Understanding What the IRS Considers Tax Fraud

tax fraudThe Internal Revenue Service (IRS) routinely pursues scams and scamsters engaged in tax fraud.  The IRS also scrutinizes tax returns, annual financial reports, and other submissions for tax fraud.  So—what is tax fraud?


According to the IRS, tax fraud is “deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to one who relies on it and has the right to rely on it.” In other words, when someone is tricked or scammed into turning over money or something else of value—it is fraud. A second and important part of the definition of tax fraud is “intentional wrongdoing” to evade or avoid paying a legitimate liability.


The IRS specifically notes tax fraud requires two criteria:

  1. A tax liability that is owed or due
  2. Intent to avoid the liability through fraud


The creativity exercised by taxpayers seeking to avoid taxes can be considerable, and tax dodges take many forms. Regardless of how it looks, tax fraud will usually involve some of the following basic aspects:

  • An attempt will be made to intentionally avoid or evade paying a tax liability owed. Annual tax returns often become the scene of the crime. Common attempts to avoid taxes include taking inappropriate deductions or claiming fictitious losses or loans. A taxpayer might grossly under-report their income or simply fail to report income on which taxes are due for several years. Schedules and submitted statements may be falsified to support claims on the return.
  • Tax fraud comes into play when employers or business owners fail to collect or turn over payroll taxes to the government. Employment tax disputes turn into criminal tax allegations if investigation reveals payroll taxes were withheld but not reported or submitted to the IRS. While some business owners use withheld payroll taxes to fund a lavish lifestyle, others may try to improve a bottom line awash in red. The IRS has a high interest in owners or employers who are defrauding the government through payroll taxes.
  • Holding and investing assets in offshore or foreign bank accounts can also be a pathway to charges of tax fraud and evasion. While placing money in offshore accounts is a good way to protect and grow wealth—be sure to speak with your tax attorney about the need for FBAR reporting.


If you are involved in potentially fraudulent activity at present—speak with an experienced tax lawyer sooner than later. Options for effectively deferring charges weaken after the IRS identifies and initiates an investigation against you or your business. 


Involved in tax fraud—speak with our legal group for strategic, discreet representation

Serving local and international clients from offices in Chicago and Cleveland, the tax group at Robert J. Fedor, Esq., LLC represents clients involved in alleged fraudulent activities, or who have questions about offshore tax investment or employment tax disputes. Call 800-579-0997 or contact us today.

Understanding Tax Fraud