Tax fraud, or tax evasion, is a serious criminal offense that can result in hefty fines and even imprisonment. Tax fraud occurs when an individual or business intentionally fails to report all of their income or overstates their deductions to pay less taxes.
This hurts the government’s revenue and puts an unfair burden on honest taxpayers. As a result, it is important to be aware of the common warning signs or “red flags” for tax fraud to protect yourself from getting caught up in this illegal activity.
Here are seven common warning signs or “red flags” for tax fraud:
1. Unreported Income
One of the most common warning signs of tax fraud is unreported income. This can happen when individuals or businesses fail to report all of their income on their tax returns. This includes income from freelance work, rental properties, or side businesses.
2. Overstated Deductions
Another warning sign of tax fraud is overstated deductions. This occurs when individuals or businesses claim more deductions than they are entitled to. This can include claiming deductions for expenses that are not business-related or inflating the value of charitable donations.
3. Inconsistent Information
Inconsistent information on tax returns is also a warning sign of tax fraud. This can include discrepancies between income reported on a tax return and income reported on other financial documents. It can also include discrepancies between deductions claimed on a tax return and actual business expenses.
4. Cash Transactions
Cash transactions can also be a warning sign of tax fraud. This is because cash transactions are difficult to track and can be used to hide income. If you notice that an individual or business is conducting many cash transactions, this could be a red flag for tax fraud.
5. Failure to File Tax Returns
Failure to file tax returns is a clear sign of tax fraud. This occurs when individuals or businesses fail to file their tax returns altogether. This serious offense can result in hefty fines and even imprisonment.
6. Offshore Accounts
Offshore accounts can also be a warning sign of tax fraud. This is because offshore accounts can be used to hide income and avoid paying taxes. If you notice that an individual or business has offshore accounts, this could be a red flag for tax fraud.
7. Refusing to Cooperate with the IRS
Refusing to cooperate with the IRS is another warning sign of tax fraud. This can include refusing to provide requested documents or information. If an individual or business is uncooperative with the IRS, this could be a red flag for tax fraud.
Knowing the common warning signs or “red flags” for tax fraud is important to protect yourself from getting caught up in this illegal activity. These warning signs include unreported income, overstated deductions, inconsistent information, cash transactions, failure to file tax returns, offshore accounts, and refusal to cooperate with the IRS. If you notice any of these warning signs, it is important to report them to the appropriate authorities.
If you’re facing tax fraud allegations or IRS problems, don’t wait until it’s too late to seek professional help. As the best tax lawyer in New York, Law Offices of Stephen B. Kass, P.C. has the expertise and experience to provide you with top-notch tax settlements, IRS litigation/negotiations, and business bankruptcy services. We understand the complexities of tax law and will work diligently to protect your rights and financial future. Contact us today!