Tax fraud occurs when individuals or businesses intentionally falsify information on tax returns with the intent of reducing their tax liability. Essentially, tax fraud involves cheating on a tax return to avoid paying the full amount of tax owed.
Some examples of tax fraud include claiming false deductions, claiming personal expenses as business expenses, providing a false Social Security number, and failing to report income.
Tax fraud involves deliberately misrepresenting or omitting data on a tax return. In the United States, taxpayers are legally obligated to file a tax return voluntarily and to pay the correct amount of income, employment, sales, and excise taxes.
Falsifying or withholding information in order to avoid tax obligations is illegal and constitutes tax fraud. The Internal Revenue Service Criminal Investigations unit investigates tax fraud.
A taxpayer is said to have committed tax fraud if:
Millions of dollars are lost to the government each year due to tax fraud, which is punishable by fines, penalties, interest, or prison time. A company is not considered to be guilty of tax evasion unless it is intentional to fail to pay taxes.
Mistakes and accidental reporting are not considered tax fraud, instead they are called negligent reporting.