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An Easy Guide to Tax Fraud

An Easy Guide to Tax Fraud

Federal investigators yearly chase citizens who try to limit tax obligation or evade paying tax debt completely. Businesses and individual taxpayers can all be legally penalized for such illegal act. This can lead to hefty fines or years of imprisonment.

In this article, we discuss the details on tax fraud and evasion as well as penalties involved and how to report suspected fraudulent activity. Also, in case you can’t pay or file, eFiling Plus gives you tips on how to regain control without resorting to fraud.

What is Tax Fraud?

Tax Fraud is a general term for illegal acts covered under the Tax Code and United States Code. Simply put, tax fraud is cheating on IRS by means of falsifying the information on tax return in order to limit the amount of tax liability. It includes willful and intentional act by an individual or a business entity to claims false tax breaks e.g claiming personal expenses as deductible business expenses or not reporting income, or evade paying taxes completely.

Tax Evasion on the other hand is an illegal act aimed at reducing tax liability by means of misrepresenting the true state of affairs of individuals, corporations or trusts to the authorities. This may be in a form of dishonest tax reporting, under declared income, gains or profit, or overstating deductions.

What is the difference between Tax Fraud and Tax Evasion?

Tax fraud is an overarching term for violations that include tax evasion. “Tax Evasion” is pursued in the criminal court as in the case of someone who is charged of violating the 26 USC sec. 7201. Acts under this rubric are: willful overstatement of deductions, failure to file tax returns with an intention to avoid detection and underdeclaration of income.

How Do You Report Suspected Tax Fraud Activity?

How do you report Suspected Tax Fraud Activity

Here are the steps that you should take to report suspected tax fraud activities.

If you suspect… What to do
False exemptions; kickbacks; Failure to Pay tax; Failure to withhold tax; altered document 1. Use Form 3949-A.

2. Print the form and email to:

Internal Revenue Service

Fresno, CA 93888

IMPORTANT: The progress or status of the referral will not be given to the submitters, as per tax return confidentiality under IRC 6103.

Stole your identity and used your SSN to file a tax return 1. Complete the form

Form 14039

2. Print and mail to any of the addresses listed on page 2 of the form.

For more information see

Taxpayer Guide to Identity Theft

Fraudulent or abusive scheme by a Tax preparer or tax preparation company 1. Complete

Form 14157

2.  Print and mail to IRS address listed on the form

Your tax return filed or altered without your permission 1. Complete  Form 14157

AND Form 14157-A

2. Mail both forms to the address in the Instruction for Form 14157-A

Abusive tax promotion or promoter 1. Complete Form 14242

2. Send to the address or fax number listed on the form

Misconduct by an exempt organization or employee plan 1. Complete Form 13909

2. Mail to the address shown on the form

Penalties for General Tax Fraud

Penalties for General Tax Fraud

The penalties for tax fraud varies according to the gravity of the fraudulent act. It can be punishable by civil (e.g money) or criminal (money and imprisonment) penalties. Civil offenses are those acts committed in violation of Title 26 of USC, while criminal offenses are principally violations of Title 18 of USC.

For detailed discussion on the penalties for general tax fraud, refer to the IRS webpage.

Regaining Control

There’s no reason to resort to these illegal activities. Various options are available in case you can’t pay your taxes.  

  1. Get an Extension

If you don’t have enough time to prepare your tax, then you may want to avail of tax extension. You can get up to 6 months of extended time to prepare and file your returns, but this does not include an extension to pay your taxes.

  1. Explain to the government your Situation.

Yes, you can talk to the IRS and they can understand your situation. If you’ve had a major life-changing event that affects your capacity to pay or file returns, simply call the IRS to explain your circumstance. Good reasons like major hospitalization or natural calamity can be included in a letter or Form 843 requesting the IRS to waive penalties or fees. Note that IRS does not accept just any reason, they only permit extenuating circumstances.

  1. Avail of the Installment Plans

As a rule of thumb, call the IRS as soon as you learn you can’t pay before the deadline. Installment plans enable you to set up a monthly payment plan or short-term payment agreement. If you are in good reputation in IRS, the service can easily accept your request for installment plan.

  1. Ask an Offer in Compromise

In rare cases, the IRS can compromise and accept whatever amount you are able to pay. This plan can be  hard to negotiate and may require a tax attorney. Also, this option is priced at $150.00. Compromise can either set up as lump sum payment or payment plan of up to 24 months. Another important thing, the IRS can accept the money and reject the compromise.

With this guide, you are empowered to spot fraudulent employers who do not withhold tax, or preparers who may take advantage of refund that you can claim. This guide also avails you of the options that you can take in case you are unable to pay or file your taxes.

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