We have all heard or seen the term “tax fraud” before, yet how much do we really know about the meaning of this phrase?  The definition of fraud includes, but is not limited to, “an act or instance of deception, deceit, something false or spurious.”[1]  For many, seeing the denotation of the word fraud is nothing new as this expression tends to be commonly used in everyday language; however, it may require more of an explanation when discussing the topic of tax fraud.

Tax fraud essentially is “wrongful or criminal deception intended to result in financial or personal gain.”[2]  This means that generally tax evasion or tax fraud involves an intentional wrongdoing and is not just mere carelessness.  The Internal Revenue Service (“IRS”) decides whether it has been committed by looking for certain indications such as understatements of income, inadequate records, failure to file tax returns, implausible or inconsistent explanations of behavior, concealment of assets, failure to cooperate with tax authorities, engaging in illegal activities, attempting to conceal illegal activities, dealing in cash, and failure to make estimated tax payments.[3]

In most tax audits the IRS is only interested in collecting the taxes owed, plus interest along with a few penalties.  Perhaps the IRS might impose a negligence penalty or a late filing penalty; nevertheless, if during the tax audit the IRS suspects someone has committed tax fraud they can impose a civil tax fraud penalty.[4]  The civil tax fraud penalty is equal to 75 percent of the tax owed, plus interest on the penalty.  Worse yet, the IRS tax auditor might ask the tax fraud referral specialist to look at the case to see if it should be sent to the IRS Criminal Investigation unit for criminal tax prosecution.[5]  The penalties for criminal tax fraud are very serious.  They range up to five years in jail, plus fines up to $500,000, plus the costs of prosecution for each separate tax crime.[6]  Actions a person takes during the course of a tax audit can turn a routine tax controversy into a case.  An experienced tax fraud lawyer can help you navigate the tumultuous waters of an IRS tax audit and help formulate an effective strategy to assist in your financial well-being, as well as your personal freedom.