SPELLMAN LAW, P.C.
Based In West Des Moines, Iowa, Practicing In Central
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How consumers accidentally commit tax fraud

On Behalf of | May 27, 2022 | Criminal Defense |

Statistics show the IRS only prosecutes 2% of tax fraud cases. While that isn’t a huge figure, the penalties for fraud are tough. There are ways people in Iowa can accidentally commit fraud without knowing it.

Ways to accidentally commit tax fraud

One way consumers accidentally commit tax fraud is not filing a return, especially if they have lived overseas. The consumer still must file a return even if they haven’t lived in the U.S or regardless of where they earned the income.

Sometimes, a consumer may fail to report income from cash-only services, foreign accounts and income over $600 as required. If a taxpayer neglects to include important details, such as social security numbers, it may raise a red flag.

Another red flag for the IRS is claiming deductions and credits the taxpayer is ineligible to claim. For example, it is legal to deduct charitable donations and business expenses, but they must meet certain requirements. Some filers erroneously claim the earned income credit when they pass the income limit.

Negligence vs. fraud

Tax fraud can cover several financial crimes that occur when the taxpayer tries to knowingly and intentionally deceive the IRS. If a taxpayer makes a careless mistake, it is likely considered negligence, unless the auditor has suspicions. Since laws are complex, auditors expect an occasional error and know the difference between fraud and neglect.

Even if a taxpayer makes a mistake with a deduction, the statistics suggest intentional fraud is unlikely in this case. The least penalty a taxpayer may face for negligent mistakes, such as underpaying taxes, is an additional 20% penalty. However, some actions can not be explained by anything other than fraud, such as inventing a dependent. Though criminal charges for tax fraud are rare, it pays to use caution when filling out returns.

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Sean P. Spellman
Mary K. “Molly” Spellman