What to know about tax evasion

On Behalf of | Oct 6, 2021 | Criminal Defense |

Taxpayers in Birmingham, Alabama, must report income every year, or they could face criminal penalties. A common type of tax crime is tax evasion. Statistics show that the IRS investigated around 1,500 cases of tax evasion in 2020.

Overview of tax evasion

Tax evasion means attempting to avoid paying taxes intentionally using various methods that raise red flags with the IRS. Under-reporting income is the top reason many taxpayers get audited and investigated by the IRS from omitting sales or side hustles. The IRS also looks for a taxpayer who intentionally conceals records, keeps two ledgers or makes false statements.

Tax evasion is more likely to occur with people who participate in illegal activities and then hide income through illegal means. Tax evasion is not the same as tax avoidance, which allows taxpayers to reduce their reported income legally through deductions.

Mistakes vs. tax fraud

Under criminal law, the IRS must prove the taxpayer willfully made an error or omitted income. A mistake usually happens unintentionally, such as entering incorrect figures or omitting a Social Security number.

Sometimes, a taxpayer mistakenly claims a credit they didn’t qualify for on their return due to miscalculating or misunderstanding tax codes. These errors often fall under a good faith misunderstanding, meaning the taxpayer thinks they have not violated laws. However, if they purposefully inflate the deduction or claim it when they know they don’t qualify, it is fraud.

In many cases, these mistakes can easily be corrected using an amended form without further investigation or penalty. The worst that could happen in these cases is that the IRS adds a 20% penalty to the corrected amount.

The IRS is aware the tax code is complicated, and the agency only prosecutes extreme cases. However, every taxpayer should make an effort to reduce return mistakes.