Getting in trouble with the IRS is the last thing that you would want to do. For this reason, it is always advisable to be regular with your tax returns and payments. A major concern for taxpayers is criminal charges by the IRS. If you are going through investigation or expect a potential audit coming up, you need to be aware of the situations when the authorities may file criminal charges against you.
Though this may sound scary, remember that you will not get implicated unless you have intentionally done something seriously wrong. Honest mistakes, on the other hand, are not illegal and you will probably not go to jail for them. The key lies in being proactive and knowledgeable so that you can get help when you require it for preventing such a situation. Here are some facts that you should know about criminal charges by the IRS against the taxpayers.
Tax fraud can implicate you
Deliberately cheating on your tax returns is a crime and will definitely not be taken lightly by the IRS. If you misrepresent your annual income on the return to avoid paying taxes, you are doing a tax fraud. Once the IRS is able to prove that you did the fraud intentionally, they will go ahead and prosecute you for tax fraud. The burden of proof in such cases lies in the tax authorities, which is the reason that the IRS would rather avoid such cases. But if you are found guilty of tax fraud, be ready for jail time and large fines as well.
Tax evasion can also lead to criminal proceedings
Tax evasion is essentially a subset of tax fraud and carries similar penalties because it is also intentional. Evasion involves misrepresenting the true state of your affairs to the authorities just to reduce the amount of tax that you need to pay. Obviously, this will not be a mistake and you will know when you are intentionally claiming an income lesser than the actual. Similarly, overstating your deductions significantly is a form of evasion. Even making large and questionable donations to charities for claiming deductions comes under the scope of evasion. Such situations can also cause criminal charges by the IRS.
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There are certain red flags that the IRS will look for
When it comes to initiating a criminal investigation, the IRS will consider certain red flags that indicate fraud or evasion. Experts at Travis W. Watkins Tax Resolution & Accounting Firm have a checklist of the indicators of wrongdoings that the IRS may bear while considering criminal charges against a taxpayer. Here are the ones that may put you under the lens:
- Consistently underreporting your income
- Destroying your records deliberately
- Maintaining inadequate or shady accounting records
- Concealing your assets intentionally
- Dealing exclusively in cash
- Illegal activities
- Fictitious deductions
- Omission or understatement of substantial amounts of money
- Refusing to cooperate with an examiner or auditor
- The irrational explanation for the behavior
Unintentional mistakes will not implicate you
While the IRS will definitely not spare you for fraud and evasion, they will not implicate you for unintentional mistakes. Being negligent with your tax returns and payments is also not illegal. When you do it without wrong intentions, you are not lying about your income or concealing it deliberately. These are genuine mistakes and the authorities are trained and experienced enough to make out the difference. You should not be concerned about criminal proceedings in such situations because they will probably not happen. At the same time, you should make your best efforts to avoid such mistakes. Hiring a tax professional to handle your returns and payments is the best approach in this context.
Prosecution by the IRS is less common than you imagine
If the IRS approaches you with a grave matter such as audit, evasion or fraud, you should take it seriously. Rather than having a panic attack, you should seek help from a tax attorney and respond properly. Scary as a criminal case by the IRS may sound, it is less common than you imagine. Statistics indicate that it is very rare for a taxpayer to be investigated for fraud. Further, the rate of prosecution in such criminal proceedings is also low. Despite this, you should still be genuine and honest with your returns and taxes to avoid the situation in the first place. If you are still worried about an impending criminal investigation or charges by the IRS, you should see a tax lawyer sooner rather than later.