Maneuvering the world of taxes can be difficult. The IRS is in the back of everyone’s mind, and can often make you wonder if you’re doing everything right.
What is Tax Fraud?
Tax fraud is the more serious of the two offenses. This is done willfully. There are common tip offs to fraud that all auditors look for. They can include:
- two sets of ledgers for fiances
- underreporting income willfully
- using a false number for social security
- false documents are used
- a nonexistent dependent is claimed for an exemption
There are other signs that are looked for, but these are the top five tip offs. All of these are done willfully. However, finding only one of these on only one of the reports is not enough to have it considered fraud.
Other signs of fraud could include a failure to even supply records of income to the FBI, deals with cash that are uncommon to that business (such as a deposit of $4,000,000,000 for a minimum wage worker who does not have wealthy family), and any large number of errors that are all in the favor of the payer.
What is Tax Negligence?
Tax negligence, on the other hand, is the equivalent of making a careless mistake. Tax auditors expect to see a few errors on every report due to how complex taxes can be.
In fact, auditors will not suspect fraud in the majority of cases. Unless they can see the badges of fraud – which include the five tip offs mentioned above and others, such as freshly printed receipts that are fake and checks that increase payments – they will only charge you with negligence.
The fine for a careless mistake on tax reports is usually 20% of your taxes. This means that you will pay an extra 20% – which is better than an extra 75% for tax fraud if you aren’t referred to the IRS. You can incur higher fines by having other failures, such as a failure to give full answers to questions asked by the IRS and a failure to have a good reason for the mistake.