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Tax Fraud

Tax fraud is a very serious matter. Please be careful when you prepare your tax returns. Do not fudge the numbers to get a tax break. Also, do not allow others to fudge the numbers for you. During tax season there are lots of people advertising tax preparation services. Many of these advertisements prey on the uninformed. How? By advertising refunds of over $3,000 per child etc. The truth is that, if you are entitled to a refund you will get it regardless of who prepares your taxes. Unless, you use an incompetent tax preparer that misses your valuable deductions.

Did you commit tax fraud? The real consequence of using these “fly by night” or “only available in tax season” people is that you may commit fraud. Just the other day, a woman told me that her friend was about to use a tax preparer that approached her in the supermarket parking lot. The preparer promised to get a $4,200 refund for her by giving her a fake 1099. Yes. This apparently happens in broad daylight. Please do not resort to these tactics. Your financial situation may seem bad. But, jail is worse. The IRS has sophisticated computerized systems that detect fraudulent activity. Should the IRS catch this individual the IRS will then audit everyone who used his services. Do you really want this to happen to you?

How to test if you committed tax fraud? Tax fraud is usually proven by circumstantial evidence and reasonable inferences. Fraud will generally involve one or more of the following elements:

  • Deception,
  • Misrepresentation of material facts,
  • False or altered documents,
  • Evasion (i.e., diversion or omission)

Did you intend to evade tax? The courts focus on key badges of tax fraud in determining whether there was an “intent to evade” tax. Some of the common “badges of fraud” include:

  • Understatement of income (e.g., omissions of specific items or entire sources of income, failure to report substantial amounts of income received),
  • Fictitious or improper deductions (e.g., overstatement of deductions, personal items deducted as business expenses),
  • Accounting irregularities (e.g., two sets of books, false entries on documents);
  • Acts of the taxpayer evidencing an intent to evade tax (e.g., false statements, destruction of records, transfer of assets),
  • A consistent pattern over several years of under reporting taxable income,
  • Implausible or inconsistent explanations of behavior,
  • Failure to cooperate with the examiner,
  • Concealment of assets
  • Engaging in illegal activities (e.g., drug dealing), or attempting to conceal illegal activities,
  • Inadequate records,
  • Dealing in cash
  • Failure to file returns, and
  • Education and experience