If the IRS suspects that you’re guilty of tax fraud, there likely will be extensive investigation before they contact you. They’ll go through past tax returns and documentation. They may talk to business associates and even family members.
If you get word – directly or indirectly – that the IRS is investigating you for tax fraud, it’s critical to be proactive – but smart. That means not trying to deal with it on your own.
Just what is tax fraud?
First, it’s important to understand that tax fraud involves intentionally providing false information to the IRS to avoid paying the taxes you owe. Examples of tax fraud include intentionally:
- Failing to report income
- Inflating or falsely reporting tax-deductible contributions
- Falsely reporting someone as a dependent
- Reporting personal expenses as business expenses (for business owners or self-employed taxpayers)
- Not filing a tax return
Too many people make the mistake of confusing tax fraud with miscalculating what they owe. They try to solve the problem by just paying the IRS. If the IRS is alleging fraud, however, that’s not going to make the criminal consequences go away. In fact, it can be seen as admitting guilt.
What to do – and not do
While it’s wise to start collecting evidence you may be asked to produce as soon as possible, you shouldn’t give the IRS any documentation or agree to speak with them until you’ve gotten legal representation. IRS investigators and the federal agents who work with them know what they’re doing. No one should ever go up against them on their own.
Another mistake people often make is believing that if they “lawyer up,” they’ll look guilty. Remember that you have every right to get legal guidance and to other rights provided under the U.S. Constitution – just as you do if you’re dealing with law enforcement related to any other type of crime. The last thing you want to do is compound the problem by saying something that may be untrue to a federal agent. That in itself is a serious crime.
The penalties for federal tax fraud are serious. They vary depending on the specific type of fraud and the amount of money involved. However, you could be looking at multiple years in prison and hundreds of thousands of dollars in fines. Don’t face the IRS alone.