What to Know About the IRS Tax Fraud Penalty

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What Is the IRS Tax Fraud Penalty For Small Businesses? How Much Financial And Legal Trouble Could It Cause?

Tax evasion is a big deal in the business world. The IRS rarely goes after individuals, but entrepreneurs can be at an increased risk when they underpay their taxes.

In most cases, tax fraud does not lead to criminal penalties. It can, however, cause huge financial problems, which can have a devastating impact on your business and your way of life. As such, it’s important to be aware of what civil fraud penalties might involve and how they can be avoided. We cover both essentials below:

Evidence of Fraud

There is a clear difference between making mistakes on taxes and committing civil fraud. Willful intent is typically the distinguishing factor. This can be difficult to determine, but the burden lies on the IRS due to the punitive nature of civil fraud penalties.

Types of evidence used to verify civil fraud include:

  • Understated income
  • Concealed assets
  • Implausible explanations from the taxpayer

How Civil Fraud Penalties Are Determined

If evidence collected by the IRS clearly points to fraud, the taxpayer or business may be assessed a penalty that totals 75 percent of the fraud-related underpayment. Often, however, the entire underpayment is determined by the IRS to result from fraud.

In addition to failure to pay penalties, fraud-based failure to file penalties may be assessed. These typically occur when it’s clear that the non-filing taxpayer intended evasion. As with the failure to pay penalty, the fine for failing to file totals 75 percent of the completed return.

If you believe that your small business is at risk of being assessed a tax fraud penalty from the IRS, it’s important to get an enrolled agent in your corner. You won’t regret working with the Highland Tax Group. Reach out today to learn more about your options.