Filing your California state and federal tax returns may be a complicated process, especially if you are a small business owner or someone with multiple income streams. The tax code is often difficult to decipher, and you may worry that accidentally making a mistake on your return could lead to federal charges of tax fraud. The IRS attempts to distinguish between honest errors and intentional fraud, but certain types of returns may be more likely to trigger audits and/or underpayment penalties.
FindLaw states that a willful attempt to evade or underpay taxes may constitute tax fraud. IRS data indicates that nearly 20 percent of taxpayers may be guilty of some type of noncompliance with the tax code, although not all violations meet the requirements for fraud. The IRS does try to determine when erroneous tax returns are due to ignorance or negligence as opposed to willful fraud.
Some types of intentional tax fraud may include underreporting or concealing income, claiming exemptions without meeting the qualifications and falsifying business expenses. Using a false Social Security number or submitting fake documents are other actions on the tax fraud list. During a tax audit, the IRS may analyze your return to try to determine if you intentionally falsified your income reports or simply submitted incorrect data carelessly.
If you do make a mistake on your return that does not constitute fraud, you may still have to pay a penalty. In most cases, the fine for a negligent mistake is 20 percent of the amount of your underpayment. Intentional tax fraud may lead to severe civil and/or criminal penalties, including imprisonment and large fines.
This basic information about tax fraud is intended to educate and should not be taken as legal advice.