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Income tax: The difference between fraud and negligence

The federal tax system is extremely complicated, especially if you don't have any knowledge of what's expected of you. No matter how much you learn or who you hire to assist you, there's always a chance you could run into trouble with the IRS.

There's a big difference between income tax fraud and negligence. With fraud, you make a willful attempt to evade tax law as a means of saving money or defrauding the government. This typically occurs as a result of the following:

  • Filing a false income tax return
  • Making false or fraudulent claims on your income tax return
  • Intentionally failing to report all your income
  • Intentionally failing to pay your taxes
  • Intentionally failing to file an income tax return

With all of these things, you know exactly what you're doing. This is why the IRS looks down on these behaviors.

What about negligence?

The IRS is aware that the tax code is full of many complexities that are difficult for the average person to understand. This is why there's a big difference between fraud and negligence.

There are many common forms of income tax negligence, including but not limited to:

  • Math errors
  • Mistake when entering a Social Security Number
  • Claiming a tax credit that you don't qualify for

If you make a math error, for example, the IRS is not likely to assume that you did so for your own personal gain. Instead, if audited, you'll receive a letter outlining the mistake and the next steps to take. If the error worked in your favor, you will owe additional money, along with a potential penalty and interest.

Penalties for fraud are serious

The penalties for negligence aren't life-altering, but the same doesn't hold true for fraud. You could face consequences such as:

  • Imprisonment
  • Fine
  • Requirement to pay overdue taxes, plus interest and penalties

If you're charged with any type of tax-related crime, it's important to understand the charges and the next steps in the process. Thinking you can sweep this under the rug is a big mistake.

The sooner you understand what comes next, as well as how to protect your legal rights in Colorado, the better off you'll be.

Visit our website for more information on tax fraud, among a variety of other types of white collar crimes.

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