What Is the Difference Between Tax Negligence and Tax Fraud?

Filing income tax returns is a detailed and complicated process. The U.S. tax code is a complex set of regulations that are difficult to decipher and are continually evolving. It can be easy for a taxpayer to make a mistake. In fact, tax problems may be more common than you think. The Internal Revenue Service estimates that about 17% of taxpayers fail to comply with the tax code in some way. Depending on the issue, you could face significant financial penalties or even be at risk of being prosecuted for a tax crime. The difference comes down to whether the mistake was accidental or intentional.

Tax Negligence

When a taxpayer commits tax negligence, it means that he or she has not made a reasonable attempt to comply with the current tax laws. They might have been careless when filing their income tax return or did not keep accurate tax records. When an IRS auditor is trying to determine whether a tax mistake was negligence or fraud, they look for suspicious behavior. This could include concealing income, overstating deductions, falsifying documents, or using a fake Social Security Number. If the signs of suspicious behavior are not there, the IRS will likely assume the taxpayer’s mistake was due to negligence. In other words, it was an honest mistake.

However, tax negligence does still carry some substantial penalties. If the IRS finds that a taxpayer is negligent, the taxpayer could face a fee of 20% of the income they should have paid.

Tax Fraud

Tax fraud is when a taxpayer willfully tries to evade the assessment or payment of a federal tax. In other words, the taxpayer intentionally defrauds the IRS in the hopes of not having to pay his or her income taxes. Examples of tax fraud include:

  • Intentionally not filing an income tax return
  • Willfully filing a fake or falsified tax return
  • Deliberately not paying any income taxes owed
  • Not reporting all of the taxpayer’s income
  • Making false claims about the taxpayer’s income, expenses, or deductions

A taxpayer who commits tax fraud could face both civil and criminal penalties, depending on the type and severity of the fraud. This can include a fee of 75% of the income the taxpayer should have initially paid, plus additional charges or liabilities. Tax fraud is a felony, and if convicted, the taxpayer could face up to five years in prison.

Contact Wiggam Law: Tax Attorneys Atlanta GA

If you are facing tax debts, whether it was your fault or someone else’s, please contact Wiggam Law for help with your case. We’ve worked with individuals, businesses, officers, directors, shareholders, and partners in matters before the Internal Revenue Service, the Georgia Department of Revenue, and other state tax departments. Our experienced Atlanta tax attorneys can help you choose the right strategy to resolve your tax issue and help reduce your criminal exposure. You can reach us by phone at 404-537-5030 or send us a message through our website.