Falsely Padding Deductions on Returns is on the IRS Annual "Dirty Dozen" List of Tax Scams to Avoid
Most taxpayers submit tax returns that are honest and accurate every year. However, there are always some taxpayers that can not resist the temptation of falsely reporting their information. This is why erroneously claiming deductions, credits or expenses on tax returns has been placed on the "Dirty Dozen" list of 2016 tax scams.
"Taxpayers should make sure to file returns that are accurate so that they receive the appropriate refunds that they are permitted to receive. They should not try to take risks by padding deductions," said IRS Commissioner John Koskinen.
Taxpayers should carefully consider whether it is a good idea or not to include certain deductions, including charitable contributions, increasing business expenses or including credits that they are not permitted to receive - like the Earned Income Tax Credit or Child Tax Credit.
IRS audits are increasingly generated by automated systems that are becoming even more efficient. The IRS normally has the option to audit returns that have been filed within the last three years. Other older returns may be added if there are significant errors that have been identified or there is a suspicion of fraud.
Some very harsh civil penalties may be applied to taxpayers who submit tax returns that are inaccurate, including:
- 20% of the disallowed sum for filing a claim for a refund or credit.
- $5,000 if the IRS has determined that the tax return filed by the taxpayer is frivolous. A frivolous tax return is a tax return that is not sufficiently completed in order to compute the correct tax or that contains information that is clearly shows substantial errors in the tax reported.
- The taxpayer may also be assessed with a penalty of 75% of the owed amount of tax if an underpayment on the tax return is the result of tax fraud.
Taxpayers can even incur criminal prosecution for certain actions, including:
- Tax evasion
- Willful failure to submit a return, supply information, or submit payments for tax that is due
- False statements and fraud
- The preparation and submission of a return that is fraudulent, or
- Identity theft.
Criminal conviction can result in even more penalties and possibly prison time.
Using a licensed tax preparer are the best ways for taxpayers to guarantee that correct returns have been filed and that only the tax benefits that they are permitted to receive have been claimed.
Taxpayers should also keep in mind that they will be held legally liable for the information that is reported on their tax returns even if the information has been prepared by another person. If you run into trouble with the IRS, you will want a tax problem specialist on your side.