IRS Tax Fraud: Types & Penalties for Income Tax Fraud

tax fraud Tax fraud is considered any disregard of the rules and regulations set forth by the Internal Revenue Service (IRS). Tax fraud is investigated and handled on a case by case basis when there is reason to believe that the there is a lack of compliance with the rules of the IRS. There are many forms of fraud; from purposely failing to file to hiding income. In circumstances of fraud the maximum penalties are applied for each specific instance.

Types of Tax Fraud

Fraud is either reported or discovered through an IRS audit. Either way, fraud is considered a violation and is subject to penalty if proven to be intentional. The IRS is responsible for investigating and proving fraudulent activity before applying penalties. There are two forms of fraud as outlined by the IRS code book.

General Civil Tax Fraud

Under-reporting or omitting income for the purpose of paying fewer taxes is considered fraud. A conscious and deliberate effort to show less income for the purpose of paying fewer taxes must be proven by the IRS and considered clearly intentional to be considered fraud. Being guilty of this type of fraud can result in a 75% penalty on top of the underpayment which was not accurately reported when the taxes were filed.

Examples of Civil Tax Fraud

  • Hiding income, not reporting assets or dealing in cash only payments to avoid reporting
  • Using two bookkeeping methods to track income and expenses for the purpose of hiding income
  • Failing to keep records.
  • Destroying evidence such as records, receipts, or logs during an audit, or lying during an audit
  • Using a fake social security number.
  • Hiding income in off shore accounts.

Fraudulent Failure to File Civil Penalty

If the IRS determines that you filed your taxes late or did not file taxes for the ultimate purpose of evading the tax laws it is considered fraudulent activity. The standard failure to file penalty is 5% per month based on the amount you owe. If the failure to file is considered fraudulent according to the IRS standards the penalty increases to 15% per month with a 75% maximum penalty total penalty.

Examples of Fraudulent Failure to File

  • Knowing about the filing requirement and purposely failing to comply with the rules for tax filing.
  • A history of failure to file taxes or filing late returns.
  • Refusing to offer a reason as to why you failed to file.
  • An unwillingness to cooperate with the IRS during an audit.

Taxpayers Responsibilities

The responsibility of filing accurate taxes falls on the shoulder of the tax payer. Every taxpayer is responsible for filing their taxes on time and according to the rules and regulations of the IRS by the deadline assigned, which is typically April 15th (4/17 in 2012) unless an extension is granted.

There are resources available such as software programs, tax professionals and IRS assistance when it comes to tax matters and to ensure that each individual properly files taxes as required. Regardless of the method that is used to file taxes, the taxpayer is held responsible for the outcome of any audit and penalties if the IRS is able to confirm that tax fraud has been committed.

Tax Fraud Help & Related Topics

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What is the Failure to File Penalty?
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Tax Evasion Penalties
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