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The difference between tax fraud and tax negligence

On Behalf of | Jul 8, 2022 | Internal Revenue Service, Tax Evasion


Filing taxes can be a complex process. Businesses and individuals are required to file their taxes as accurately as possible, but events like purchasing property or commercial equipment can lead to tricky filing requirements that may result in errors. 

When the IRS sees red flags on a tax filing, it can lead to dire consequences. The number of Americans who face tax charges annually is extremely small, but the IRS does have a 90% conviction rate. That said, the IRS knows that it’s difficult to keep up with the endless rules and regulations, so human error is bound to occur. 

Understanding the difference between tax fraud and tax negligence is an essential step in preventing complications with the IRS.

What is tax negligence?

If you are fined for tax negligence, it does not mean the IRS believes that you intentionally avoided taxes. It means you filed your taxes carelessly, with minimal effort to confirm the accuracy of your claims. Tax negligence could lead to a fine of about 20% of the initial underpayment. 

Variances between bank deposits and reported income could trigger an audit. If you have a reasonable explanation for the error, like missing a step or confusion around tax laws surrounding a money transfer, you can usually pay your bill and close the inquiry without further consequences. 

What are common signs of fraud?

Auditors are trained to spot signs of intentional withholding or fraud. If some of the numbers on your tax filing do not add up, you might not be charged with fraud, but this irregularity could lead to further investigation. If there is something else hidden within your books, an auditor is much more likely to find it. 

There are some clear indicators that will raise immediate red flags if discovered. Some examples are falsifying documents or receipts, having a second set of books, or altering checks. Suspicious activities like these are evidence of a deliberate effort to evade taxes. 

Avoiding tax complications

Human error is not uncommon when dealing with complicated financial forms, including tax filings. The best solution is to be clear and honest on your tax filings while putting forth a reasonable effort to ensure accuracy. The IRS offers practical solutions for those who make mistakes if they are acting in good faith. If your mistake is classified as negligence, you will likely only pay the original amount due. 



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