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When does a mistake on your taxes rise to fraud?

The government uses federal taxes to help fund programs and pay employees. Within the first quarter of a new year, people report income and file a tax return for the prior year to see if they paid according to the laws.

The IRS is in charge of federal income tax. When a filer does not put the proper information on a tax return, the IRS must decide if that person made an error or blatantly lied. The two have very different consequences.

Tax fraud basics

Tax fraud occurs when a person lies or omits facts to come out ahead on a yearly tax return. This may involve paying less money, avoiding penalties or receiving a higher refund. Manipulating the numbers is the most common example of fraud. Sometimes a person may file a false return to hide actual income. To prove fraud, the IRS must show that the filer lied in an intentional act.

Fraud or mistake

What happens when a person makes a true mistake on a tax return? Can the IRS tell the difference? IRS auditors examine returns and supporting documents to ascertain whether a filer lied or merely made an error. The most common errors involve underreporting income or transposing numbers. If it is an anomaly, the IRS may chalk it up to a mistake. However, if a pattern of this practice exists, further investigation may occur. Some of the most common examples of fraud include:

  • Creating counterfeit documents such as W-2s
  • Opening fake accounts to conceal income
  • Claiming a dependant who does not qualify or exist
  • Using a false social security number

The IRS expects everyone to pay a proportionate share of taxes. Even so, the government entity understands that mistakes happen. However, the government will also prosecute anyone who they believe committed fraud.

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