Other than a guilty conscience, what can happen if you lie on your tax return to get a bigger refund or owe less? The consequences fall into six categories.
1. The IRS can identify discrepancies on your return and send you a notice.
This is the simplest and normally mildest IRS response.
As the IRS processes your return, the IRS will automatically check for mismatches between your return and information the IRS has on file about you. The IRS gets this information every year from your employers, banks, and other third parties.
The IRS will flag any mismatches and may send you a “CP2000 notice” proposing more taxes.
2. The IRS can audit you.
The IRS has a formula for picking out returns to audit.
The IRS ismore likely to audit certain types of tax returns – and people who lie on their returns can create mismatches or leave other clues that could result in an audit.
Audits can be costly and long. Individual taxpayers owe, on average, $9,500 in additional taxes (not including penalties and interest) in an audit. And complicated audits can last more than a year.
Audits can also lead to other consequences, especially if the IRS thinks you intentionally lied on your return. Those can include civil penalties of up to 75% of the taxes you owe.
3. You can lose tax credits in future years.
If the IRS audits your return and determines that you incorrectly claimed the Earned Income Credit (EIC), two things can happen:
- You’ll have to pay back the EIC portion of your refund.
- You may not be able to claim the EIC for two years – and maybe even 10 years if the IRS thinks you fraudulently took the credit.
4. You’ll be paying for professional help.
Any time you’re dealing with an IRS audit, penalties, or other significant tax problems, you’re probably going to need the services of a qualified professional.
While this is often money well-spent and can lessen some of the other consequences, the fees can add up for more complicated issues. Be sure to use a reputable professional. For civil (non-criminal) matters, you normally won’t need an attorney.
In most cases, an enrolled agent or CPA familiar with tax problem-solving can handle the situation, saving you time, money, and stress in the long run.
5. You could face civil penalties.
Penalties will vary based on how much your understated your tax. If you made a simple error and the IRS adjusted it, you might not have to pay any penalty.
Bigger understatements mean bigger consequences. In this case, the most common penalties are:
- Negligence penalty: 20% of the additional tax
- Fraud penalty: 75% of the additional tax due to fraud
6. In rare cases, the IRS can press criminal charges.
When the IRS identifies fraud, the IRS can pursue civil or criminal charges.
The IRS prosecutes relatively few cases each year – and they usually involve large omissions of income, tax evasion or tax protest schemes, or lying to the IRS in an audit.
In 2016, the IRS prosecuted slightly more than 1,000 taxpayers for tax crimes. The IRS takes these cases seriously, with average jail times of over three years.
Best move: Prepare a complete and accurate return
Taxes can get complicated, and your situation may not be black and white. That’s why it’s important to take the time to gather all your records, research your IRS account (if needed) and even consider hiring a tax pro to prepare your return or amend a return you’ve already filed.
A good tax professional will always try to help you pay the lowest amount of tax or get the largest refund that you’re legally entitled to.
If the IRS has already contacted you about your return, you’ll need to take action:
- If the IRS selects your return for audit, learn how it works and what to do.
- If you’re one of the millions of people who get a CP2000 notice, learn how to handle the issue.
- If you get another notice and you’re not sure what it means, learn what to do next.
Need expert help? Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.
The IRS receives information from third parties, such as employers and financial institutions. Using an automated system, the Automated Underreporter (AUR) function compares the information reported by third parties to the information reported on your return to identify potential discrepancies.What happens if you get caught lying on your tax return? ›
Lying on your tax returns can result in fines and penalties from the IRS, and can even result in jail time.What are some things that may trigger an IRS audit? ›
- Digital asset transactions. ...
- Covid-19-related withdrawals from retirement accounts. ...
- IRS matching program. ...
- Profit or loss from business. ...
- Gig work and side hustles. ...
- Home office deduction. ...
- Claiming a hobby as a business. ...
- Cash-based businesses.
Reporting cash payments
A person must file Form 8300 if they receive cash of more than $10,000 from the same payer or agent: In one lump sum. In two or more related payments within 24 hours.
Tax Evasion (The Most Common)
Artificially reducing or omitting Income. Include false personal deductions on the tax return. Include false business deductions on the tax return.
Audit rates by reported annual income
Black people with low income have nearly a 3 percent higher audit rate than Non-Black people with low income. If you're a single Black man with dependents who claims the Earned Income Tax Credit (EITC), you have a 7.73% chance of being audited by the IRS in any given year.
1. The IRS can identify discrepancies on your return and send you a notice. This is the simplest and normally mildest IRS response. As the IRS processes your return, the IRS will automatically check for mismatches between your return and information the IRS has on file about you.How far back does the IRS investigate? ›
Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don't go back more than the last six years. The IRS tries to audit tax returns as soon as possible after they are filed.How often do people get caught lying on taxes? ›
It is a crime to cheat on your taxes. In a recent year, however, fewer than 2,000 people were convicted of tax crimes —0.0022% of all taxpayers. This number is astonishingly small, taking into account that the IRS estimates that 15.5% of us are not complying with the tax laws in some way or another.Does IRS catch all mistakes? ›
Does the IRS Catch All Mistakes? No, the IRS probably won't catch all mistakes. But it does run tax returns through a number of processes to catch math errors and odd income and expense reporting.
