www.taxprofessionals.com - TaxProfessionals.com
Posted by Taxes Made EZ Inc

What is the Difference Between Tax Fraud & Tax Evasion?

What is the Difference Between Tax Fraud & Tax Evasion?

A deliberate and conscientious attempt to defeat or evade federal or state taxes may result in tax evasion or tax fraud charges.

It is often said that nothing in this world is certain "except death and taxes." Americans, like residents of other countries, are subject to federal and state taxes. Unfortunately, intentionally or accidentally, people may not pay enough or pay their taxes in full. Under certain circumstances, these errors can lead to civil or criminal legal problems. To avoid these costly problems, we have created this article to help you understand the difference between tax fraud and tax evasion.

Tax Fraud

There are situations where people provide incorrect information on their tax returns. This includes preparing records to overestimate your expenses, neglecting to report all of your income, failing to complete your tax return in its entirety, or pretending to live in one state while living in another. When people knowingly or intentionally provide false data, it can be considered tax fraud.

Those found guilty of tax fraud can have serious consequences with the law. They can be fined up to $250,000, up to three years in prison, or both. In addition, those guilty of tax fraud may be required to pay court costs.

Examples considered as tax fraud:

  • An intentional non-compliance to file an income tax return

  • Claiming non-existent dependents exemption

  • Excessive deductions and exemptions

  • Failing to report all income earned

  • Falsifying documents

  • Keeping two sets of financial records

  • Making false claims

  • Non-payment of taxes due

  • Preparing and filing a false tax return

  • Using a fake social security number (SSN)

In addition to these examples, there are labor tax scams, such as an employer not withholding federal income tax from employee wages, hiring an outside payroll service that does not provide any funds to the IRS, and paying employees in cash, while not reporting the cash payments.

Tax Evasion

No one wants to pay more taxes than they should. Therefore, it is generally common for people to reduce or limit their obligations through legitimate means. However, they can be charged with tax evasion if they use deception, cover-up, or any other affirmative act to evade or defeat taxes. For example, intentionally underestimating income, soliciting false or inappropriate deductions, or hiding someone's property can all be considered forms of tax evasion.

A conviction for tax evasion also carries potentially severe penalties. Those convicted of this crime can be fined up to $250,000 and up to five years in prison or both. In addition, those convicted of tax evasion may also be ordered to reimburse the costs of the criminal investigation.

Examples considered as tax evasion

  • Claiming a tax return amount that is less than the amount owed for the reported income.

  • Claiming less income than you received from a particular source

  • Intentionally failing to report income

  • Involuntary payment of taxes owed

  • Providing false IRS information about your business income or expenses.

How to Avoid Tax Evasion Charges

While tax evasion may seem deliberate, the IRS can impose fines and penalties for tax strategies that it considers illegal and that you didn't know you were doing.

To avoid the charge of tax evasion:

  • Get an honest, caring professional to help you with your taxes. Listen to your tax expert and keep excellent records of all income and expenses, especially if you have a cash business. 

  • Know the tax laws for income taxes and payroll taxes. For example, knowing the legal deductions and the filing requirements for deductions is an important factor in avoiding an audit. For employers, knowing payroll tax returns and payment requirements will help avoid problems.


Tax fraud and tax evasion are unlawful practices that can result in years in prison and thousands of dollars in fines.

The IRS can review small tax evasion cases in tax court but sends most other cases to the IRS criminal division for trial. The IRS can initiate criminal proceedings against anyone found for fraud or tax evasion, and even if the taxpayer is acquitted, it is not worth it, considering the amount of time and money spent avoiding taxes. Penalties can range from around five years in prison to hundreds and thousands of dollars or both.

Always make sure you file your taxes on time, pay what you owe the IRS on time, or look for other legal ways to get a tax deduction from your tax advisor.

Work with a legal representative.

With or without expert assistance, navigating the tax system can be a challenge. What may be a small unintentional mistake can turn into a costly mistake with lasting consequences. Thus, those under investigation or accused of tax offenses can benefit from professional advice. 



Taxes Made EZ Inc
Contact Member