According to FindLaw, approximately 17% of U.S. taxpayers fail to comply with the U.S. tax code. However, the IRS prosecutes only a small percentage (representing less than 1% of tax payers) of tax crimes each year. This may due to the fact that the IRS does not treat the majority of violations as fraud but rather, as either negligence or innocent mistakes. If you are not up-to-date on your taxes in Kentucky, you may wonder, are you guilty of tax fraud? Chances are the answer is no, but it is always a good idea to brush up on tax laws just to be certain.

The IRS understands that the tax code is a convoluted set of rules and regulations that most people have a hard time deciphering. Because of this, the entity is more likely to assume that an error is the result of an honest mistake rather than the deliberate evasion of tax code. That said, if the IRS spots signs of fraud, it will perform a thorough audit. If the audit reveals any of the following, the revenue service may charge you with tax fraud:

  • The intentional failure to file an income tax return
  • The intentional failure to report all sources and amounts of income
  • The willful failure to pay taxes
  • False or fraudulent claims
  • False returns

Tax auditors will also look for certain activities that corroborate its findings and that suggest an error is more intentional than accidental. For instance, it is an honest mistake to omit income information for a side gig you performed for a short period of time at the beginning of the fiscal year. However, if the auditor finds two sets of financial ledgers, one of which reveals that your side gig lasted for nine months and netted you the majority of your annual earnings, fraud is more likely than a mistake.

Some other fraudulent activities for which tax auditors look include falsifying business or personal expenses; concealing or transferring income; overstating exemptions and deductions; willfully underreporting income; using a false social security number; and claiming a nonexistent dependent.

This article should not be used as legal advice. It is for your educational purposes only.