You cannot go to jail for making a mistake or filing your tax return incorrectly. However, if your taxes are wrong by design and you intentionally leave off items that should be included, the IRS can look at that action as fraudulent, and a criminal suit can be instituted against you.What raises red flags with the IRS? ›
Taking Higher-than-Average Deductions, Losses or Credits
Taking a big loss from the sale of rental property or other investments can also spike the IRS's curiosity. Ditto for bad debt deductions or worthless stock. But if you have the proper documentation for your deduction, loss or credit, don't be afraid to claim it.
Red flags: Failing to report all taxable income; taking low wages; overstating deductions; claiming high losses well above those in earlier years; not recording debt forgiveness; intermingling personal and business income and expenses; excessive travel and entertainment expenses; and amended returns.What are some red flags that can trigger a tax audit? ›
- Making errors on your tax return.
- Taking too many deductions.
- Being self-employed.
- Depositing (or spending) a lot of cash.
- Claiming the earned income tax credit.
- Misreporting your earnings on your tax return.
- Making large donations to charity.
- Claiming the wrong filing status.
Banks must report cash deposits totaling $10,000 or more
When banks receive cash deposits of more than $10,000, they're required to report it by electronically filing a Currency Transaction Report (CTR). This federal requirement is outlined in the Bank Secrecy Act (BSA).
A cash deposit of more than $10,000 into your bank account requires special handling. The IRS requires banks and businesses to file Form 8300, the Currency Transaction Report, if they receive cash payments over $10,000. Depositing more than $10,000 will not result in immediate questioning from authorities, however.How much can I deposit without being flagged? ›
Depositing a big amount of cash that is $10,000 or more means your bank or credit union will report it to the federal government. The $10,000 threshold was created as part of the Bank Secrecy Act, passed by Congress in 1970, and adjusted with the Patriot Act in 2002.Who are the biggest tax cheats? ›
- Al Capone. Al Capone is likely the most notorious tax evader in history. ...
- Wesley Snipes. Actor Wesley Snipes was convicted in 2008 on three counts of failing to file a tax return. ...
- Dennis Kozlowski. ...
- Leona Helmsley. ...
- Pete Rose. ...
- Willie Nelson. ...
- Sophia Loren. ...
- Heidi Fleiss.
Examples of Tax Fraud
Intentionally failing to file individual income tax returns. A self-employed individual failing to report all income received. Filing an individual income tax return and deliberately understating the amount of income that was earned during the tax year.
Returns with extremely large deductions in relation to income are more likely to be audited. For example, if your tax return shows that you earn $25,000, you are more likely to be audited if you claim $20,000 in deductions than if you claim $2,000.
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.How rare is getting audited? ›
For FY 2021, the odds of audit had been 4.1 out of every 1,000 returns filed (0.41%). The taxpayer class with unbelievably high audit rates – five and a half times virtually everyone else – were low-income wage-earners taking the earned income tax credit.Can IRS investigate you? ›
Criminal Investigations can be initiated from information obtained from within the IRS when a revenue agent (auditor), revenue officer (collection) or investigative analyst detects possible fraud.What is a frivolous tax return? ›
The word “frivolous” means without purpose or value. A frivolous tax return is one that does not include enough information to verify whether the tax was correct, or contains information clearly showing that the reported tax was incorrect.Can the IRS see inside your bank account? ›
The Short Answer: Yes. The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.What is considered a substantial error by the IRS? ›
Substantial Understatement of Income Tax Penalty
For individuals, a substantial understatement of tax applies if you understate your tax liability by 10% of the tax required to be shown on your tax return or $5,000, whichever is greater.
If you are audited and found guilty of tax evasion or tax avoidance, you may face a fine of up to $100,000 and be guilty of a felony as provided under Section 7201 of the tax code.How much do you have to owe IRS to go to jail? ›
And for good reason—failing to pay your taxes can lead to hefty fines and increased financial problems. But, failing to pay your taxes won't actually put you in jail. In fact, the IRS cannot send you to jail, or file criminal charges against you, for failing to pay your taxes.Will IRS come to your house? ›
However, there are circumstances in which the IRS will call or come to a home or business. These include when a taxpayer has an overdue tax bill, a delinquent (unfiled) tax return or has not made an employment tax deposit.How does the IRS catch tax cheats? ›
Usually, tax evasion cases on legal-source income start with an audit of the filed tax return. In the audit, the IRS finds errors that the taxpayer knowingly and willingly committed. The error amounts are usually large and occur for several years – showing a pattern of willful evasion.
Even if you don't realize the mistake for some time, the IRS is likely to forgive smaller mishaps with tax returns and will give you time to fix the problem once you become aware of it.What accounts can the IRS not touch? ›
In fact, there is not a type of bank accounts the IRS can't touch. So, the answer to the following three often-asked questions about the seizure of properties by IRS a definite YES.What errors does the IRS check for? ›
- Filing too early. ...
- Missing or inaccurate Social Security numbers (SSN). ...
- Misspelled names. ...
