Fraud is an intentional effort to underpay tax; negligence is carelessness or disregard of the rules without intent, and the distinction decides whether a taxpayer faces a 20 percent accuracy penalty, a 75 percent fraud penalty, or a criminal referral.
The IRS infers intent from badges of fraud: concealed income, false records, implausible explanations, dealings in cash, and a pattern of underreporting. A single mistake, even a large one, is usually negligence.
Why it matters: how an audit is handled from the first response can determine which side of the line the IRS lands on. See civil fraud penalty.
Audits, penalties, collections, criminal exposure, and Tax Court, handled by attorneys who do this every day.
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Definitions are general information, not legal advice, and may not reflect the most recent changes in law.
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