Tax fraud is when an individual or business intentionally breaks the tax laws to not have to pay taxes (tax evasion). Unless you can prove that you haven’t paid taxes as a result of an honest mistake, your case will be considered fraudulent. You could have to pay penalties or face criminal charges, or both.
Whether you’re accused or a victim of tax fraud, there are effective ways to navigate the stressful situation.
Read the rest of this article to explore tax fraud in greater detail. We’ll cover:
- Common types of tax fraud
- How to avoid tax fraud
- How to report tax fraud
- How tax fraud is investigated
- When you should hire a lawyer for assistance
What are Common Types of Tax Fraud?
There are various types of tax fraud that can affect you. These include:
- Underreporting your income.
- Not filing a tax return.
- Not paying taxes at all.
- Underpaying taxes.
- Using false information on your tax returns.
- Trying to deduce personal expenses as business costs.
- Hiding assets, such as money or shares.
How Can You Prevent Tax Fraud?
By being diligent about filing your taxes, you can avoid fraudulent behavior.
Take Charge of Your Tax Returns
Don’t leave filing your tax returns to your accountant. Scrutinize them for any omissions or errors before they are filed. If there is incorrect information on your tax return, you have the opportunity to file an amended return and this can occur up to three years after your original tax filing deadline.
Be mindful of deadlines by when to submit your tax returns so you don’t miss them.
Work With the IRS
If the IRS sends you a letter requesting information or documentation, don’t ignore it. This can lead to an audit. If you’re unsure of what to do, consult with a tax attorney for guidance.
Should you find yourself in trouble when paying your taxes, such as that you can’t afford them, collaborating with the IRS can benefit you. They offer various payment plans to assist you.
Keep all Financial Records Up to Date
You should have a clear record of all financial information. Keep all documents for at least three years after you have filed your tax returns, should they be requested by the IRS.
Work with Trusted Tax Advisors
You might not want to commit tax fraud but your tax advisor might not care about being diligent with your financial records or tax returns. This can land you in trouble. Always work with a tax professional who has a strong track record of good work.
They should have lots of knowledge about taxes and laws, and understand IRS requirements. Only hire a tax professional who has the appropriate credentials. You can find one from the IRS’s Directory of Federal Tax Return Preparers.
How Should You Report Tax Fraud?
If you’re the victim of tax fraud or you know of someone who is committing it, you should report it to the IRS. Here is what to do.
- Submit a tip. If you’re not the victim of fraud but you suspect an individual or company of fraud, you can send a confidential tip by completing Form 3949-A on the IRS website.
- File a formal complaint. If you’re dealing with a fraudulent tax preparer, you can complete Form 14157 on the IRS website. You will have to include an affidavit.
- Report tax ID theft. If you’re the victim of someone using your identity to file fake tax returns, you should report it to the IRS by completing their Form 14039. You will submit it with your tax return.
How is Tax Fraud Investigated?
Being investigated for tax fraud can be a frightening and stressful experience. It can arise from various reasons, such as because one of the IRS’s Revenue Agents have discovered fraud. These agents search for fraud when auditing one’s income, estate, or gift tax returns.
In companies, agents might uncover fraud during a routine audit.
When a Revenue Agent learns of the presence of fraud, they will draft a Referral report for Potential Fraud Cases, which contains information they have collected. An investigation will follow.
- The IRS will interview witnesses and request documents.
- The agent conducting the investigation will formalize it with an Assistant United States Attorney (AUSA), who will issue a subpoena to witnesses or request testimony to appear before a grand jury.
- Grand jurors will consider the information presented. They will decide if they should indict the individual who has committed the tax fraud. This refers to formal charges made against you.
When Should You Hire a Lawyer for Help with Tax Fraud?
If you’re suspected of tax fraud, you should contact a lawyer immediately. This should be done without delay, which can cause problems with your case. A lawyer will help you to gather evidence and strengthen your claim. They will also prevent you from making mistakes during the investigation that can be more challenging to correct at a later stage or which can put you in a negative light.
Other things a lawyer can do to assist you include:
- Building a defense to protect your interests and reputation. Examples of a defense can include lack of willfulness, insufficient evidence, and IRS misconduct.
- Protecting your rights during a tax fraud investigation.
- Supporting you during, before, and after a trial.
- Negotiation with prosecutors on your behalf to encourage a settlement.
- Helping you to understand the tax laws.
- Assisting you with completing and filing your future tax returns so you avoid issues in the future.
- Dealing with the IRS on your behalf, acting as an intermediary.
Do you need to hire a lawyer for tax fraud?
You should work with a lawyer from ContractsCounsel, an online legal network where clients connect with vetted lawyers. All lawyers on the platform have the credentials and expertise to assist you in navigating the complexities of tax fraud. You don’t have to go through the stressful process alone. Hire a lawyer who will know the best way in which to guide you and resolve the issue promptly.
