Many people use the terms tax fraud and tax negligence interchangeably; however, they are used to describe different situations.
As a taxpayer, it’s important to know the difference in these terms. After all, crimes related to the IRS and taxes are serious and come with equally serious consequences.
Tax fraud defined
The term tax fraud is used to describe someone’s intentional or willful attempt to defraud the IRS or evade tax law. It occurs when someone:
- Fails to file their income tax return
- Fails to pay due taxes
- Fails to report all income received
- Makes false or fraudulent claims
- Prepares and files false tax returns
When this happens, the IRS will begin to take steps to hold the party accountable, including filing criminal charges against them.
Tax negligence defined
The IRS accepts and understands that tax laws are complex. The rules and regulations in place are difficult to understand and decipher. If a careless error occurs and there are no signs of fraud, the IRS will typically assume it was an honest mistake rather than willful tax code evasion. Usually, this is viewed as a mistake caused by negligence. While it may be unintentional on your part, you may still be charged a fee that usually equates to 20% of what was underpaid.
Understanding your rights in cases of tax fraud or tax negligence
Usually, the IRS can distinguish if an error has occurred because of negligence or if it was willful evasion. However, both situations can be scary and confusing. It’s important to understand your legal rights to ensure that you take the right steps in these situations.