Posted by Unifirst Financial & Tax Consultants

What Happens If You Get Caught Lying on Your Taxes

What Happens If You Get Caught Lying on Your Taxes

Typically, more than $3000 is the average tax refund.  The moment you find out that your refund is lower than the said value or worst when you realize that you owe money - fudging the numbers and increasing your refund will be tempting.

However, misrepresentation of income on returns will be considered as tax fraud, and constitute severe consequences. The following are the possible situation a taxpayer can face:

The possibility of getting audited

The IRS obtains all of the 1099s and W-2s you receive, and because of that, they can trace whether you report all of your income. Bear in mind that your financial activity may show red flags regarding what income you skip to report and this can trigger an audit regardless of whether you accept unreported payments in a form of cash or check.

A thorough review of taxpayers’ taxes and financial records is done through an IRS audit, this is to make sure that the taxpayer’s report is accurate. Even if the majority of individuals just have a 1 percent chance of being audited, taking the risk is not worth the trouble.

Going through an audit is a time-consuming and expensive process that requires submission of several years of documents and even a face-to-face interview. Hiring a professional to represent you and your interests is recommended in case the IRS audit you, it may be the best option, and it is surely a sudden costly expense.

The IRS can review any return from the previous 6 years even if they only noted 1 return for audit. Moreover, for each year they find problems on the return they can add penalties and fines. Thus incurring mistakes for the previous multiple years, can lead you in owing thousands of dollars for the misrepresented tax you made.

Tax fraud conveys serious penalties & fees

The fines and penalties can be outrageous if in case the IRS chooses you for audit and find a discrepancy on your return.

Fudging your taxes in order to minimize your tax bill or increase your refund can cost you more in the long run as states by the president of Westwood Tax and Consulting, Joshua Zimmelman.

According to Zimmelman, not paying your tax liability before the due date will result in a late payment penalty from the IRS. You may still be charged a late payment penalty even if you file on time if you under-report your income and the IRS learns about it.

Moreover, the penalty is just the beginning. The underpayment will also incur interest and will be charged by the IRS. You might end up having to pay serious fines if you’re found guilty of tax evasion or tax fraud.

Typically, tax evasion or tax fraud is a problem that affects high earners and big executives, still, taxpayers with lower incomes must be cautious also. The IRS process of stating the penalties for tax fraud does not contrast between the amounts of income or the value of the underpaid taxes. The fine for falsification of any information in return is $250,000 maximum.

Criminal charges are possible

In addition to the possibility of having thousands in IRS penalties, fees, and interest, taxpayers can also be held liable for criminal charges.

Zimmelman said “Tax fraud is a felony and punishable by up to five years in prison,” he also added, “Failing to report foreign bank and financial accounts might result in up to 10 years in prison.”

The moment the IRS auditor identifies possible fraud during their audit of the returns, criminal investigations and charges will also begin. Annually, roughly 3,000 people are convicted by the courts for tax fraud, these only show that the IRS takes seriously those individuals who lie on their return. 

There is only a relatively small possibility that the IRS will charge taxpayers for fraud and if in case the taxpayer is under investigation, the odds of facing a criminal charge are lower than 20%. However, getting extra little money out of the refund is not worth the risk for potential severe consequences it may cause.

Missing out on a mortgage or loan

Lastly, taxpayers who do not report all of his income may have serious complications in relation to purchasing a car or a home.

Underreporting your income will hurt you especially when you try to purchase a house or apply for a personal loan. If it looks like you cannot afford to pay it back, you might not get it.

Mortgage companies and banks will request copies of your tax return the moment they review your application and they have to verify your total income. Lying on your income to lessen the tax liability will indicate that your actual income will not be stated in return. In other words, the chance of getting denied for the load that you need is high and it can affect you financially in the future. 

It is important to report your taxes correctly and properly. Nobody wants to miss out on a big refund or owing money at tax season. But always remember that tax fraud is a serious criminal activity, and the IRS will consider cutting out of income and increasing deductions as lying. 

Fudging your income can save a small amount of money during the tax season but in the end, the auditing, penalties, and fines will cost you thousands of dollars. Strain yourself and report the necessary information properly and correctly. 

Unifirst Financial & Tax Consultants
Contact Member