Could an Honest Mistake Lead to Tax Evasion Charges?

Could an Honest Mistake Lead to Tax Evasion Charges?

Simply put, it is a crime to provide misleading or false information on your taxes. Whether you intentionally underreport your income, use a fake Social Security number, keep two sets of financial records or claim a non-existent spouse as a dependent, you could face federal charges for tax fraud. What happens, however, when your actions were more careless than fraudulent?

The IRS estimates that roughly 15% of Americans fail to comply with tax laws; however, only 2,000 people were convicted of tax crimes in a recent year. This makes up a mere 0.0022% of all taxpayers. The IRS knows that tax law is complex, which is why they expect to find a few careless mistakes in every tax return. Most of the time, they give you the benefit of the doubt.

Will I be penalized for making a mistake on my tax return?

If the IRS notices a mistake on your tax return, it is possible that a 20% penalty will be tacked on to your tax bill. While this may seem like an unnecessary consequence, it definitely beats the cost of tax fraud, which could result in a 75% civil penalty – or worse yet, criminal charges.

It is unlikely that the IRS will come after you for an honest or insignificant mistake on your tax return, but the following actions may be treated more seriously:

  • Underreporting a significant amount of income
  • Reporting overstated or entirely phony deductions
  • Claiming exemptions for non-existent dependents
  • Using a false Social Security number on your return
  • Businesses not keeping records or having two books

What types of "red flags" will an auditor look for?

Auditors are trained to look for common types of wrongdoing, often referred to as "badges of fraud." This could include a business keeping two sets of books, or not keeping records at all, false receipts or altered checks. If you are being audited, the auditor will not tell you if they have made a criminal fraud referral, so you may want to seek legal counsel as a precaution.

It is rare that an auditor will make a criminal referral to the IRS criminal investigation division (CID), but you shouldn't assume that you will get out unscathed if you are currently under investigation. A conviction for tax evasion could result in $100,000 in fines and five years behind bars, so it may be in your best interest to speak with a Honolulu criminal defense attorney.

Contact The Law Office of Victor Bakke, ALC Today

If you are currently under investigation for tax evasion, or you are concerned about a possible mistake on your tax return, you should not hesitate to discuss your case with the criminal lawyer at The Law Office of Victor Bakke, ALC. He has more than two decades of experience, and has successfully handled more than 3,000 criminal cases throughout his career.

He also comes highly recommended by former clients, so you can trust that your future will be in capable hands when you work with the team at The Law Office of Victor Bakke, ALC. We understand the seriousness of your situation, which is why we will fight aggressively to maintain your innocence. Don't wait to contact our firm for a free, no-obligation consultation.

You can also contact our firm online by filling out a free case evaluation form.