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Tax fraud vs. negligence: Know the difference

Preparing a tax return is very complicated, especially when you have multiple sources of income. In many cases, people choose to prepare their own returns instead of hiring a professional. When your income includes wages, income from your sole proprietorship, and other sources, it is easy to make mistakes. This is especially true when you are unfamiliar with the tax code and profit and loss presentation techniques.

Before you find yourself in hot water with the Internal Revenue Service (IRS), it is important to understand the difference between income tax fraud and negligence. While your best resource is advice from an attorney experienced with tax evasion cases, read below for more information on understanding the difference between fraud and negligence.

Tax fraud defined

If you willfully attempt to defraud the IRS, you have committed tax fraud. There are several ways you might do this. If you intentionally fail to file a tax return, pay your tax liability, or do not report all of your income that you received, you may be charged with tax fraud. In addition, if make false or fraudulent claims or you file a false tax return, the federal government may consider this fraud as well.

Errors as a result of negligence

The tax code is a complex, and often convoluted, set of regulations that are very difficult to follow. If you make an error on your return and there are no signs of fraud, the IRS will typically take it as an honest mistake instead of willful evasion. While the government can fine you up to 20 percent of the underpayment, the IRS will not pursue criminal charges if the error seems unintentional.

Signs of fraudulent activity

There are some very common and suspicious activities that could cause the IRS to suspect fraud. For example, overstatements of deductions or exemptions, the falsification of documents, and the concealment or transfer of income are three of the most popular strategies. Other signs of fraud include keeping two sets of books, falsifying expenses, and claiming nonexistent dependents.

Criminal investigation process

The IRS has a law enforcement branch known as the IRS Criminal Investigation department. It investigates tax crimes, money laundering, and violations of the Bank Secrecy Act. The Service trains its agents to use advanced methods to locate computer information protected by passwords and encryption programs.

If the federal government has charged you with tax fraud or evasion, it is important to understand your rights and options. Contact a local Sacramento attorney experienced in handling federal crimes for advice on your case.

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