Posted by James Financial Services Inc

How Lying on Your Tax Return Can Get You Into Trouble With Uncle Sam

How Lying on Your Tax Return Can Get You Into Trouble With Uncle Sam

Lying on your tax return to reduce your tax obligation to get a bigger tax refund can have ill effects. Here are sample consequences to expect:

  1. Uncle Sam identify Discrepancies on Your Tax Return 

As Uncle Sam processes your tax return, they will automatically check for discrepancies between your return and what Uncle Sam has on file. Banks, lenders, third parties, and your employer will send such info to the IRS every year. 

If there is any discrepancy, you will receive a CP 2000 notice requesting more taxes. 

  1. You can be audited

Uncle Sam tends to audit specific tax returns, and lying on your return can trigger such an audit. 

Audits will cost you time, money and you might be required to pay an additional tax of up to $9,500, alongside penalties and interest. Some audits can be complicated and last up to a year. 

If Uncle Sam feels your deceit was intentional, there could be other consequences. You might be faced with civil penalties of up to 75% of the tax you owe. 

  1. Disqualification from Future Tax Credits

If Uncle Sam audited your tax return and discovers that you claimed the Earned Income Tax Credit even though you are not qualified, you will have to deal with either of these two:

  • Payback the EIC part of your refund

  • Disqualification from claiming the EITC for two years. You might be banned for up to 10 years if Uncle Sam believes you took the credit fraudulently.

  1. You will have to Get Help professionally.

Whenever there is an issue with Uncle Sam – audit, penalty, or whatever, you are better off having a qualified professional guide you. 

You need their assistance, and it is money well spent since it can help reduce some consequences that might arise. However, such a fee can add up if your case is complicated. Ensure you contact a reputable tax professional for help. If your issue is not criminal related, you might not need an attorney. 

A tax professional or an enrolled CPA agent with experience solving tax problems can help handle the case. 

  1. Probability of Facing Civil Penalties

Penalties, most of the time, depending on your understanding of the tax law can also arise. As a result, there will not be any penalty if you made a minor error and Uncle Sam adjusted it for you. 

Massive understatements, however, might trigger some significant consequences. Concerns, many times, are

  • Penalty for negligence which is 20% of the extra tax

  • Liability for fraud – 75% of the additional tax due to fraud

  1. Possibility of Criminal Charges in Rare Case 

If Uncle Sam detects fraud, it will likely pursue criminal or civil charges.

Some cases get prosecuted every year, which ranges from deliberate and huge income omission, tax protest schemes or tax evasion, or lying to Uncle Sam in an audit.

Uncle Sam prosecuted a little above 10,000 taxpayers for tax crimes in 2016. These cases are taken seriously by Uncle Sam, and the average jail time could be three years.


An Accurate Tax Return is Essential 

Your best move every year is to have a complete and accurate tax return. Taxes could be complicated, and your situation might not be straightforward at times. When preparing for taxes, take time to research your account and consult a tax professional if you need to. 

The objective of every reputable tax pro is to ensure that you pay the least tax amount or get the biggest refund you are legally qualified for. 

Whenever Uncle Sam contacts you for anything about your return, ensure to take proper and timely action. 


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