Tax Fraud vs. Negligence: What’s the Difference? 

Tis the season for taxes! Making sure you’re submitting truthful information to the IRS is imperative to avoiding fines or harsher penalties. When it comes to taxes, details matter and so does intent. Keep reading to learn more about the difference between tax fraud and negligence. 

Tax Fraud

Tax fraud is the intentional act of understating income and/or overstating deductions with the overall objective of not paying the correct amount of taxes. It is much more than making a simple error and forgetting to include something in a tax return. It is intentional. 

When it comes to convicting someone of tax fraud, the IRS must prove intent behind the actions of the error in the taxes owed. In all criminal and civil tax fraud cases, the burden of proof is on the government. In criminal cases, the government must present sufficient evidence to prove guilt beyond a reasonable doubt. In civil cases, the government must prove fraud by clear and convincing evidence. 

Examples of tax fraud include: 

  • Willfully failing to report all income received. 
  • Claiming to be a resident of another state. 
  • Filing a fraudulent return. 
  • Failing to file State income tax returns. 
  • Opening and closing of new businesses to evade taxes. 
  • Preparing taxes that understate income or overstate expenses of a business. 
  • Failing to turn in collected, withheld tax. 

*Tax fraud revolves around putting false information on tax returns, whereas tax evasion involves taking deliberate steps to conceal income or assets to avoid paying taxes.*

Penalties for Tax Fraud 

Penalties for tax fraud will vary depending on the circumstances of the case. 

Up to 5 years in prison: This is the maximum prison sentence for each count of tax evasion you are convicted of. If you’re convicted of more than one count, the sentences may be served consecutively. 

Fines: In addition to prison time, you may be charged with up to $100,000 fine for each count of tax evasion. 

Probation: Tax evasion convictions usually result in probation for a number of years after a jail or prison sentence. 

Paying back taxes, plus interest: If you’re convicted of tax evasion, you’ll be forced to pay back the taxes you didn’t pay, plus interest and fines. 

The potential negative effect on your finances, business, career, and livelihood due to a tax fraud conviction is immense. Knowing how to avoid such a conviction is important. 


Negligence is what it sounds like, careless mistakes or errors that may result in incorrect tax filings or payment. The defining difference between negligence and tax fraud is that negligence is not intentional. However, the perceived line between intent and mistake is not always clear. 

If there is an error in your tax filings, the IRS will generally assume it is a mistake unless evidence suggests otherwise. There are some actions that clearly point to fraud like inventing spouses or businesses, keeping multiple financial records, or using a false identity to file taxes. 

Examples of negligence include: 

  • Not keeping records to prove you qualify for the credits or deductions you claim. 
  • Not including income on your tax return that was shown in an information return, like income reported on Form 1099. 
  • Not checking the accuracy of a deduction or credit that seems too good to be true. 

Penalties for Negligence 

If there is an accuracy-related mistake, the accuracy-related penalty is 20% of the portion of the underpayment of tax that happened because of negligence or disregard. 

The IRS allows you to dispute negligent penalties and may reduce or remove some penalties if you acted in good faith and can show reasonable cause for why you weren’t able to meet your tax obligations. However, avoiding making any mistakes should be the objective when completing your taxes. 

What to Do if You’re Accused of Tax Fraud

If you or the business you’re a part of has been accused of tax fraud, the first step you should take is to secure a criminal defense attorney who is well-versed in tax law. Remember that the IRS must prove intent to convict you of tax fraud. Your experienced defense team will work to explore all defenses that are applicable to your specific case. 

Take the accusations against you or your business seriously, and only speak to your legal team about the specifics of the case. Conversations with your accountant are not privileged, which means your accountant does not have an obligation to keep the details of the conversation confidential. 

Contacting an accomplished criminal defense attorney like the team at The Law Offices of Robert J. DeGroot is your best course of action if you’ve been accused of a tax crime. Trusting in an experienced legal team to advise you on your options may help alleviate the stress of the situation as well as prevent life-changing penalties against you. 

Have you or someone you know been accused of tax fraud? Reach out to the expert criminal defense team at the Law Offices of Robert J. DeGroot today!