No matter how challenging it is to prepare to file your tax returns or earn the money to pay the IRS– never attempt to escape your tax obligations. Intentionally avoiding paying your tax is considered tax fraud.
Some acts that can be considered tax fraud include failing to file an income tax return or going as far as preparing a false return.
Although tax season is undeniably stressful due to the possible consequences of making even just a simple mistake, keep in mind that committing tax fraud will not make your situation any better.
If you fail to file your tax return, you can be imprisoned for up to one year on top of a monetary penalty of $100,000. If you attempt to evade taxes, you can be punished with up to five years imprisonment and a $250,000 fine.
How Does the IRS Identify Tax Fraud?
By definition, tax fraud is the “willful and material submission of false statements or false documents in connection with an application and/or return.”
To determine tax fraud, IRS investigators will look for indicators such as:
- Underreporting income
- Using a false Social Security number
- Falsifying documents
- Intentionally failing to pay taxes
If the investigators do not find these indicators, the IRS will assume that an unintentional error has occurred due to carelessness or negligence. This act does not lead to criminal charges or tax fraud, but you can still get an accuracy-related penalty that equates to 20 percent of the underpayment.
If you feel unsure about preparing your tax returns yourself, then you can always reach out to an accountant or a tax professional to ensure that all tax information is accurate and truthful before submitting it to the IRS.
Tax Fraud: How to Handle Identity Theft and Tax Refund Fraud
One of the reasons why you need to prepare your tax return as soon as possible is to avoid identity theft. Some people file tax returns using another person’s identity to wrongfully claim tax refunds that are not theirs to claim.
If you fall victim to identity theft, you will not only lose your tax refund, but you can face penalties due to inaccurate details on the tax returns the criminal has filed in your stead.
If you are a victim of identity theft, here is what you need to do:
Contact the IRS immediately.
You need to let the IRS know that a return was filed using your information. You need to report and register that you are a victim of tax identity theft immediately.
Complete and submit an IRS Form 14039.
You need to fill up and submit IRS Form 14039 or Identity Theft Affidavit. The IRS encourages victims of identity theft to report their tax identity theft to local police, the Federal Trade Commission, and credit agencies as well.
File your actual tax return.
Being a victim of tax identity theft is not an excuse to delay filing your tax return. You can be charged with a late-filing penalty regardless of your circumstances.
You need to file your actual tax return by mail and make sure that you attach your IRS Form 14039 (Identity Theft Affidavit) including proof of identity.
You need to be careful and practice simple measures to keep your personal information private and secure. For instance, you should keep your sensitive information out of the public eye. For instance, it is not a good idea to have your Social Security Number, birth date, or address out in the open.
You should not share user IDs, passwords, or PINs. Make them difficult to guess. You also need to be careful of scams and phishing emails. Keep in mind that the IRS will always contact you by mail first about taxes owed— they will not call or email you to get personal details.