Tax fraud is much more common than most would suspect. In fact, the IRS estimates that up to seventeen percent of all individual tax payers deliberately falsify information presented on tax returns for monetary gain. While tax fraud cases committed by large corporations and companies are commonly on the news, it is most often individual tax payers that cheat on taxes. Tax fraud, a common form of tax evasion, is defined as the illegal evasion of taxes through deliberately misrepresenting income and/or state of affairs. There are a huge variety of different forms that tax fraud can come in, ranging from the case of a single man claiming a fictional, disabled wife as a dependent to the frequent misrepresentation of income received.

Various Forms of Tax Fraud

Because tax law can be very complex, there are a variety of areas in which someone can misrepresent data in order to reduce the amount of taxes taken. Most cases of tax fraud are done through deliberately misrepresenting the amount of money received in any given year. Those in professions that are tip-based are much more likely to misrepresent the amount of income made than those in any other profession; in fact, the IRS believes that professional waiters and waitresses misrepresent their income by a factor of 84 percent. The penalties for committing this form of tax fraud are fairly severe, typically a 75 percent civil penalty.

Another one of the most frequent forms of tax fraud is claiming dependents that are not true dependents, or are fictional characters. The reason for this is because claiming a dependent can be a very large tax break. There are many dependents one can claim, from wives to children, however, be certain those claimed are actually worthy of being considered dependents or legal action may be taken. A prime example of false claiming of dependents is a man who claims children on his taxes that don’t exist. While this may seem like a ridiculous claim to make on a tax return, it is much more common than many think.

Overestimating business- and work-related expenses in tax returns is an extremely common form of tax fraud as well. From mistreating standard living expenses as a business expense, many can wind up facing the consequences of tax fraud.

Tax Fraud vs. Negligence

Because it can be very hard to prove deliberate misrepresentation of information in a tax return, many people get away with their tax evasion because the IRS treats it as negligence instead. However, repeated forms of negligence or extreme cases of misrepresentation of information will be often found and the tax return filer will have legal action brought against them. According to statistics from the IRS, only .0022 percent of all US citizens were convicted of tax fraud while an estimated 17 percent of US citizens deliberately misrepresent data. Because of this, it is quite rare to be charged with tax fraud.

Tax fraud is a serious offense that is punishable by fines and even prison sentences. Because of this, it is essential to correctly represent information on one’s tax return. In order to avoid common tax scams and fraudulent activities committed by accountants and individuals, visit the IRS guide  by understanding how important it is to provide correct information in a tax return, one can save money, time and ensure no legal action will be taken against them.

For more information, take a look at “Over the Top: Tax Cheats, Fraud and Avoidance in America“.