All American taxpayers need to report their income, employment and other tax obligations to the IRS. Federal law expects you to file accurate taxes every year and failure to do this leads to severe consequences. Below are penalties for failing a false tax return and how to resolve the issue.
Criminal consequences of disclosing false returns knowingly
Individuals that intentionally disclose or submit false accounts, statements and returns can be prosecuted in court for tax fraud. According to the U.S federal tax law, high dollar tax fraud penalties include up to $500,000 for corporations ($250,000 for individuals) and a jail term of three years or both. Lower dollar tax fraud penalties can be 100% of the unpaid tax or as much as $5,000 and a jail term of one year or both.
However, the above penalties can be substantially higher depending on the type of false information provided. You could also face many more years in jail in federal prison if the crime was ongoing for a long time.
For instance, an individual who reported false returns over a five-year period will face significantly higher fines and jail terms. The IRS will also consider how much you owe them for that period.
What are the legal options for knowingly filing false returns?
The IRS CI Voluntary Disclosure Practice can help you avoid criminal prosecution after knowingly filing false tax returns. Although you may still face consequences, the penalties and fines will be substantially lower. However, it is only viable if you disclose the matter before the IRS comes knocking on your door.
Unintentionally filing false tax returns
The IRS often flags tax returns with mistakes or errors. However, an auditor will evaluate the returns to determine whether the error is due to fraud or negligence. These IRS auditors anticipate issues with the tax form and give taxpayers a bit of leeway.
Equally, the IRS will not classify tax returns as fraudulent if there is no evidence of wrongdoing. Instead, they look for badges of fraud such as falsifying your Social Security Number and claiming false dependents.
What are the legal options for unintentionally filing false returns?
Individuals that make honest mistakes will receive a letter with interest and penalties to resolve the issue. You can, therefore, make the repayment and avoid hefty fines. However, failure to do this will result in a formal IRS investigation.