When calculating or filing back taxes, you may make various mistakes, leading to remitting an amount that is less than what you owe. While the error may be minor or accidental, the IRS may consider it as fraud or a way to evade paying taxes.
Since the difference between tax evasion and fraud is confusing, you should learn about the two to avoid getting in trouble with the IRS. Here, we provide more details about these two aspects to help you differentiate them. We'll also discuss what you should do if you find yourself in such situations to avoid further consequences.
What is Tax Evasion?
Tax evasion refers to using illegal methods to avoid paying your taxes in full. For example, you may fail to submit the relevant tax filing forms then refuse to remit any amount even after an assessment.
Since the IRS can determine the taxes you owe them using documents sent by third parties like your employer, they can easily detect evasion. This issue will then lead to penalties and criminal charges depending on the gravity of the situation.
What is Tax Fraud?
Tax fraud is the deliberate misinterpretation of information regarding your taxes or failing to include some details on your return forms. An example is when you do not disclose all income sources to reduce the amount due.
Other examples of tax fraud are:
- Using the wrong social security number
- Claiming false deduction
- Claiming personal expenses as business spending
- Filing under the incorrect status
When you commit tax fraud, you may face criminal charges and get a maximum sentence of three years or a fine of up to $100,000. In some cases, you might have to pay an additional amount equal to 75% of the taxes you avoided.
Statute of Limitations for Tax Evasion and Fraud
A statute of limitations is the maximum period that parties in a dispute have to start legal proceedings from when the issue occurred. The law gives the IRS three years to audit your returns if they suspect you provided wrong information and evaded taxes.
During this period, the body will review your accounts and financial details to track expenses and income.
If they detect that you failed to disclose about 25% of your income, they will hand over the matter to relevant authorities for prosecution. The statute of limitations for such a tax evasion charge will then extend up to six years.
Since tax fraud is not a specific crime, the statute of limitations often differs depending on the issue at hand. For example, if you fail to pay taxes, the duration will be six years. On the other hand, the law provides a maximum of three years to prosecute those who fail to supply some information or keep the required records.
It is important to note that the statute of limitations for tax evasion and fraud can be longer due to various reasons.
For example, if you commit a similar or related crime, authorities will start counting the duration from the date of your last fraudulent act. Besides, when you leave the US, they will stop counting until you go back or they locate you.
Preventing Tax Evasion and Fraud Charges
Tax evasion and fraud have significant consequences on your finances and reputation. Hence, it is vital to avoid such cases by remitting the correct amount and providing accurate information when filing taxes.
If you cannot pay all your taxes in full, consider working with liability experts to apply for installment agreement programs. These can also help you file your taxes to avoid errors that may appear as fraudulent attempts.
Reach Out to Tax Industry to Deal With Tax Evasion and Fraud Charges
When facing a tax evasion or fraud charge, it is crucial to get the proper representation. At Tax industry, we have qualified attorneys to help you navigate tax laws and disputes. These experts can guide you in proving honest mistakes like calculation and typing errors.
- FinishLine Tax Solutions is a full-service, fully accredited tax resolution firm in Houston, TX, assisting companies and individuals nationwide in resolving tax problems with the IRS. We specialize in areas of back taxes such as IRS wage garnishments, IRS bank levies, and unfiled tax returns. Our team of experts comprised of licensed Enrolled Agents, CPAs, & IRS Tax Attorneys can assist you with IRS Audit Representation and Tax Planning. We are one of the leading tax resolution firms in the nation and your go-to tax relief firm that can take you to the Finish Line. Call us today to learn more about our tax relief process and tax resolution services.