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What's the difference between tax fraud and negligence?

It's the time of year when people are beginning to get their documents together to file their income taxes. Even with all of the electronic software available to help file your taxes, the Internal Revenue Service rules and regulations can be confusing and daunting. It's not uncommon for people to neglect to report something or make an error. However, how does the IRS determine whether someone simply made an error or intended to defraud them?

The IRS can generally recognize the difference between the two. Of course, even an honest error can cost taxpayers up to 20 percent of the amount they underpaid.

Some things that raise suspicions of fraudulent activity include:

-- Transfer or concealment of income-- Overstatement of exemptions or deductions-- Falsified documents or a false Social Security number-- Willful underreporting of income-- Exemption of a non-existent dependent-- Classifying personal expenses as business expenses

People can be convicted of tax fraud if they willfully fail to file a return or pay the taxes they owe, fail to report all of their income, file a false return or make false claims.

There is a branch of the IRS that investigates suspected tax code violations as well as other tax crimes like money laundering. The penalties for tax fraud can run into the hundreds of thousands of dollars in addition to the cost of prosecution. Some tax crimes, such as tax evasion, are felonies that can carry a prison sentence.

If you are accused of tax fraud or tax evasion, regardless of the circumstances, it's essential to seek experienced legal guidance to help mitigate any penalties.

Source: Findlaw, "Income Tax: Fraud vs. Negligence," accessed Jan. 05, 2017

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