Tax fraud is any activity intentionally done by an individual, business, or organization, that allows them to avoid paying the correct amount of taxes. If the IRS suspects fraudulent activity to have occurred, their law enforcement branch, the IRS Criminal Investigation Division (CI) will begin a probe into your financial details.

Because the tax system is very complicated, there are several acts that fall under this broad definition. These include:

• Filing a false tax return
• Under-reporting income
• Willfully failing to file an income tax return
• Claiming personal expenses as business expenses

When discussing tax fraud, many people might experience confusion over the differences between tax fraud, tax evasion, and tax avoidance. Simply put, tax evasion is a form of tax fraud. It pertains to the types of tax fraud that involve misrepresentation of taxable income. It is subject to the same penalties as every other variation of tax fraud.

Tax avoidance, on the other hand, may appear to result in similar circumstances as tax fraud–-paying lower taxes than what would be expected–but it is actually 100% legal. Tax avoidance can be described as the legal use of the tax system to one’s own advantage and avoid paying a certain amount of unnecessary taxes someone would otherwise be required to pay. It can include things such as increasing your retirement savings, maximizing your work deductions, or using a health savings account. Tax avoidance bleeds over into tax fraud when you attempt to pay lower taxes by dishonest means.

Tax Evasion

Tax evasion is a common form of tax fraud. The term tax evasion refers specifically to the act of concealing, lying, or some other form of deceit to pay less in taxes than what you actually owe. While tax evasion falls under the umbrella of tax fraud, the two are not interchangeable terms, as evasion must include the element of deceit. Common examples of tax evasion include:

Using company funds to pay for personal items or services
A business owner collects taxes from employees but neglects to give them to the IRS Placing a home or property within a fake trust in order to lower taxes

Penalties for tax evasion can be incredibly harsh. The IRS and federal government take the fraud very seriously, as taxes are a key part of funding American infrastructure. If you are convicted of tax evasion, then you can expect to be facing:

• Up to five years in prison
• A fine of up to $250,000

Thankfully, defending against an accusation of tax evasion or fraud is possible. Although you would need a skilled white collar defense attorney with the expertise and know-how necessary to successfully fight your case in court.

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DISCLAIMER: The content contained herein is provided for informational and/or entertainment purposes only. Nothing contained in these videos should be construed as providing legal advice. You should immediately consult with an attorney respecting any legal concerns that you may have based off of your state laws. For a free consultation and case review please call us: 415-851-4300

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