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What's the difference between income tax negligence and fraud? -- II

A few weeks ago, our blog started discussing how the Internal Revenue Service typically views the majority of tax return oversights as being the product of careless errors -- provided no signs of willful evasion are present.

To that end, we also explored some types of conduct that typically serve as red flags for auditors, signaling that a mistake was potentially not quite so honest. We'll continue this discussion in today's post, examining how the IRS defines income tax fraud and the possible penalties for this conduct.


When a taxpayer commits income tax fraud, he or she is willfully attempting to evade their responsibilities under the tax code and/or defraud the federal government.

As to what types of conduct constitutes income tax fraud, consider the following:

  • Purposely neglecting to pay taxes owed
  • Willfully failing to file a tax return
  • Intentionally submitting false/fraudulent claims
  • Deliberately omitting certain income  
  • Knowingly preparing and filing a fraudulent return

While unintentional errors on an income tax return can cost the filer a penalty of as much as 20 percent of the underpayment, the punishment meted out for income tax fraud is decidedly more draconian.

  • Attempts to evade or defeat the payment of taxes: If convicted of this felony, federal law dictates that the offender could face up to five years in prison and/or a fine of up to $100,000.
  • Willful failure to supply information, file a return or pay required taxes: If convicted of this misdemeanor, federal law dictates that the offender could face up to one year in prison and/or a fine of up to $25,000.
  • Submission of false statements or fraud: If convicted of this felony, federal law dictates that the offender could face up to three years in prison and/or a fine of up to $100,000.

Given the severity of these penalties, it's clear that those people who are the subject of an IRS investigation or have already been charged with tax fraud to consider speaking with a skilled legal professional as soon as possible.

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