If the IRS suspects that a taxpayer is engaging in fraudulent behavior, it may investigate its tax return. It isn’t uncommon for individuals to overstate how many people live in their homes or for those who are paid in cash to improperly report their income. Companies that are paid largely in cash may also be tempted to incorrectly report their income on a tax return or inflate their expenses.
Individuals could face penalties for failing to file a tax return. This is because the return is what the government uses to determine if an individual has met his or her tax obligation for the year. It is also what the IRS will use to determine if a person has taken deductions or asked for credits that he or she isn’t likely entitled to. Credits and deductions are often provided to encourage people to take certain actions throughout the year.
These actions may include improving a property or hiring people who have a criminal background or who are from specific communities. Tax evasion only occurs if a person or company willfully attempts to violate the law. If an investigation reveals that a taxpayer made a legitimate mistake, that person or business will only be subject to financial penalties such as interest on a past due tax balance.
Individuals who are convicted of white-collar crimes such as tax evasion or tax fraud may face prison time and a fine. They may also be prevented from working in the financial industry either temporarily or permanently. Furthermore, an individual will likely be required to pay any additional taxes assessed by the IRS. An attorney may be able to use receipts or other evidence to show that a person paid taxes as required by federal law.