Understanding Tax Evasion And Tax Fraud

In an attempt to minimize a tax burden, a taxpayer can put themselves at risk of tax evasion charges.

Earlier this year, two different Florida residents were the subject of reports concerning allegations of tax evasion or tax fraud. A physician in southern Florida reportedly entered a guilty plea in his case according to the Miami Herald and may spend up to three years in prison.

Between the years 2004 and 2008, he failed to report $18 million in income on his tax returns. That has left his with a tax evasion conviction and a bill nearing $12 million payable to the Internal Revenue Service. Because tax evasion is a criminal charge, he will also lose some of his basic rights of citizenship such as the ability to vote or serve on a jury.

Tax-related crimes do not always pertain to income tax. The owner of a marble and granite business has been charged with tax fraud for failing to report and pay as much as $32,000 in sales tax. The TCPalm.com report indicates the sales tax was collected from customers but kept by the business owner over the course of three years.

What Can Be Deemed As Tax Evasion Or Tax Fraud?

Investopedia notes that any action intended to avoid the payment of taxes can be declared tax evasion. According to the New York Times, following are some things that may be red flags to tax entities:

  • Itemized deductions on a tax return that appear to be too high relative to the income or other information on the return. Common examples include deductions for the use of a home office, the use of a vehicle for business purposes or donations to charitable organizations.
  • Large deposits in bank accounts that are not reflected on the account holder’s tax returns.
  • A discrepancy between a person’s lifestyle and corresponding income level.

Businesses that operate on a cash model may be more susceptible to allegations of unreported income. This is because there are less ways for the IRS or state tax personnel to track that income compared with other businesses.

Is There A Statute Of Limitations On Tax Evasion Or Audits?

As noted by Forbes, there is an initial three-year time period in which the IRS can initiate an audit for any taxpayer. However, there are certain circumstances which can extend this statute of limitation to six years or even more. Audits can become more complicated as the time between the original return year and investigation year grows.

Important Information For Taxpayers

Regardless of when an audit or investigation commences, the potential for being accused of a serious tax crime exists. Anyone facing such circumstances should always contact an attorney promptly.

Keywords: tax, fraud, audit, tax evasion

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