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It is next to impossible for the average U.S. person to fully understand every applicable IRS provision, regulations, or law when it comes to doing taxes. Many taxpayers with complex situations, of course, elect to enlist the help of accountants and other financial professionals to ensure they are, ultimately, in compliance. Still, things may slip through the cracks for tax professionals. Regardless of your position in filing your tax returns, we have provided a short list to let you know how you could, possibly, end up committing fraud.
1. Not reporting income. At the risk of sounding elementary, the negligent (or willful and intentional) failure to report income you earned is, nevertheless, one of the main ways that a U.S. taxpayer can commit fraud. If a business pays you more than $600 in a single year, it is required to send you Form 1099 so you can report the income. However, you must still report income you receive that is less than $600 in one year. The chances of the IRS finding out about your unreported income may be relatively low, but it is still quite possible.
2. Inflating deductions. The Tax Cuts and Jobs Act of 2017 eliminated quite a few deductions, opting instead to increase standard deductions. However, one deduction that remained and is still in use by many taxpayers is the charitable donation deduction. When your donations are non-cash items, such as clothing or books, it is up to you to estimate the value of your donations. Any estimates over $5,000 must be confirmed by a qualified appraiser.
Under the $5,000 threshold, though, taxpayers may inflate the value of non-cash items donated to charity. For example, the current value of the shirt you bought seven years ago for $50 is probably much less than the purchase price.
3. Abusing necessary business expense deductions. Taxpayers who are self-employed have a variety of deductions available to them. However, there are strict requirements when it comes to using these tax tools. For example, taking the family along with you on a business trip and claiming every expense along the way as a necessary business expense is not acceptable to the IRS.
Possible Penalties
When discussing penalties for tax fraud, it is important to note that a fraudulent action must be shown to be willful and intentional to qualify as tax fraud. Otherwise, it will likely be designated as negligence, which carries a penalty of 20 percent of the amount you underpaid.
For intentional tax fraud, penalties vary based on the exact charge. Tax evasion carries a maximum penalty of five years in prison, along with a fine of up to $100,000. The same fee amount applies to those found guilty of filing a fraudulent tax return; however, the maximum prison sentence is three years.
Conclusion
The team at Weisberg Kainen Mark understands that being questioned or investigated by the IRS brings a great amount of stress and fear to a taxpayer. Our firm is well-equipped to provide an effective legal presence for you during the entire process. Please reach out to us through our website here; we look forward to speaking with you soon.
Weisberg Kainen Mark, PL
