When filing your income tax return, it goes without saying that you want to avoid mistakes. Doing so gives you peace of mind, while also reducing the risk of an audit. But of course, the IRS may still find reason to take a closer look at your return.
If you’re selected for a tax audit, here’s something to keep in mind: A basic tax mistake and tax fraud are not the same thing.
The IRS is aware that its tax code is complicated. While they hope that everyone files a return that is 100% accurate, they’re well aware that this doesn’t always happen.
For example, math errors are common. It doesn’t matter if you’re completing your return by hand or electronically, you could make a mistake with your math. As a result, it throws your entire return out of whack.
Conversely, tax fraud is much more serious. This is when you knowingly tax steps to defraud the IRS for your own gain. Examples include:
- Hiding income, such as if you receive cash tips
- Keeping two sets of books
- Taking advantage of credits and/or deductions that you don’t qualify for
- Hiding income in offshore accounts (so you don’t have to pay taxes on it)
The penalties for tax mistakes and tax fraud are also different.
For instance, if you made a math mistake, you may find yourself paying penalties and interest on the balance due. Yes, it’s frustrating, but it’s much more lenient than tax fraud.
With tax fraud, penalties can include everything from a large fine to jail time. And of course, you’re still expected to pay all the money you owe.
If you receive a tax audit notice from the IRS, carefully review it to better understand what they’re asking of you. It will outline the next steps in the process, giving you a clear idea of what’s to come.
With so much on the line, especially if the IRS suspects fraud, it’s critical that you take steps to protect your legal rights. Now is not the time to sit back, make rash decisions and hope that you’re able to escape severe consequences.