The IRS provides a lot of helpful information, but it is not always clear whether making certain tax deductions are legitimate. The web site is a good place to start, but it does not provide all the answers. Smart filers want to get the maximum number deductions to reduce the amount they are obligated pay but there are ground rules.

It all breaks down to whether the filer is practicing tax avoidance versus tax evasion. The former displays good financial sense, while the latter is a crime. However, all the rules and exceptions in the tax code can make it hard to tell the difference.

When is it fraud?

Fraud comes in many shapes and forms, but there are some general rules that apply. Fraud is often occurs when the filer intentionally conceals, misrepresents or makes things appear different than they really are. Mistakes are not a crime, but to willfully mislead the IRS is. These crimes are punishable by fine or even time in jail.

Common examples

This list is by no means comprehensive, but it does give filers an idea of where the line between avoider and evader is crossed:

  • Deliberately underreporting income
  • Inflating the amount of expenses
  • Failing to pay taxes on payments made to you in cash
  • Claiming an exemption for a spouse when you are single
  • Claiming an exemption for a dependant you do not support
  • Keeping two sets of books for your business
  • Using a fake Social Security number
  • Destroying records to conceal an evasive act
  • Making false statements to the IRS under oath
  • Transferring or hiding assets to avoid paying taxes on them

The IRS is not always right

Sometimes the IRS may accuse a filer of wrongdoing or question their motives in an honest mistake. If this is the case and you are audited, it wise to speak with an attorney with experience handling tax disputes. They can help resolve these matters and can even help you move forward with useful strategies applicable for years to come.