IRS Penalties for Lying on Your Taxes

A notice from the IRS is seldom good news.
Image Credit: Paul Bradbury/OJO Images/Getty Images

More than ​99 percent​ of individual federal tax returns safely pass through the Internal Revenue Service without any audit-triggering red flags. So, taxpayers may be tempted to fiddle the numbers or cook the books – never a good idea. However, given the complexity of U.S. tax laws, innocent mistakes may occur.

Advertisement

When the error appears to be a deliberate attempt to avoid paying taxes, however, it could attract the attention of IRS auditors and investigators and bring down civil or criminal charges against the offender. These reasons are enough to hire a good tax lawyer.

Video of the Day

Video of the Day

How Do They Know?

The IRS computers flag returns that contain suspicious information, and the IRS pursues an investigation when large amounts of money are at stake. An IRS audit is a time-consuming process. It involves an in-depth review of your financial records to ensure you reported every line item properly. You may be asked to provide years of documentation and attend interviews with fraud agents from the IRS.

Advertisement

An underpayment of ​$500​ or less generally involves penalties and interest rather than a criminal or civil prosecution. If an audit turns up larger problems, the examiner and his superiors can impose a civil penalty or turn the case over to the IRS's Criminal Investigation Division. When the unpaid amount is substantial, the penalty for a federal tax crime could be jail time, and the perpetrator must still pay the tax plus penalties and interest.

Advertisement

Consider also​: Tax Audits: What Are They, Why Are You Audited & IRS Audit Outcomes

Tax Evasion Is a Crime

Can you go to jail for lying on taxes? The answer is yes. Tax evasion generally refers to a deliberate act of under-reporting income and misrepresenting deductions and credits in order to reduce the amount of tax owed.

Advertisement

Advertisement

As of January 2022, the federal sentencing statutes state that anyone who willfully attempts to evade paying federal income taxes can be convicted of a felony and be subject to ​five years​ in prison or fined up to ​$250,000​, or both, plus the costs of prosecution.

Advertisement

Lying to the IRS and Tax Fraud

Filing a false return in general involves the intention of the individual to defraud the government with misstatements such as omitting sources of income or even claiming phantom dependents. Even if the error doesn't involve underpayment, lying on a return or lying during an audit can involve charges.

Advertisement

Once you sign your tax return, the IRS considers fraudulent information on that return to be perjury – a felony subject to criminal charges and up to three years in prison and/or ​$250,000​ in fines. Civil tax fraud can bring a penalty of up to ​75 percent ​added to the tax due.

Advertisement

Consider also:What If I Made a Mistake on My Taxes?

Conspiring to Defraud

A professional tax preparer who deliberately alters credits or deductions to benefit his client could be found guilty of fraud. If the IRS can prove that the client knew the tax return was fraudulent, both the preparer and the client could be found guilty of conspiracy and subject to five years in prison and up to ​$250,000​ in fines.

Advertisement

Advertisement

Report an Issue

screenshot of the current page

Screenshot loading...