Jeffrey M. Rosenblum, P.C.
A Fresh Start

What's the difference between tax evasion and an error?

When people hear the terms "tax evasion" or "tax fraud," they often think of large corporations or extremely wealthy individuals who fail to pay the taxes they owe. However, anyone can be potentially be accused of tax evasion by the Internal Revenue Service, and the penalties if someone is determined to be guilty can be serious.

First, it's important to understand the difference between making a mistake on your taxes and tax evasion. Income taxes are complicated, and even if you're careful, you may make a mistake that causes you to pay less than you actually owe. This can occur even if you have a tax professional or accountant prepare your taxes. They are dependent on the information that their clients give them. If that information isn't complete or accurate, mistakes can happen.

The IRS isn't going to take legal action over an error as long as you resolve the problem. They simply will require you to pay any additional amount you owe, along with some type of penalty. If the error was solely the fault of your tax preparer, they should cover any penalties you're assessed.

Tax evasion, on the other hand, is when either an individual or a business deliberately underpays taxes. To convict someone of tax evasion, the IRS has to prove that the underpayment was intentional and not simply an error.

Examples of tax evasion include:

-- Underreporting income (particularly if some of it was in cash)

-- Not filing a tax return

-- Overstating the size of a household or business

If you find out that the IRS is investigating you for tax evasion or any other type of tax fraud, you should seek legal guidance immediately. Even if the underpayment was an innocent mistake, if the IRS has reason to suspect that it wasn't, you don't want to take them on alone. A New York attorney experienced in tax law can provide guidance and help protect your rights.

Source: FindLaw, "Tax Evasion," accessed Aug. 24, 2016

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