Posted by Larry Hurt

What Happens If You Get Caught Lying on your Income Tax?

What Happens If You Get Caught Lying on your Income Tax?

Lying about income tax means that you are committing tax fraud, which is a federal crime. The IRS has severe penalties so that perpetrators will pay a very high price. Prison is a huge possibility, although most tax cheats do not spend time behind bars. If a person is unable to pay taxes, the IRS will not pursue the matter in court. However, those who hide assets, do not report income or accept loans or deductions to which they are not entitled, can expect the IRS to take serious action.

Note: Depending on the details of your situation, you may be subject to a series of criminal sanctions if you are caught lying about your income by the IRS. Hefty fines and prison terms are possibilities for criminals.

Internal Revenue Service Audit Trigger

If you are found trying to cheat the IRS (or lie) about your income on the tax form, the IRS may likely audit your income taxes. Less than 1% of individual tax forms are checked each year. However, there are a few red flags that can trigger an audit. This includes:

    •    High-income earners: those earning $ 200,000 per year incur higher examination fees

    •    Significant commercial deductions

    •    Child care deductions

    •    Disproportionate deductions from income.

    •    Foreign accounts

    •    Significant deductions for entertainment and business lunches

    •    Non-monetary charitable contributions

    •    Income from undeclared investments

    •    Commercial losses declared in Schedule C

    •    Loss of rent

    •    Losses suffered by those who are mainly recreational, not commercial

    •    100% use of commercial vehicles

    •    Advanced withdrawals from old age accounts

    •    Office deduction requests

    •    Foreign currency transactions.

Tax laws are complicated, and many honest mistakes are made by taxpayers or even their accountants. However, the IRS is very good at eliminating honest mistakes from cheats. The IRS searches for specific information during an audit. Some companies have higher levels of fraud. This includes:

    •    Secondary income: many people whose employers declare their income to the IRS also secondary means of income (side jobs), and it is the responsibility of the user to report this income. The IRS will receive either a 1099-MISC form from a supplier for whom the person worked or a 1099-INT form from a financial institution indicating that the person did not include it in their income tax form.

    •    Self-employed: anyone who works for themselves, especially someone from a high-income business, will receive an additional IRS exam.

IRS Audit Sanctions

Attempting to evade tax is a serious crime, as is the willful inability to collect or pay taxes. If convicted, a person is liable to a maximum of five years' imprisonment and a fine of up to $ 250,000 per person, as well as legal costs. Fraud and misrepresentation of a tax return are also criminal offenses, and an offender can be jailed for close to three years and fined up to $ 250,000, still subject to prosecution. The same goes for anyone who helps a fraudulent person and makes false tax returns.

"Intentional failure" to file a return, pay taxes or provide information is a criminal offense, with one guilty to a maximum of one year in prison and a fine of up to $ 100,000 and the cost of persecution. In addition to these fines, those who have not paid their taxes must pay their taxes in addition to a 75% penalty on it.

What Happens When You Lie and Get Caught?

At this point, being honest is the best thing to do. If you are caught and accused of severe tax fraud, getting a tax lawyer should be your number one priority. But if you happen to be caught for less severe tax offense, it is advisable to comply and pay the fine. 

What happens if you lie on your tax return to get a higher or lower refund? The consequences are divided into six categories.

1. The IRS can identify the difference and send you a notification.

This is the simplest and generally the most straightforward answer from the IRS.

As the Internal Revenue Services processes your return, it will automatically check for any discrepancy between your return and the information the IRS has on file. The IRS receives this information each year from employers, banks, and other third parties.

The IRS will report any incompatibility and may send you a CP2000 notice offering additional fees.

2. You can lose tax credits over the next few years.

If the IRS verifies your return and determines that you incorrectly claimed your earned income credit (EIC), two things can happen:

    •    You must return the EIC part of the refund.

    •    You may not be able to claim credit for your earned income for two years, and perhaps even ten years if the IRS considers that you have accepted the loan fraudulently.

3. You will pay for professional help.

Whenever you are dealing with an IRS audit, fines, or other major tax issues, you will likely need the services of a qualified professional.

Although this money is often spent and can reduce some of the other consequences, commissions can cause more complicated problems. Make sure to use a reliable professional. For civil (non-criminal) matters, you will typically not need a lawyer.

In most cases, a registered agent or CPA who is knowledgeable about solving tax problems can deal with the situation, saving time, money, and stress in the long run.

4. You risk civil sanctions.

The fines vary depending on the underestimation of the tax. If you made a simple mistake and the IRS changed it, you may not be required to pay the penalty.

A significant underestimation has significant consequences. In this case, the most common sanctions are:

    •    Penalty for negligence: 20% of the additional tax

    •    Penalty for fraud: 75% of the additional tax due to fraud

5. In rare cases, the IRS can lay criminal charges.

When the Internal Revenue Service’s identifies fraud, the IRS can lay civil or criminal charges.

The IRS system processes relatively few cases each year and generally involves substantial omissions of income, tax evasion or tax protest plans or by filing the IRS in an audit.

In 2016, the IRS sued just over 1,000 taxpayers for tax offenses. The IRS takes these cases seriously, with an average sentence of more than three years in prison.

Bottom Line

Taxes can be complicated, and your situation cannot be black and white. This is why it is essential to spend time collecting all your files, researching your IRS account (if necessary), and even hiring a tax specialist to prepare your declaration or modify a declaration that you have already registered. A good tax expert will always try to help you pay the least tax or get the highest refund that you are legally allowed to get.

Larry Hurt
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