Tax Fraud

Tax fraud is the willful violation of one’s legal responsibility to pay mandatory taxes to the government in order to secure unfair or unlawful gains. The IRS may impose civil fraud penalties of up to seventy-five percent on amounts due and owing as a result of civil tax fraud. If the evidence of a criminal intent to defraud the government is strong enough, the government may also bring criminal charges that could result in additional fines and penalties.

In 2006, Congress enacted the IRS Tax Whistleblower Program which requires the payment of rewards to whistleblowers as a percentage of all recovered unpaid taxes and civil fines and penalties assessed against the taxpayer as a result of information provided to the IRS by the whistleblower.  In April 2011, Egan Young successfully secured the first-ever whistleblower reward paid by the IRS Whistleblower Office on behalf of an in-house accountant who discovered that a major financial firm failed to pay over $20 million in taxes to the IRS and then decided to bury it.

Every year, the Federal government is defrauded out of hundreds of billions of dollars in tax revenue. As the types of tax fraud have grown more complicated so has the need for more thorough and diligent Tax Fraud investigation. Through the IRS Tax Whistleblower Program, the IRS is encouraging private citizens to report wrongdoers in order to recover unpaid taxes and has incentivized them for doing so by the payment of rewards that can be quite substantial.

The most common Types of Tax Fraud include:

• Off shore accounts fraud
• Corporate tax fraud
• Employment tax fraud
• Money laundering tax fraud
• Abusive Tax Shelters
• Filing False or Misleading Forms
• Return Preparer Fraud
• Disguised Corporate Ownership

There are a variety of actions which indicate a clear intention to willfully underpay required taxes. They may include:

• Failure to file a tax return
• Deliberately under-reporting or omitting income
• Claiming false deductions
• Hiding or transferring assets or income
• Overstating the amount of deductions
• Making false entries in records
• Failing to report income earned in a stock exchange
• Maintaining two sets of books
• Misusing trusts
• Abusing charitable deductions

Tax Fraud versus Tax Underpayment

Under the IRS Tax Whistleblower Program, whistleblowers may be eligible for rewards for any form of tax underpayment, whether it is the result of fraud, reckless disregard, innocent mistake, or some other level of intent. Sophisticated taxpayers often take overly aggressive positions on their tax returns in the hope that the IRS will not challenge their tax position. While many of these overaggressive positions are not fraudulent, they often result in large scale underpayment of taxes.