As the IRS begins reviewing recently submitted tax returns, agents will be on high alert for anything that doesn't look quite right. While making a mistake on a tax filing won't necessarily lead to serious trouble, tax evasion is a serious crime that carries harsh consequences. Understanding what the IRS is looking for can help you or your business avoid tax evasion allegations or be prepared if you do end up facing them.
What is tax evasion?
Tax evasion, also known as tax fraud, is the act of purposefully failing to pay taxes in full. There are many ways to commit tax evasion, but for businesses, it often means underreporting income or over-reporting expenses - both of which can lead to a lower tax burden.
Can an innocent mistake lead to tax evasion charges?
Filing taxes can be a complicated process. With so many different parts to the process, making an error can seem inevitable. Luckily, a simple mistake rarely leads to tax evasion charges. If the IRS notices a problem, their first course of action is typically to try to work it out with the business or individual rather than take legal action.
What is the IRS looking for?
To charge someone with tax fraud, the IRS is looking for intent. That could come in the form of purposefully underreporting income, stating that expenses are higher than they were or failing to file taxes altogether. In many cases, the IRS looks for a pattern, so charges may come years after a business has been displaying signs of tax fraud.
What are the consequences of tax evasion?
Tax evasion is a felony crime. A conviction can lead to prison time and expensive fines. If charges are tied to your professional life, a conviction could also severely damage your reputation, making it difficult to find other work.
What should you do if you think you are being investigated?
There is a common misconception that you have to wait to be arrested or charged with a crime in order to seek help. This is false. If you suspect you are under investigation for tax fraud, it is important to speak to an attorney as soon as possible. Your attorney can begin building a strong defense on your behalf even before you are charged. Starting as early as possible can help ensure you are prepared for whatever happens next.