An accusation of tax fraud is daunting, to say the least. And for good reason, as the Internal Revenue Service (IRS) views the commission of any form of tax fraud as a serious crime. Each type of tax fraud carries penalties that range from civil to criminal.
The difference between civil and criminal tax crime
When it comes to tax fraud, it's important to understand the differences between what the U.S. government considers a civil or criminal act:
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Civil fraud is an administrative correction that may follow an audit. The auditor typically proposes penalties as part of their overall report. Based on the auditor’s recommendations, the appropriate tax is assessed, and monetary penalties may be imposed. Any assets involved may be recovered.
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Criminal fraud is intended to punish a person found to have willfully committed tax fraud. Prosecution is meant to deter both the accused and others from engaging in similar conduct. Upon conviction, possible penalties include fines, restitution requirements, and imprisonment.
An IRS investigation into filing a false tax return that uncovers substantive evidence of wrongdoing may cause a civil case to escalate into a criminal one. Beyond significant fines, the potential for federal imprisonment may arise. The following real-world case illustrates why accusations involving false tax returns are treated seriously and why such matters often require counsel from an experienced tax fraud attorney.
Temporary employment firm owner indicted
In March 2026, the manager of a Massachusetts-based temporary employment agency was charged with committing tax fraud involving approximately $980,000 in withheld revenue owed to the federal government. According to IRS allegations, the accused deliberately underreported more than $3.5 million in gross receipts on his tax returns.
In addition to other alleged illegal activities, including the operation of an off-the-books cash payroll, the manager aided and assisted in the preparation and filing of a false tax return. This charge, returned by a grand jury, carries a potential sentence of up to three years in prison, followed by one year of supervised release and a fine of $250,000. Final penalties will be determined at sentencing by a federal district court judge. Whether the ultimate penalties will be reduced or increased remains to be seen.
Paying employees off the books, underreporting business income, or concealing cash transactions are common red flags that can draw IRS scrutiny.
Know who is filing your taxes to avoid false reporting
Individuals, particularly business owners, should choose their tax preparer carefully. Even if they did not intend to defraud the IRS, an unscrupulous or unqualified accountant exposes a taxpayer to significant risk. In such cases, the liability may still rest with the taxpayer whose return was filed.
Even when a taxpayer did not prepare the return personally, signing and submitting a false return can result in audits, penalties, and possible criminal allegations.
The IRS may require corrections to a return, repayment of owed taxes, or reimbursement of improperly issued funds. In cases involving multiple false tax returns, the final consequences can be severe enough to jeopardize a business.
Accused of filing a false tax return?
The IRS treats false reporting very seriously; whether it stems from an honest mistake or deliberate misrepresentation, the consequences could be significant. When civil penalties or criminal charges are at issue, the attorneys at Robert J. Fedor, Esq., L.L.C have your back. Call 440-250-9709. We serve clients across the U.S. and internationally from our offices in Cleveland and Chicago.
