Tax Evasion and Tax Fraud: Why Do Some Serve Time While Others Only Pay Stiff Fines?

Based on IRS estimates, only around 83% of people manage to be in compliance with the tax codes. The remaining 17%, however, fail to comply to some extent. In large, these are not serious issues but rather simple mistakes or oversights. Because of the complex nature of the tax codes, most of these issues do not happen from an intent to commit tax fraud.

That said, the IRS does take these matters seriously, investigating and charging companies and individuals regarding these tax laws. And if found guilty, people can be subject to hefty fines, various penalties, and even prison time. The Criminal Investigative Division (CID) is the branch of the IRS that is responsible for investigating the possibility of tax fraud or evasion.

However, just because the IRS is investigating your taxes, it doesn’t mean that you’ll be going to jail. While it’s stressful to get a letter from the IRS, things may not be as severe as they appear. That said, it’s essential to mark the difference between tax fraud and tax evasion to see what each can entail.

What is Tax Fraud?

Tax fraud is a rather broad term that will encompass may things regarding the IRS and US tax code. In large, tax fraud indicates that a taxpayer or company has intentionally not been paying his or her taxes.

Tax fraud is somewhat difficult to prove since it not only has to show that the tax wasn’t paid properly, but it was also intentional. The commonality of honest mistakes and errors makes it that much more difficult. In the event of an error or mistake, the IRS may still fine a penalty of 20 percent of the underpayment.

That said, fraudulent activity such as the falsification of documents, concealment or transfer of income, overstating deductions and exemptions, using false SSNs, underreporting income, etc., can result in financial penalties as high as 75% of the taxes due.

What is Tax Evasion?

Tax fraud can be either Civil or Criminal, which depends on various facts and circumstances. If it’s criminal, tax fraud is considered tax evasion. This means the taxpayer has taken deliberate steps to misrepresent their income and defraud the government. Most of these actions include intentionally falsifying documents in one form or another.

To mark the difference between the two, the IRS will look for suspicious activity such as concealing and understating income, using incorrect SSNs, creating false or misleading receipts and checks, claiming non-existent dependents, falsifying documentation, etc.

Tax evasion penalties will be more severe than those for tax fraud. In addition to paying the 75% fine, criminal tax evasion can result in millions of dollars in penalties, as well as a potential criminal investigation, indictment, and prosecution, which can lead to imprisonment for up to five years. If more people work together to defraud the government, loss amounts can add up pretty quickly. They can be charged with conspiracy to defraud the United States, meaning that one person can be held accountable for the entire amount of fraud.

If you are facing federal charges for tax fraud, evasion, or are concerned you may be soon, contact us today. We at Golden Tax Relief specialize in helping you deal with your tax resolution.

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