Doing annual taxes is a source of stress for many Americans. There tends to be a lot of confusion about whether or not taxpayers are submitting the correct information, claiming the proper deductions and credits, and sending all required forms and payments. If they make an error on their taxes, many people fear that they may face criminal charges for attempting to defraud the IRS. Let’s discuss some of the most common types of tax crimes, whether or not you should worry about accidentally committing fraud, and more.
Tax fraud occurs when individuals falsify information on their taxes to pay less than their required obligation or receive a higher tax refund. There are numerous ways individuals commit tax fraud.
Not Reporting All Income
Many people have taken up side jobs or have separate income streams from their main full-time roles. For example, a driver for a food delivery app. Some individuals may choose not to report the additional income, assuming that the IRS will remain unaware and only focus on the revenue from the primary job. However, if the IRS does become aware of the unreported income, they may seek additional payment and potentially file criminal charges for fraud or evasion.
You may be wondering, how would the IRS find out about unreported income? One common way they get this information is through the Information Returns Processing (IRP) system. This is a database that can collect further information on taxpayers’ income. Suppose they discover a discrepancy between what the taxpayer reported and what is reflected in their data about the taxpayer’s employment and wages. In that case, the IRP can report this to the IRS for further investigation.
Deductions are expenses that taxpayers may include on their annual taxes that lower their taxable income and therefore lower the amount of taxes they are required to pay.
Some of the most common deductions include:
- Charitable donations deduction
- Medical expenses deduction
- Student loan interest deduction
- Local tax deductions
- IRA and 401(k) contribution deductions
- Child and dependent tax credits
A standard deduction is offered that is a flat-fee reduction based on your filing status. In 2022, the standard deduction ranges from $13,000-$26,000. In general, married filing together receives the highest deduction.
Individuals may claim deductions for which they are ineligible or file for a standard dedication under a false filing status to pay less tax.
Individuals may also provide false information on their tax documents that will benefit their payment or return—for example, claiming to live in a state with no income tax when they don’t. Providing any false details could be considered tax fraud.
If individuals do not submit their taxes and/or pay their obligation, they may face tax evasion charges. This can be a federal crime.
If you’re concerned you might, or already have, missed the tax filing deadline, don’t panic. You may be required to pay a penalty fee for being late, but as long as you have the intent to pay, it’s unlikely you will face criminal charges.
Additionally, if you are going to get a tax refund, you will not face any penalty for filing late.
Tax Crime Penalties
If convicted of a tax crime, you face severe penalties. Because these offenses involve defrauding a federal agency (the IRS), you could face federal charges.
Potential penalties include:
- Multiple years in prison
- Fines of up to $250,000 for individuals, $500,000 for corporations
- Restitution orders or payments additional to fines
- Prosecution costs
- Years of probation
Kalamazoo Tax Crimes Defense Attorneys
If you have recently been contacted regarding a tax offense, or have reason to believe you are under investigation for a white-collar crime, contact our defense attorneys at Levine & Levine Attorneys at Law. These charges are serious, and our defense team will work tirelessly to protect your future and obtain a positive outcome. Call us at (269) 218-8880 to speak with our experienced lawyers today.