Tax Fraud vs. Tax Evasion: What It Is & How to Protect Yourself if Accused 

While both considered criminal offenses, tax fraud and tax evasion differ in the nature of the offense. There are penalties for both, but tax evasion carries even harsher consequences. Keep reading to learn more and understand how to protect yourself if you’re accused of either.

Tax Fraud vs. Tax Evasion 

Tax fraud and tax evasion share some similarities, but are also very different in some crucial ways. 

Tax Fraud

The IRS (Internal Revenue Service) defines tax fraud as “…an intentional wrongdoing on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing…” Tax fraud requires both a tax due and owing, and fraudulent intent. 

Tax fraud is deliberate, and the key to determining whether someone is guilty of tax fraud is proving that the person accused of tax fraud willfully and intentionally committed acts to avoid paying taxes. IRS investigators will look for any indicators of fraud including, but not limited to: 

  • Underreporting Income
  • Using a False Social Security Number 
  • Falsifying Documents
  • Misrepresentation of Financial Records 

If these factors are absent, the IRS can assume that an unintentional mistake was made. This usually does not lead to charges, but can result in a hefty fine of up to 20% of the underpayment. 

The New Jersey Division of Criminal Justice has created an Economic Crime Bureau that works with the Department of Human Services and the Taxation Division to combat tax crimes. Tax fraud is considered a crime that harms all citizens by these departments, and those charged are subject to harsh penalties (more on that to come). 

Tax Evasion 

Tax evasion differs from tax fraud in that it is the willful failure to pay taxes owed by intentionally not filing tax returns or underreporting taxable income. Tax evasion is often a more passive approach to committing a crime than tax fraud because it’s not always outwarding deceptive, however the penalties are more severe. 

Common tax evasion methods include: 

  • Underreporting Income
  • Manipulating Deductions on Tax Returns
  • Not Filing Tax Returns
  • Keeping Unreported Cash Payments

Business owners may also commit tax evasion by not properly reporting and paying payroll and employment taxes. 

Tax evasion is taken very seriously by the IRS, and Tax authorities in New Jersey as it is a felony offense. 

Penalties for Tax Fraud & Tax Evasion 

The consequences for a tax crime in New Jersey depend heavily on intent. If you fail to file a tax return, it is considered a misdemeanor where you face a year in prison and up to $25,000 in fines. If you are convicted of intentionally failing to file a tax return (tax evasion), your offense may be upgraded to a felony where you face a sentence of 5 years in prison and up to $100,000 in fines. 

In another example, if you mistakenly file a false tax return, the IRS may adjust the amount you owe to the correct amount and let you know of your mistake. If it is discovered that your filing a false tax return was intentional (tax fraud), your charge may be upgraded to a felony where you again face 5 years in prison and up to $100K in fines. 

Being charged with a tax crime can be life changing and have significant repercussions. Protecting yourself from these types of charges should be your goal. 

How To Avoid Tax Fraud and Tax Evasion Charges 

Listed below are some steps you can take to protect yourself from tax crime charges: 

Be Transparent: If you think you’ve made a mistake on a tax form, come forward to the IRS and correct it. 

Maintain Accurate Records: Keep your financial records up to date and organized. 

Avoid Guessing: If you’re unsure about certain details when completing your tax return, ask a professional. Mistakes can cost you. 

If You Are Accused of a Tax Crime 

The consequences for a tax fraud conviction are harsh. If you’ve been contacted by the IRS or the Division of Taxation for the State of New Jersey, it’s time to contact an experienced attorney for assistance. 

You should take any accusations seriously, and not provide a response to the accusations before speaking with an attorney. An accomplished tax attorney, like those at the Law Offices of Robert J. DeGroot, can help investigate your best possible defense and guide you to a resolution. 

A tax crime can threaten the trajectory of your life. You need a professional to respond to tax crime accusations. Give yourself the best chance at overcoming the obstacles you are facing by enlisting the assistance of a respected, professional attorney. 

Have you or someone you know been accused of a tax crime? Contact the professional, experienced team of lawyers at the Law Offices of Robert J. DeGroot for personal advice and counsel.