Tax fraud shortchanges the government of money it needs for the various programs it funds. In the long run, it hurts honest taxpayers, who must pay higher taxes to make up for the taxes not paid by people who engage in fraud. The Internal Revenue Service makes it easy to report fraud. It also investigates phishing schemes, in which con artists misrepresent themselves as IRS agents to defraud taxpayers and steal their personal information.
Definition
Any activity that is designed to misrepresent your income so that you do not pay as much tax as you owes is considered fraudulent. Common fraudulent activities include deliberately not paying tax, under-reporting taxable income, and claiming refunds that to which you are not entitled. As of 2010, the IRS also encounters "phishing" schemes in which a person pretends to be affiliated with the IRS to fraudulently obtain sensitive identifying information from legitimate taxpayers.
Procedures for Reporting Fraud
The IRS encourages taxpayers to report it if they are aware of fraudulent activity by other taxpayers. It prefers taxpayers to use Form 3949-A. This form asks you to provide the taxpayer's name, address and phone number, the alleged violation, and your name and contact information. If you do not wish to use this form, you can type the information on a piece of white paper. The IRS prefers that you provide your name and contact information, but you can report anonymously if you wish by leaving off this information.
Penalties for Fraud
If the IRS determines that a taxpayer is guilty of fraud, it may impose criminal and civil penalties. Civil penalties include a penalty of 15 percent for each month after the April 15 deadline that the proper return is not filed, with a maximum penalty of 75 percent of the tax owed. Taxpayers must also pay an underpayment penalty of 75 percent of tax owed for underpayment due to fraud. If the IRS believes you committed tax fraud, you can be arrested; and if you are convicted, you face jail time and possibly may be ordered to pay restitution to the IRS.
IRS Tips for Avoiding Phishing Schemes
Phishing has unfortunately become one of the most common types of fraud, especially around tax time. The IRS advises taxpayers that it does not ask for sensitive information such as Social Security numbers or electronic PINS over email. Never respond to an email that claims to be from the IRS and asks for this type of information.
Report Phishing Emails
If you receive a phishing email, forward it to the IRS at phishing@IRS.gov and delete the email. Run your anti-virus software to make sure that you did not accidentally download a virus when you opened the email.
