Auditors are trained to spot common types of fraudulent acts by taxpayers. The acts are called badges of fraud. Common badges of fraud include a business with two sets of books, false receipts and altered checks. These kinds of acts can land you in big trouble.
Auditors are trained to look for fraud. They know the tax law is complex and expect to find a few errors in every tax return. Hopefully, they will give you the benefit of the doubt if the error is interpreted as an honest mistake.
A careless mistake on your tax return might cause a 20% penalty to your tax bill. Tax fraud causes a 75% civil penalty. The line between negligence and fraud is not clear and subject to interpretation by Uncle Sam.
At the first hint of an IRS tax problem, contact a tax attorney. Let the attorney help you and the government distinguish what is negligence and not fraud.
John Spurgeon is a tax attorney in Pasadena, California servicing clients in the greater Los Angeles area. John Spurgeon & Associates, who are both tax attorneys and CPAs, have the proven knowledge and experience to effectively deal with IRS tax liens or the Franchise Tax Board. Please call 626-440-9518 for a complimentary initial consultation.