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Tax Negligence vs. Tax Fraud


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There is a big difference between negligently filing a return and tax fraud. Do you know the difference, as well as how the IRS makes a final determination? It is important to be 100 percent aware of what the IRS looks for. Along with this, make sure you know how to avoid both negligence and fraud.

IRS auditors are trained to find fraudulent returns. With this, they are looking for willful acts that are completed with the sole intention of defrauding the IRS. For example, using a fake social security number is considered fraud. But remember, just because auditors are trained to find fraud does not mean they suspect it on every return. In other words, they will give you the benefit of the doubt and assume that you made a mistake. Of course, if you were being fraudulent you will eventually get caught.

While negligence is “better” than tax fraud it is not something that you want to deal with. A mistake on your return, due to negligence, could cost you up to a 20 percent penalty of your tax bill. This can be a lot of money, but not nearly as much as the 75 percent civil penalty for tax fraud.

There is no clear line that separates tax fraud and negligence, which means that the IRS is often times in position to make a judgment call. For this reason, do what you can to avoid both situations so you never have to worry about either type of penalty.

Auditors do not spend all their time digging into the background of particular individuals. They are trained to spot what they call “badges of fraud. ” For instance, they may look for businesses that have two sets of books, checks that have been altered to take advantage of larger deductions, or no records at all. These are the types of red flags that make the IRS suspect fraud.

Generally speaking, the chance of being convicted of tax fraud is very low. This does not mean you should attempt to get away with it, though. The chances may be low, but every year hundreds of people are convicted of fraud and faced with large penalties.

If you are in a dispute with the IRS because you have been convicted of IRS tax fraud, make sure you hire the best tax attorney possible. They can help explain your situation, while going over all the facts and helping you to get out of trouble with the minimal amount of damage sustained.

There is a big difference between negligence and fraud. In most cases, the IRS will decide that you were negligent and slap you with a penalty of up to 20 percent of your liability. As noted above, though, auditors know what to look for and how to find individuals and businesses that are committing tax fraud.

Your job is to ensure that the IRS never convicts you of tax fraud or claims that you were negligent in filing your return. If you are successful in doing so, you will never have to worry about excessive penalties.

If you need the help of a professional to deal with IRS tax fraud, request a free consult from one of our expert tax professionals at .


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