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Negligence or tax fraud: Which is it?

On Behalf of | May 17, 2022 | Firm News |

If you receive a letter in the mail showing the return address of the Internal Revenue Service, your first reaction may be one of panic. Did they find a discrepancy in your 1040 return? Do you owe additional taxes? Surely they don’t accuse you of tax fraud — do they?

Rather than expecting the worst, FindLaw counsels you to read the notice carefully to fully understand what it says. While tax fraud allegations represent an extremely serious situation, in all likelihood, the enclosed notice simply advises you that IRS officials discovered a relatively minor mistake on your tax return that may or may not result in your need to pay additional taxes.

Fraud examples

Tax fraud requires a deliberate act, such as one of the following, on your part:

  • You refused to file an income tax return when due.
  • You refused to pay taxes when due.
  • You deliberately understated your income for the year in question.
  • You deliberately overstated your deductions or exemptions.
  • You deliberately prepared or filed a false return.

Negligence examples

Simple negligence, on the other hand, results in no criminal prosecution, just resolution of the mistake you made. For instance, your tax return may contain one or more of the following:

  • A simple arithmetic miscalculation somewhere on your tax return
  • Interpolation of a couple of numbers of your Social Security number
  • A misidentification of your filing status
  • A reported income that fails to match your W-2, 1099 or K-1

Audit minimization

Unfortunately, you face a higher chance of audit if you are self-employed or work for a food service company or other business where a significant portion of your income consists of tips. Your wisest course of action in such situations consists of redoing your calculations several times and proofreading your entire return carefully before filing it.