Tax Fraud Explained

Tax Fraud Explained

Tax Fraud Explained

Tax fraud is a serious crime in the United States and other nations as it poses a threat to the national infrastructure, the national economy and the global economy. Many government agencies and public services operate through the funds provided by taxes as they are filed annually. However, when someone commits tax fraud, or tax evasion.  Social Security By definition, tax fraud is the purposeful act of misrepresenting one's income or other financial information in order to not pay taxes or pay a lower amount to the Internal Revenue Service (IRS). Tax evasion is the act of avoiding paying taxes altogether and usually entails illegal action so that tax collectors and other federal agencies are not aware of a person's, or organization's, income or means of income. These methods of avoiding taxes are often represented on the tax returns that are filed annually in April in the United States. However, those who commit tax evasion typically do not file a tax return in order keep their income and not support local and federal governments.

The tax returns that people file every year contain several sections that require the taxpayer to note their annual income as well as possible tax deductions that he or she may receive depending the appropriations of that income during the year. People who commit tax fraud often alter the information that they provide on that form in order to mislead the Internal Revenue Service. By doing so, they hope to be taxed less and receive a higher tax return from the government. Again, people who commit tax evasion often do not file a return.

There are several methods that are commonly used by those who commit tax fraud.

         Falsifying deductions - By falsifying tax deductions, a person is claiming that they made purchases or donations that could grant deductions though they did not make those financial transactions. However, they list this information on their tax return prior to filing it with the Internal Revenue Service.

         Falsifying financial records - By falsifying financial records, a person may alter the amount of income they receive annually by making it appear that they earn less in order to be taxed less.

         Over reporting deductions - By over reporting deductions, a person is hoping to receive more deductions by claiming multiple deductions of the same type though the transactions warranting those deductions did not take place.

         Reporting personal expenses as business expenses - By reporting personal expenses as business expenses a person is hoping to be taxed differently by the government. For example, a household is taxed differently from a small business. By posing personal expenses as business expenses that person may receive more deductions and be taxed less.

         Transferring funds or estate - By transferring funds or an estate to another person or location, a person is hoping to avoid being taxed on the value of those funds completely.

Both tax fraud and tax evasion cases are investigated by the Internal Revenue Service and the federal government through tax audits and criminal investigations. People who are found guilty of committing these acts are often fined and receive jail time for defrauding the government.




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