The Difference Between Tax Negligence and Tax Fraud

tax negligence or tax fraud?

Guest post by Jason Wiggam, founding partner of Wiggam & Geer, LLC

Filing your income taxes is a complicated and detailed activity. The U.S. tax code is complex, difficult to decipher, and constantly evolving. Therefore, it isn’t surprising that taxpayers often make mistakes. In fact, tax problems are likely more common than you think. The IRS estimates that about 17 percent of taxpayers fail to comply with the tax code in some way.[1]  Depending on the issue, you could face significant financial penalties or even risk prosecution for a tax crime. The difference comes down to whether the mistake was accidental or intentional.

Tax Negligence

When a taxpayer commits tax negligence, it means that he or she has not made a reasonable attempt to comply with the current tax laws. They might have been careless when filing their income tax return or did not keep accurate tax records. When an IRS auditor is trying to determine whether a tax mistake was negligence or fraud, they look for suspicious behavior. This could include concealing income, overstating deductions, falsifying documents, or using a fake Social Security Number. If signs of suspicious behavior are not there, the IRS will likely assume the taxpayer’s mistake was due to negligence. In other words, it was an honest mistake.

However, tax negligence does still carry some substantial penalties. If the IRS finds that a taxpayer is negligent, he or she could face a fee of 20% of the income they should have paid.

Tax Fraud

Tax fraud is when a taxpayer willfully tries to evade the assessment or payment of a federal tax. In other words, the taxpayer intentionally defrauds the IRS in the hopes of not having to pay his or her income taxes. Examples of tax fraud include:

  • Intentionally not filing an income tax return
  • Willfully filing a fake or falsified tax return
  • Deliberately not paying any income taxes owed
  • Not reporting all of the taxpayer’s income
  • Making false claims about the taxpayer’s income, expenses, or deductions

A taxpayer who commits tax fraud could face both civil and criminal penalties, depending on the type and severity of the fraud. This can include a fee of 75% of the income the taxpayer should have initially paid, plus additional charges or liabilities. Tax fraud is a felony, and if convicted, the taxpayer could face up to five years in prison.

[1]https://www.irs.gov/newsroom/the-tax-gap

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Jason WiggamJason Wiggam is a founding partner of Wiggam & Geer, LLC located in Atlanta, Georgia. His practice focuses on representing individuals, businesses, officers, directors, shareholders, and partners in matters before the Internal Revenue Service, the Georgia Department of Revenue, and other state tax departments. He can be reached via email at jwiggam@wiggamgeer.com or you can learn more about him and his firm by visiting https://wiggamgeer.com/.

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