 

Depending on the severity of the fraud and the amount of money involved, you may face jail time. If you are convicted of tax evasion or fraud, you will be barred from receiving government benefits such as student loans or government housing. 

You may also be barred from running for public office. If you are caught filing fraudulent tax returns, you could face felony charges and go to jail. The IRS may also seize your assets and put a lien on your property.

Penalties for Negligence

If the IRS determines that you are guilty of negligence, they will simply correct your tax return. The IRS will send you a letter informing you that you failed to report income or take a credit that you were entitled to. 

The IRS will not impose fines or penalties for negligence since you did not willfully intend to make an error on your tax return. If you are audited for negligence, you may face the risk of your tax return being corrected. 

If the auditor finds that you are entitled to a larger credit or deduction, you’ll receive a larger refund in the future. On the other hand, if the auditor discovers that you owe more money, you will receive a smaller refund or a bill for the difference.

Bottom Line

Tax fraud and negligence are two very different things. Tax fraud is a deliberate attempt to evade taxes, while negligence simply means that you made an error while filing your taxes. 

If the IRS suspects that you committed fraud, they will send you a letter informing you of their suspicions. On the other hand, if the IRS suspects that you are guilty of negligence, they will simply correct your return.

If the IRS suspects that you committed fraud, they will send you a letter informing you of their suspicions. On the other hand, if the IRS suspects that you are guilty of negligence, they will simply correct your return.

Call IRS Tax Attorney Mary King Today

IRS tax attorney Mary E. King is your expert source for tax-related matters. Mary has more than 30 years experience in dealing with the IRS and is your best choice for tax advice and legal counsel.

Do not attempt to handle the IRS on your own. Mary and her team will provide you with the legal representation that you need to get the best possible outcome. Below is our contact information. You can reach us by using the most convenient method for you.

Phone: 941-906-7585 

Online: Contact form

The information in this blog post is for reference only and not legal advice. As such, you should not decide whether to contact a lawyer based on the information in this blog post. Moreover, there is no lawyer-client relationship resulting from this blog post, nor should any such relationship be implied. If you need legal counsel, please consult a lawyer licensed to practice in your jurisdiction.

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