What happens if you are accused by the IRS, the FTB or another California tax agency regarding fraud or false information on a tax return? The short answer is simple: fraud and false information on a tax return is considered to be a misrepresentation of income which can and will result in civil and often criminal penalties. While civil offenses are easier for the tax agency to prove, serious offenders face significant financial penalties and jail time.
We’re not speaking about an honest mistake or a slight fudging of a number here or there. The IRS, FTB and other California tax agencies have sophisticated analytical tools which can identify potentially fraudulent or inaccurate information and flag the return for an audit.
If an agency identifies what they believe to be a pattern, it can open the door to a multi-year audit. This is never good news and exposes the taxpayer to substantial risk. If the agency believes you have made a substantial understatement of your income (the most common type of fraud or false information on a tax return today) the penalty is usually 20% of the portion of the underpaid tax, in addition to the underpayment itself and accumulated interest.
Hiding assets, failing to disclose income or assets such as foreign accounts or property on an FBAR can be considered to be civil fraud. This is much more serious. The “I didn’t know…” defense will not suffice. The IRS has clearly established it is the responsibility of a US taxpayer to understand tax reporting and file accurate returns. California laws reflect these standards as well. If the IRS or California tax agency has “clear and convincing” evidence that any part of understated income was a fraudulent attempt to evade taxes it becomes a civil violation carrying penalties as much as 75% of the unpaid taxes assessed by the agency.
If you are concerned about information from previous returns which may have inadvertently misrepresented or omitted sources of income or have been contacted by the IRS, FTB or another California tax agency regarding fraud of false information on a tax return you need sound advice and counsel from a proven, experienced San Diego Tax Attorney.
Janathan Allen has decades of experience in domestic and international tax law and Generally Accepted Accounting Principles (GAAP). In some cases, it is simply a matter of helping the auditor to understand the complexities of accounting which underlie the return in question. The vast majority of auditors are not accountants.
If you are concerned about a tax matter we invite you to learn more and contact Allen Barron or call us today to schedule a free consultation with Janathan Allen.
