Tax Fraud and Tax Scam Laws
What is tax fraud?
Generally speaking, tax fraud is any act that involves the use of deceit or fraud to gain an advantage when dealing with tax reports.
Traditionally, tax fraud refers to types of crimes: tax evasion and tax avoidance. Tax evasion is when a person intentionally fails to submit a tax report in efforts to dodge tax payments. Tax avoidance is when a person makes use of lawful tax mechanisms to rearrange their statements in order to pay less tax amounts. Both are considered to be tax crimes punishable under state and federal criminal laws.
More recently, tax fraud has expanded to include a string of scams and tax preparation schemes conducted by scammers who take advantage of unaware consumers. These crimes might not involve a direct offense against the U.S. government, but they are still punishable under criminal laws. These newer types of tax fraud schemes can take a wide range of forms, such as impersonating a tax official to gain information, or selling false tax documents. They are often used as methods of achieving identity theft.
What are some of the different forms of tax fraud?
Tax fraud can come in the form of tax evasion, tax avoidance, or tax preparation scams:
- Personal Income Tax evasion:
- Making false statements with regard to income or other factual information
- Business tax evasion:
- Purposefully underreporting or omitting income amounts
- Overstating deduction amounts
- Keeping two sets of record books or making false statements in records
- Categorizing personal expenses as business spending
- Concealing income or transferring assets for purposes of hiding them
- Employment tax evasion:
- Failing to pay employment taxes
- Making fraudulent statements with regards to payroll matters
- Operating a pyramid scheme
- Tax avoidance can occur by abusing the following tax mechanisms:
- Tax deductions
- Income deferrals
- Charitable contributions
Tax Preparation Scams:
- Offshore Business Arrangements: these involve a creditor urging you to use a foreign credit line in order to hide their own taxable income
- Forged checks: Fraudsters may sell fake checks which are then used to pay the IRS. This may subject them or you to federal tax fraud prosecution
- “Win a Prize, Pay a Tax”: A caller may inform the person that they have won a prize, and must pay the tax due on the prize in order to collect it. A genuine prize will typically send IRS forms to the winner and have them pay directly to the IRS
- Social Security schemes: The tax scammer will offer to file a social security refund on your behalf for a fee of hundreds of dollars. You will not receive the refund, and your “paperwork” will not be legitimately processed either
- Administrative agency/legislative scams: These scams typically focus on a theme, such as the Americans with Disabilities Act or a “Slavery Reparation Tax” for African-Americans. The alleged tax refunds turn out to be bogus
- Impostors: Tax schemers may pose as an IRS agent or other tax agent to gain access to your information. They may show up at your door requesting information or will present a false interpretation of tax law. Be sure to contact the police if you such an impostor has arrived at your home- IRS agents always carry ID and will call ahead of time
You should be aware that you yourself may be liable for tax fraud if you knowingly cooperate with persons who are conducting a tax fraud scam. You should report any suspicious activities to authorities. Your information can help prosecute an entire operation, which are sometimes extensive and far-reaching.
What are the penalties for tax fraud?
Tax fraud crimes are serious offenses under criminal laws. Most of them are considered to be federal tax felonies. Punishment for tax fraud may include felony charges, imprisonment in a federal facility for up to one year, and fines as great as $250,000 for individuals or $500,000 for businesses. You will also have to pay trial costs.
Do I need a lawyer for tax fraud charges?
As you can see, tax fraud should not be taken lightly because it carries very severe penalties. You should contact a lawyer for advice if you have been charged with tax fraud. Also, you may wish to consult with an attorney if you have been the victim of a tax scam. A tax lawyer will be able to determine your course of action under federal and state tax laws.
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Last Modified: 02-16-2012 03:03 PM PST