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Lying on Taxes

Lying on Taxes

In 2020, the I.R.S. processed over 3.5 million compliance activities. These activities occur when the I.R.S. thinks something is wrong with a tax return. They include:

  • Automated under report: You didn't report all your taxable income, so the I.R.S. does it for you.

  • Automatic substitute for return: If you don't file a required tax form and the I.R.S. uses other documents to calculate the amount you owe and sends you an invoice.

  • Correspondence examination: This is a type of I.R.S. audit by mail - the I.R.S. requires additional documents or asks you to explain something in writing.

  • Field examination: This is the traditional audit that many people think of.

  • Math error notices: The I.R.S. sends you a letter telling you that someone made a calculation error on a tax return and that the I.R.S. has corrected it.

As you can see, if you lie about a tax return to get more money, chances are the I.R.S. will catch you, and one of the above enforcement actions will happen. Learn more about lying on your tax return below.

Why do people lie about their taxes to make more money?

People may commit tax evasion to avoid tax liabilities or increase their refunds. It is not legal, and you can face serious consequences if you intentionally get involved in the business.

How can people lie and get more taxes?

Here are some of the most common ways people can lie about their taxes:

  • Not reporting all your income

  • The number of expenses or other deductions that were not made to reduce the amount of taxable income

  • Claim dependents that do not exist or do not belong to you

If I haven't told you yet, don't commit tax fraud. It is illegal and can lead to serious consequences. Keep it light and above board by being honest with your taxes.

Remember that claiming a deduction that actually exists or legally using a tax loophole to save money is not lying on your tax return. However, the line between legal and not can be confusing for anyone new to tax law. If you are unsure whether or not something is tax legal, it may be a good idea to consult a tax professional for help.

How does the I.R.S. know you're lying about your tax return?

The I.R.S. uses various tools to ensure that tax returns are as accurate as possible. Here are some ways the I.R.S. can find out that you're lying on your return to get more money.

Comparison of income documents: When you receive a W-2, 1099, or other tax document showing your income, the Social Security Administration also receives a copy of that document. The I.R.S. can access these records and compare your reported income with this information. If it does not match, it could launch a compliance activity.

Comparing expense documents: In some cases, the I.R.S. may obtain a copy of your expense documents, such as Form 1098. If you receive official I.R.S. forms from someone and report those amounts as tax expenses, it is important to record the exact amount on the forms. Please contact the sender for the correct form if the forms are incorrect.

Comparing to other information databases: The I.R.S. may compare your tax information with other information, including I.R.S. and other government databases. You can easily see if someone claimed a dependent, for example, or what their Social Security income was.

General benchmarking and averages: The I.R.S. sometimes applies benchmarking to determine if a tax return is within normal limits for certain items. For example, reporting more than $70,000 in income and $60,000 in deductions may be outside the normal range for someone with that income level. This may cause the I.R.S. to take a closer look at your return or ask you for supporting documents.

What is an I.R.S. audit?

An I.R.S. audit occurs when the I.R.S. examines or reviews tax returns to ensure that the information is true and accurate. If the I.R.S. finds something wrong or thinks someone made a mistake or lied about your return, it may initiate a mail order or field test. During these processes, you usually have to provide documents and proof of information on your tax return or pay additional taxes.

Does the I.R.S. catch all errors?

No, the I.R.S. probably won't catch all errors. But it runs tax returns through a series of processes to catch math errors and odd income and expense rates.

What if you accidentally lie on your taxes?

If you lie on your tax return and the I.R.S. catches you, you could end up owing a lot of money or face civil or criminal consequences. If the I.R.S. finds something is wrong with a return, it will usually begin enforcement action. You will receive a letter about the activity.

You may have the opportunity to respond to correspondence to prove your case. Or the I.R.S. may simply adjust your tax and charge you the extra amount, plus hefty penalties and interest. Owing the I.R.S. can be a blow to your personal finances.

What to do in the event of a tax error?

If you make a tax error, you must report it to the I.R.S. as soon as you realize the error. You can file an amended tax return to correct the problem. If the amendment is filed early enough, there may be no repercussions. However, if you do not detect and report the error in time, you risk fines, penalties, and other consequences.

Can you go to jail for filing your taxes wrong?

You could face jail time or other criminal consequences if you are convicted of tax fraud or tax evasion. Since tax evasion and other tax crimes are very serious, you may want to consult a tax law professional if you are having these issues – whether you lied on purpose or have just made a mistake.

Keep Things Straight

Honesty is definitely the best policy when it comes to dealing with the I.R.S. If you decide to pay your taxes this year, be sure to file everything correctly with the I.R.S. to limit future problems with the government.



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