A tax crime occurs when a person willfully or unwittingly fails to comply with federal income tax obligations. As the IRS is charged with the responsibility of collecting taxes and enforcing tax laws, they aggressively seek out tax defaulters with the aim of prosecuting and demanding any unpaid taxes.
Classification of tax crimes
There are many different types of tax crimes that happen. However, they can be broken down into two categories.
1. Willful neglect
The first category, willful neglect, happens when you knew something was illegal but either didn’t care or took the risk. This can include:
- Not paying taxes when they fall due
- Collecting or receiving an unauthorized tax refund
- Filing false returns
- Making fraudulent claims for refunds or credit offsets on employment records
- Not reporting any income to avoid paying taxes
Tax crimes are serious offenses that carry hefty penalties, including jail time. Willful neglect can be further categorized into two subsets.
Tax fraud is the act of deliberately deceiving or misleading a government agency for personal gain. It can result in fines of up to $250,000 or five years in prison. The IRS has the burden to prove that you deliberately committed the offense.
Tax evasion is the act of breaking the law by willfully refusing to pay taxes. This can result in a fine of up to $100,000 or five years in prison. Similarly, the IRS has a responsibility to prove that the tax evasion was done by design.
2. Non-willful neglect
The second category is non-willful neglect. In these situations, the person didn’t know what they were doing was illegal when they committed the crime. This usually refers to simple mistakes like forgetting to file a form, putting the wrong social security number on your tax returns, making typos or submitting undated or unsigned returns. For inadvertent mistakes, you may be given an opportunity to amend your return.
Crackdown on tax crimes
There are many more types of mistakes that can lead to tax fraud, but these two categories cover a lot of ground. As seen, the IRS has left nothing to chance in its efforts to fight against tax crimes. Therefore, it calls for diligence when filing your taxes.