Tax time is here. Maybe you’ve already e-filed your return and are awaiting a refund, or you’re awaiting some additional information before you can file. Or like many Americans, you’re procrastinating until the last minute, which isn’t recommended.
We’ve discussed what you could face if you fail to pay your North Carolina state taxes in a previous blog. If you’ve done something wrong, you’ll generally be audited. But is it negligence, or tax fraud?
Tax laws are complex, and not easy for the everyday taxpayer to understand. Even with tax software, mistakes can happen. In the absence of evidence of fraud and/or criminal activity, the IRS will generally assume you (or your tax preparer) have made a genuine mistake.
That doesn’t mean that you won’t face a penalty for making a mistake. You can expect a penalty of about 20% on a return with errors. In this case, you likely won’t face criminal charges, only a potential fine, and penalty.
If you are unable to pay your taxes, North Carolina also offers an installment agreement as well as a settlement plan, called “Offer In Compromise.” Waivers are available in special hardship circumstances. You’ll need to complete Form NC-5500 and submit it to the North Carolina Department of Revenue to request one.
You can get help from a tax attorney or tax preparation professional to take care of tax return mistakes. For taxpayers who have not filed previous years’ tax returns, the IRS offers guidance on its website.
There is a difference between minimizing your tax burden through deductions, credits, contributions, and other options and intentionally misrepresenting your income to lower your taxes.
When questioning your tax returns, the state of North Carolina and the IRS focus on the intent of the taxpayer. Was this an honest error, or was there a deliberate attempt to conceal income, assets, and any other taxable items?
Income tax fraud can take the form of:
- Knowingly failing to file your income tax return
- Deliberately failing to pay any taxes that are due
- Consciously failing to report all received income
- Preparing and filing an intentionally false return
- Making false or fraudulent claims
The IRS will review your return for common signs of fraudulent activity, such as:
- Intentionally under-reporting your income
- Transfers and/or concealed income
- Two or more sets of ledgers
- Stating personal expenses as business expenses
- Altered and fabricated documents
- Frivolous tax claims, including exaggerated exemptions and deductions
- Using a bogus Social Security number
- Claiming exemptions for a child or other dependent that doesn’t exist
If you have a cash-based business, are self-employed, or are primarily paid in cash when you work, you may find it easy to under-report your income. This doesn’t mean that you can’t be caught for tax fraud. The State of North Carolina and the IRS are well-versed in identifying fraudulent tax returns as well as tax evasion.
There are different penalties for both negligence and tax fraud.
For an unintentional error, you will still likely be assessed a 20% penalty. But for intentional tax fraud, a conviction can include penalties of:
- Fines of up to $100,000
- Imprisonment for up to five years
- A combination of both
Additionally, you may be susceptible to more frequent audits and have a difficult time finding someone to take care of your tax returns.
Call Dewey P. Brinkley For Financial Crimes Defense
If you’ve been charged with willful failure to file a tax return, tax evasion, or any financial crimes, you’ll need the help of a financial crimes defense attorney immediately to avoid a potential jail sentence, fines, and penalties, along with a permanent criminal record.