When auditors discover fraudulent tax deductions, they asses hefty fines — and in the most egregious cases pursue criminal charges.
Fraudulent Tax Deductions: Overstatements
Sometimes called “padding,” typical overstating deductions tactics include claiming charitable donations, deductions for dependents, and business losses that don’t qualify per IRS guidelines. The IRS can also charge parties who overstate deductions with tax fraud. The IRS can also smack down $5,000 penalties for frivolous tax returns.
The Penalties for Negligence & Fraud
The IRS can tack on a 20% penalty in tax deduction fraud cases. The IRS will assess this penalty if the total amount of deductions claimed is greater than 10% of the owed amount, or if the amount understated for the total tax liability exceeds $5,000.
One of the most common problems is the home office deduction. If the IRS believes you have erroneously claimed a home office or other deduction, it can ding you for anywhere between $500 and $5,000. This penalty can jump to 75% if the taxpayer deliberately and fraudulently attempts to reduce their tax liability.
Fraudulent actions such as falsifying social security numbers, maintaining two sets of books, and embellishing expenses can invite criminal charges and jail time.
Penalties for Failing to Pay & Tax Evasion
The “Failure-to-Pay” penalty is .5% of the amount owed for every month past its due date. This maxes out at 25% of the amount owed.
A charge of tax evasion is considerably more serious. Fines are the most common penalty, but tax evasion can land you a 5-year jail sentence and $250,000 fine.
Preparing for an Audit
Individuals whose personal or corporate taxes are being audited should consult with a tax attorney who can help guide the individual through the tax audit process. Avoid maximum fines and criminal liability by working with an audit attorney.
Our team has helped countless businesses and individuals with various tax law matters. We negotiate down tax debts and save clients money. Let’s talk about how we can help you. Get in touch today to begin the conversation. The consultation is on us.