Does deciding not to report income earned off the table really matter? It is not like stealing—or adding a fictitious dependent, right? What exactly constitutes a tax crime to the Internal Revenue Service (IRS)?
U.S. taxpayers assess their financial activity and file individual and business tax returns each year. Overall, the system depends on people to be honest, pay their dues, and receive a refund when appropriate. The IRS broadly oversees and enforces the process through encouraging accurate returns filed on time and pursuing taxpayers who may have committed tax fraud.
According to the most recent report from IRS Criminal Investigations (IRS:CI), 1,372 IRS criminal tax investigations were initiated in 2021. Of those, Special Agents recommended prosecution of 850 individuals. While criminal tax matters can arise in virtually any business sphere, IRS:CI focuses on specific areas that include:
- Employment tax fraud: When an employment tax dispute arises between a business owner and the IRS, it can become a criminal tax charge. Entrepreneurs and company owners are responsible for the payment of federal withholding taxes to the IRS. These particular kinds of tax crimes impact both employers and employees. For employers, a trust fund recovery penalty makes the employer personally responsible for the balance of tax unpaid, in addition to penalties related to their refusal to pay over their withholding.
- Tax schemes: Shell companies, foreign bank accounts, and offshore intrigue can all play a part in an abusive tax scheme. Being an owner on a foreign account is not a crime by any means—but intricately constructed scams can move dirty money around the world to launder the cash and hide its often illicit origins. Whether it is a scam of one, or a well-organized group, processes around tax evasion and money laundering are considered tax crime by the IRS.
- False income tax returns: The type of tax crime that most commonly comes to mind are the problems that arise when there is a failure to file a return when tax is owed, or when a tax return is falsified. Whether income is underreported, deductions are falsified, or bonuses and other sums evaporate before being recorded on a return—it is a tax crime.
Bottom line? Leaving earned income off your tax return translates to filing a false tax return. If you receive a letter from the IRS notifying you of a tax audit, make sure you speak with an experienced tax attorney before you respond.
Skilled tax lawyers help you with compliance issues and tax controversy
With offices in Cleveland and Chicago, the tax attorneys at Robert J. Fedor, Esq., LLC respond to your concerns about your personal or business tax returns or civil and criminal IRS audits. When you need strategic tax advice, call 800-579-0997 or contact us.