Overview - General Tax Fraud
The term voluntary compliance means that each of us is responsible for filing a tax return when required, and for determining and paying the correct amount of tax. Fortunately, the vast majority of Americans recognizes their legal responsibility, and properly report and pay over their tax obligations.
The efforts of Criminal Investigation (CI) are directed at the portion of American taxpayers who willfully and intentionally violate their known legal duty of voluntarily filing income tax returns and/or paying the correct amount of income, employment, or excise taxes. These individuals pose a serious threat to tax administration and the American economy.
The General Fraud Program is Criminal Investigation's largest enforcement program encompassing a wide variety of investigations involving tax and money laundering crimes. This program includes investigations involving a broad spectrum of individuals and industries from all facets of the economy, from small business owners to self-employed to large corporations. General Fraud cases constitute the main component of CI's efforts to most directly influence taxpayer compliance with the Internal Revenue Code.
General Fraud is the program from which CI identifies emerging areas of non-compliance in both Legal Source Tax Crimes and Illegal Source Financial Crimes. These emerging areas are instrumental in ensuring CI is focusing resources to most effectively achieve our mission.
Legal Source Tax Crimes involve legal industries and legal occupations, and more specifically, legally earned income, in which the primary motive or purpose is the violation of tax statutes (United States Code Title 26 and Title 18, Sections 286, 287, and 371K). The Legal Source Tax Crimes Program also includes cases that threaten the tax system, for example frivolous filers/non-filers, unscrupulous return preparers and the Questionable Refund Program.
The Illegal Source Financial Crimes Program recognizes that illegal source proceeds, which are a part of the untaxed underground economy, are a threat to the voluntary tax compliance system. Failure to investigate these cases would erode public confidence in the tax system. Within the guidelines of the Illegal Source Financial Crimes Program, CI commits resources to those investigations that involve proceeds derived from illegal sources other than narcotics. This program encompasses all tax and tax-related violations (Title 26 and Title 18, Sections 286, 287, and 371K), as well as money laundering (Title 18, Sections 1956, 1957, and 371M) and currency violations (Title 31). Linked to the investigation of the criminal charges within this program is also the emphasis for the effective utilization of the forfeiture statutes to deprive individuals and organizations of illegally obtained assets.
Tax Preparer Fraud
Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.
The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers.
While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.
Helpful Hints When Choosing a Return Preparer
• Avoid tax preparers who claim they can obtain larger refunds than other preparers
• Avoid preparers who base their fee on a percentage of the amount of the refund.
• Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
• Consider whether the individual or firm will be around to answer questions about the preparation of your tax return
months, or even years, after the return has been filed.
• Review your return before you sign it and ask questions on entries you don't understand.
• No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
• Find out the personís credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared. (Additional text in italics added Feb. 4, 2005 .)
• Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
• Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
IRS cautions taxpayers to be wary of claims by preparers offering larger refunds than other preparers. Check it out with a trusted tax professional or the IRS before getting involved.
Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.