Tax season is here. Hooray?
Even if you have been filing returns for decades, you probably still run into questions or confusion over your taxes, and the pressure of getting everything “right” on your returns doesn’t make the stress any easier. Inconsistencies or mistakes on tax returns can result in an audit, which can lead to penalties and big fines – and even if it doesn’t, you’ll still have to deal with the exhausting, often terrifying process.
Worse, individuals can face even bigger fines – even jail time – if they are accused of tax fraud.
The line between tax fraud and simple mistakes is thinner than you might think, too.
That’s why we decided to write this post. To help you take some time to review the differences between tax fraud and negligence this season – so you can avoid both.
What Is Tax “Negligence”?
Taxes are confusing, and it can be easy to forget information or miscalculate expenses and income from the past year. Because of this, most mistakes on tax forms are the result of negligence.
Negligence is the unintentional failure to complete a task or duty. We are all required to provide accurate information about our finances on our tax forms. If we neglect to do so, even unintentionally, we could face penalties.
What Is Tax “Fraud”?
Of course, not all “mistakes” are the result of confusion or ignorance. If someone intentionally provides inaccurate information on their tax forms, they could be charged with tax fraud.
Prosecutors need to prove that the alleged fraudster had the intention of taking property and assets if they want a guilty verdict. In order to avoid the harsh penalties of a tax fraud conviction, the defendant will have to build a strong case that the intention to defraud was not the motive for providing inaccurate information.
What Are the Penalties for Tax Fraud?
The consequences of a tax fraud conviction depend on the method used to commit fraud and who is behind the fraud. Corporations face higher fines than individuals.
If you are found guilty of attempting to avoid paying taxes altogether, you may face up to five years in prison and up to $250,000 in fines. Corporations may face fines of up to $500,000.
If you are found guilty of providing false statements, you may face up to three years in prison and up to $250,000 in fines. Corporations, again may face fines of up to $500,000.
If you are found guilty of failing to file a return, provide accurate information, or pay tax by the required deadline, you may face up to one year in prison and $100,000 in fines.
Corporations may face fines of up to $200,000. Unlike the previous two felony charges, however, this last one is simply a misdemeanor charge. That being said, defendants should still take all of these accusations seriously.
How To Avoid Accusations of Negligence or Tax Fraud
Don’t let an honest mistake result in felony charges. Take the proper steps in filing your taxes this year and it will help you to avoid any conflict with the IRS.
The best way to avoid accusations is to consult a tax professional. Accountants and other tax services are likely to point out mistakes that might be picked up as potential fraud. These mistakes include:
- Failing to provide required information
- Incorrectly claiming the Earned Income Tax Credit (EITC)
- Incorrectly claiming deductions (claiming food purchased outside of business meetings, claiming your whole house as a deduction rather than a home office, etc.)
- Failing to report all types of income (cash tips, etc.)
A knowledgeable tax preparer should be able to recognize these mistakes before you file. If you have any concerns, get a second opinion. Unfortunately, tax preparers and services don’t always have the best intentions. Individuals may be accused of tax fraud because they worked with a tax service that tried to cut corners.
Have you already been accused? Consider how negligence can be used in your overall defense strategy. If prosecutors cannot prove that you had fraudulent intentions, you may be able to walk away without a conviction. Whatever you do, don’t take the charges lying down, and don’t just assume they’ll work out or go away.
About the Author:
Kimberly Diego is a criminal defense attorney in Denver practicing at The Law Office of Kimberly Diego. She obtained her undergraduate degree from Georgetown University and her law degree at the University of Colorado. She was named one of Super Lawyers’ “Rising Stars of 2012” and “Top 100 Trial Lawyers in Colorado” for 2012 and 2013 by The National Trial Lawyers. Both honors are limited to a small percentage of practicing attorneys in each state. She has also been recognized for her work in domestic violence cases.