The U.S. Internal Revenue Service is responsible for both collecting taxes and investigating potential attempts by individuals or businesses to avoid paying their lawful share.

When taxpayers fail to provide full and accurate information about their finances or fail to meet tax obligations, the IRS may pursue either civil or criminal action, resulting in penalties ranging from steep fines and penalties to time in prison.

How does the IRS distinguish between fraud and negligence?

The IRS takes potential instances of tax evasion very seriously but also recognizes that the complexity of the U.S. tax code may lead to honest mistakes or oversights.

While an unintentional misreporting of finances may result in a fine for underpayment, the agency distinguishes between purposeful and accidental errors. A taxpayer may face fraud charges if the IRS finds evidence of willful falsification, concealment or underreporting of income.

What are common examples of tax fraud?

There are a wide range of fraudulent activities that auditors watch for. In addition to deliberately underreporting income, inflating or falsely claiming business expenses and claiming exemptions for dependents who do not receive support, a taxpayer may face serious penalties for concealing accounts or property, destroying financial documents or failing to file a return.

What are the penalties for tax evasion?

An individual who purposefully evades tax obligations may face a felony conviction, a fine of up to $100,000 and/or up to 5 years’ imprisonment. In the case of fraudulent corporate tax returns, the fine may be as high as $500,000.

Additionally, producing false tax statements to the IRS may result in a felony charge, up to 3 years in prison, and a fine of up to $250,000 for individuals or $500,000 for businesses.