The Covid-19 pandemic brought about radical social changes. Despite its challenges, it has been a renaissance for many people. Social media users, particularly Reddit, have rallied people to invest in the stock exchange.
Reddit became a platform used to give out stock tips and some users who heeded the stock investment advice have become millionaires. Unknown to many people, once you have made capital gains on your stock, you have to pay taxes on such earnings. When you fail to declare and pay such taxes, you will be considered to have committed tax fraud.
How does the Internal Revenue Services (IRS) know if you commit tax fraud?
Tax fraud is essentially a deliberate attempt to fleece the tax master of the taxes due to them. The IRS takes tax fraud seriously and apart from imposing penalties, they can also prefer criminal sanctions against an offender.
One can be adjudged to have committed tax fraud if they have prepared a fictitious return by not stating the actual income earned. A taxpayer can also commit tax fraud if he/she does not pay their taxes when they are due or completely fail to file an income tax.
When some people trade in stock, they think that their transactions are anonymous. However, this is false; the IRS will always be privy to the transactions. Before placing your stock requests, the trading platform usually sends a Form 1099 B. A copy of the form is sent to the IRS; therefore, the IRS expects you to report your capital gains when filing your taxes. Failure to report the capital gains would lead to the tax master suspecting that you have committed tax fraud.
Tax fraud is a serious offense; if found guilty, you shall be liable to pay up to $250000. Additionally, you may end up being imprisoned for up to five years. Sometimes the defendants are forced to reimburse the IRS for the taxes due. Additionally, they would pay a fine and also get a prison sentence.
Are there defenses available for tax evasion?
Fortunately, tax fraud is not a strict liability offense. Therefore, if accused of having committed tax fraud, you can proffer a defense. In many cases, the simple act of filing returns at the last minute may lead to inadvertent errors. No matter what happened, it is best that you speak with an experienced attorney should you find yourself in such a situation.