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5 Ways You’re Committing Tax Fraud

As virtually everyone knows, the Internal Revenue Code is complex and confusing. More than 74,600 pages in length, it is more than 187 times longer than it was a century ago. As one might imagine, “the Code” is full of twists, turns, and *surprises.” Some of these unexpected surprises can reach out and grab the taxpayer. A taxpayer can be charged with fraud in a number of unexpected ways. Here are five ways of committing tax fraud that should concern every American.

Failure to File Your Return

Under some circumstances, the IRS considers a taxpayer’s failure to file a return as fraudulent activity. The taxpayer may think, “I can’t pay my tax right now, so I won’t file my return.” From the IRS’s perspective, that may “excuse” a late payment; it doesn’t excuse a lack of filing. Where the IRS determines that the taxpayer has advanced education, has a history of late or incomplete filings, or has substantial tax liability after withholding credits and estimated tax payments, it may argue that the failure to file is itself fraudulent.

Mixing Personal and Business Deductions Inappropriately

Particularly for self-employed individuals, the IRS may treat as fraudulent the practice of “padding” one’s Schedule C business deductions with expenditures that the Service contends are actually personal.

Failing to Report All Income

Cash businesses are particularly prone to this problem. If you are a hairdresser, run a small restaurant, a flea market, bar, or other cash business, you may be tempted to skim a bit off the top of the daily receipts and report a lower amount to the IRS.

Paying Employees in Cash

While paying employees in cash is not illegal, such a payment method does not absolve the taxpayer from reporting and paying the appropriate amount of payroll taxes. Regular payment of wages in cash is frowned upon by the IRS. The practice will almost always generate attention from the IRS.

Flaunting Affluence

Most tax experts have stories of taxpayers whose lifestyles did not match their reported income. There is the story of the owner of half a dozen gas stations, who submitted an adjusted gross income to the IRS of approximately $135,000 per year, yet drove a new Jaguar, had an expensive motorcycle, a costly home and a beach house, all the while putting two children through private college. He feigned surprise when the IRS asked him how he could do all that on his income.

Tax Fraud: Serious Business

When one considers the number of American taxpayers that are not in compliance with federal tax law and regulations and compares that with the number of fraud prosecutions in any given year, it may appear that the IRS isn’t serious about tax fraud. Nothing could be further from the truth. Be aware of the fact that the IRS has powerful tools at its disposal to help discover fraudulent activity.

Remember also that criminal prosecutions are used by the IRS to deter others from committing tax fraud. Taxpayers convicted of one count of making false or fraudulent statements to the IRS can be sentenced up to three years of imprisonment and fined $250,000 for individual taxpayers and $500,000 for corporate entities.

Mackay, Caswell & Callahan, P.C.: Experienced, Caring Tax Attorneys

Are you concerned you might be committing tax fraud? If so, one of the Upstate New York tax attorneys or New York City tax attorneys at Mackay, Caswell & Callahan, P.C. would welcome the opportunity to discuss the issues with you today. We have more than 30 years of experience in assisting taxpayers with all sorts of tax-related issues. We have offices in Albany, New York City, Rochester, Syracuse, Utica and Watertown. Don’t delay; we have a New York tax attorney ready to help you with your tax issues.