Lay and Legal Terms: What is Tax Fraud?

What’s in a word? Tax terms can be confusing, but terms related to tax crimes must be clear when allegations are on the line.

“Tax fraud” is an everyday term that usually means someone is up to something with their taxes, or the company payroll taxes, or tax evasion through offshore tax accounts.  People use it as a general term to refer to doing something shady with your own or someone else’s taxes.

To the Internal Revenue Service (IRS) “tax fraud” has a very specific meaning which is worth understanding if, in fact, you are doing something shady with your own, or someone else’s taxes. Consider these specifics:

• 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. Simply stated, it is obtaining something of value from someone else through deceit.”
• Tax fraud “is often defined as an intentional wrongdoing, on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing.”

Tax fraud, then, requires both intent to defraud with a legitimately owed tax. Tax fraud is at play in all types of common tax crime including:

• Employers may make mistakes with withholding, paying over, or reporting on payroll taxes.  Employers who withhold payroll taxes and intentionally route those taxes to another bank account for personal or professional use may find themselves accused of tax fraud.
• High-net-worth individuals or companies who use offshore tax havens to move, disguise, and hide taxable income could eventually be challenged by allegations of tax fraud.
• Fraudulent tax returns that include fictitious deductions and expenses, fake supporting documents, and underreported income can be tough to defend against a charge of tax fraud.

If you are approached by the IRS for an audit and you know that your tax return is not accurate, be cautious and speak with an experienced tax attorney before you respond. You may be able to argue that the errors on your return are the result of a mistake, or a failure to understand what you needed to supply—rather than intentionally filing a false income tax return. You may be fined a penalty for the inaccurate return—but may avoid that far more serious term—tax crime.

Our legal team helps you with IRS audits, tax litigation, and other tax controversy

Serving local and international clients from offices in Chicago and Cleveland, the legal team at Robert J. Fedor, Esq., LLC helps you respond strategically to goals to build and nurture wealth as well as respond to allegations of tax fraud, or tax crime. Call 440-250-9709 or contact us today.