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How does the IRS distinguish between tax fraud and negligence?

It may seem hard to believe, but Tax Day 2017 is finally here. This means that at this very moment, there are thousands of people across the U.S. scrambling to finish their returns or patiently waiting in line at the post office to mail the Internal Revenue Service the necessary documents.

While it's understandable how the busy pace of life can force people to put off their taxes until the deadline, there's no question that these sorts of eleventh-hour efforts can prevent them from performing the comprehensive review they would otherwise prefer. In other words, there's an elevated chance of mistakes.

While this is understandably not the sort of thing people want to be reminded of right now -- largely owing to concerns that their mistakes could result in income tax fraud charges -- the reality is that their fears are probably overblown.

That's because the U.S. tax code dictates that in order for someone to be charged and convicted of income tax fraud, he or she must be shown to have willfully attempted to evade taxes or otherwise defraud the federal government.

Indeed, income tax fraud could be classified as any of the following:

  • A person intentionally failing to pay their taxes
  • A person willfully neglecting to file an income tax return
  • A person knowingly preparing and filing a false income tax return
  • A person deliberately making false/fraudulent claims on their income tax return
  • A person purposefully neglecting to report the entirety of their income

What all of this really serves to underscore is that mistakes on tax returns will more than likely be viewed by IRS agents as the product of negligence rather than fraud.

We'll continue this discussion in our next post, focusing more on how exactly the IRS distinguishes between the two and the potential penalties.

In the meantime, if you do learn that you are under investigation for tax evasion or some other manner of federal tax crime, consider speaking with a skilled legal professional as soon as possible.

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Mark J. O'Brien's cases have been featured in:
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