Imagine one day while opening your mailbox only to find a letter from the IRS. The first thing that will probably register in your mind is that it’s a tax refund. But No! The letter states your tax return has been selected for auditing. But why would IRS think of taking you through another nightmare of filling taxes and answering their questions?
Tax Fraud: The basics
The IRS takes tax fraud offenses seriously, usually imposing hefty fines and penalties to those found culpable. In some cases, individuals serve lengthy prison sentences of up to five years when they have been found guilty of defrauding the government.
While the IRS focuses on punishing the tax fraud offenders, they also understand that the U.S tax code is notoriously complex and sometimes people can make honest mistakes while filing their tax returns. Some of these mistakes doesn’t necessarily mean that you committed the offense intentionally. However, you should always solve your tax problems whenever they arise to avoid more problems in the future.
Tax fraud versus negligence
Every year, about 17 percent of the taxpayers (individuals and businesses) fail to comply with the U.S tax code in some way. The IRS reports indicate that individuals taxpayers commit 75 percent of the income tax fraud offenses. Surprisingly, not every violation of the tax code amounts to fraud.
Income tax fraud occurs when a taxpayer knowingly fails to report their income, file an income tax return, prepares and files wrong returns, makes false claims for tax exemption or fails to pay taxes that are due to the IRS. It’s worth noting that each of these violations involves willful or intentional acts by the taxpayer.
On the other hand, negligence refers to careless mistakes and errors made by the taxpayer while filling their income tax returns. In the case of negligence, the IRS may impose a fine of up to 20 percent of the underpayment. In many instances, there is a thin line between fraud and negligence, which may require an experienced IRS fraud lawyer to highlight their differences.
Other common acts that indicate the occurrence of fraud rather than mere negligence include falsifying documents, personal expenses, and ledgers, claiming tax exemption for a non-existent dependent, falsifying social security number, and overstating of deductions and exemptions.
Why would IRS audit your income tax returns?
The IRS may have chosen to audit your income tax returns because you are a part of a selected target group, your returns raised red flags or even from random selection, which makes it even harder to know who will be audited by the IRS among other reasons. While there is no guaranteed way of avoiding IRS audit, there are several ways you can reduce the risk of finding yourself on the opposite side of the law. It’s in your best interest, to be honest, and avoid fraud as much as you can while filling your tax returns.
What red flags do the IRS auditors look for?
Mathematical errors, claiming personal and business expenses, omitted income, dubious charitable donations, concealment of assets, and overstating expenses are some of the red flags and common mistakes the IRS investigators look out for. The IRS also tends to audit targeted groups that are known to cheat on taxes. They include small business, self-employed individuals, and people working in the service industry.
What to do when selected for audit by the IRS in Pennsylvania
The IRS will begin by sending a notification letter indicating important information such as the reason for the audit, the steps that you need to follow and the deadline to reply. When you receive the notification letter, don’t be quick to respond to IRS since any information that you give out might be used against you.
To reduce your exposure, you may involve an experienced Pennsylvania Fraud Lawyer, who will help to review your rights and help you to understand your situation. It’s possible to request a recess to consult with an attorney even when the audit is in progress.