If you have purposefully avoided paying your taxes, whether federal, state, or local, you have IRS Problems. Tax evasion, commonly called tax fraud, is a crime. Penalties can involve fines, imprisonment, and asset seizure.
The majority of people cheat on their taxes by underreporting their income. These offenders are self-employed restaurateurs, car dealers, owners of clothing stores, telemarketers, salespeople, doctors, lawyers, accountants, and hairdressers. Statistics show that the highest percentages of taxpayers who cheat are middle-income. The worst offenders work in the service industry and in cash-intensive businesses. Underreporting tips also has a high percentage of not being reported. Other examples of tax fraud include using a false SSN, keeping two sets of books, keeping no books at all, altering checks, or claiming a spouse when you are single.
Auditors expect to find errors on every tax return. The general public is not expected to know all the tax laws so most of the time an auditor will not penalize you for making an honest mistake. Auditors, however, are trained to look for tax fraud. If you are caught committing fraud, the fines and penalties charged will depend on what type of fraud it was. Civil fraud applies a 75% penalty if you underpay your taxes or a 25-75% penalty if you failed to file your taxes. The penalty for criminal fraud can be imprisonment.
General Tax Fraud Penalties