- Entering information inaccurately. ...
- Incorrect filing status. ...
- Math mistakes. ...
- Figuring credits or deductions. ...
- Incorrect bank account numbers.
If there's a mistake and the IRS sent you a notice or returned the form. If information is missing, the IRS will either return the form or send you a notice asking for specific information it needs to finish processing your tax return.At what point does the IRS put you in jail? ›
Fail to file their tax returns – Failing to file your tax returns can land you in jail for up to one year, for every year that you failed to file your taxes. Misrepresent their income and credits in their tax returns – Any action that you take to evade tax can land you in jail for a period of five years.Can you get in trouble if someone does your taxes wrong? ›
A common question we get from clients is whether they can get in trouble for a mistake made by an accountant or tax preparer. Rest assured, the IRS is unlikely to criminally prosecute you if your tax preparer just messed up.Does the IRS audit everyone? ›
Although the IRS audits only a small percentage of filed returns, there is a chance the agency will audit your own. The myths about who or who does not get audited—and why—run the gamut.What makes taxes get flagged? ›
While the odds of an audit have been low, the IRS may flag your return for several reasons, tax experts say. Some of the common audit red flags are excessive deductions or credits, unreported income, rounded numbers and more. However, the best protection is thorough records, including receipts and documentation.What usually triggers an IRS audit? ›
The IRS has a computer system designed to flag abnormal tax returns. Make sure you report all of your income to the IRS, including investment income or gambling earnings. Cash businesses, large amounts of foreign assets, and large cash deposits are some of the things that can trigger an IRS audit.How does IRS know your income? ›
The IRS receives information from third parties, such as employers and financial institutions. Using an automated system, the Automated Underreporter (AUR) function compares the information reported by third parties to the information reported on your return to identify potential discrepancies.
The IRS receives and processes most tax returns without further examination. However, there are a variety of factors that may attract their attention in a way that would make the return more likely to be audited through a correspondence exam or assigned to an auditor for further inquiry.How far back can the IRS audit you? ›
“Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. The IRS has various different time-limits when it comes to how far back they IRS can audit you.What is considered a red flag in an audit? ›
A red flag is a set of circumstances that are unusual in nature or vary from the normal activity. It is a signal that something is out of the ordinary and may need to be investigated further. Remember that red flags do not indicate guilt or innocence but merely provide warning signs of fraud.How soon will I know if Im being audited by IRS? ›
The IRS does these audits by mail, generally notifying taxpayers within seven months of filing. Mail audits usually wrap up within three to six months, depending on the issues involved and how quickly and completely you respond to the audit letter.How long does it take the IRS to investigate you? ›
Often a tax fraud investigation takes twelve to twenty-four months to complete, with 1,000 to 2,000 staff hours being devoted to the case.How does the IRS contact you if there is a problem? ›
Fraudsters will often claim they already notified the taxpayer by U.S. Mail. Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, the IRS sends a letter or written notice to a taxpayer in advance, but not always.What are the stages of tax investigation? ›
A typical tax audit process comprises of the pre-audit stage, field audit stage and post-audit stage: Pre-Audit Stage:This involves the tax audit planning stage and consists of the following activities;selecting taxpayers; notifying taxpayers of tax audit exercise and selecting tax audit teams.What are red flags for the IRS? ›
While the odds of an audit have been low, the IRS may flag your return for several reasons, tax experts say. Some of the common audit red flags are excessive deductions or credits, unreported income, rounded numbers and more. However, the best protection is thorough records, including receipts and documentation.What happens if you get audited and don't have receipts? ›
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.Can the IRS show up at your door? ›
However, there are circumstances in which the IRS will call or come to a home or business. These include when a taxpayer has an overdue tax bill, a delinquent (unfiled) tax return or has not made an employment tax deposit.
tax evasion—The failure to pay or a deliberate underpayment of taxes. underground economy—Money-making activities that people don't report to the government, including both illegal and legal activities.What are examples of tax evasion? ›
Examples of tax evasion include claiming tax deductions or tax credits you're not entitled to, intentionally underreporting or failing to report income, and concealing taxable assets.What crimes does the IRS investigate? ›
It is the only federal law enforcement agency authorized to investigate federal criminal tax violations and pursues related financial crimes, such as money laundering, currency violations, and terrorist financing.How do I talk to an IRS officer? ›
Contact an IRS customer service representative to correct any agency errors by calling 800-829-1040 (see telephone assistance for hours of operation).Will IRS mail you if there is a problem? ›
The Internal Revenue Service (IRS) will send a notice or a letter for any number of reasons. It may be about a specific issue on your federal tax return or account, or may tell you about changes to your account, ask you for more information, or request a payment.How far back can a tax investigation go? ›
The HMRC can go very far back, as far back as 20 years of your financial history. Depending on the initial reason for the tax investigation, they might need to dig deeper.What are the three elements of tax evasion? ›
Understanding the Three Elements of the Tax Evasion Statute
§ 7201, which sets forth the three elements of the crime: the existence of an additional tax due and owing; an attempt by the taxpayer to evade or defeat the tax; willfulness on the part of the taxpayer (2).
The five filing statuses are: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child.