A former business owner from Buffalo faces 15 years in prison after recently pleading guilty to tax fraud. According to a recent news article, the man under-reported the sales tax collected at his four Mexican restaurants between March 2012 and Nov. 2016. The man previously pleaded guilty to tax evasion and conspiracy to unlawfully employ undocumented immigrants and will be sentenced in February.
Under-reporting income is one of the most common ways businesses and individuals commit tax fraud. Other common ways include over-reporting expenses and claiming unearned deductions.
What is the difference between negligence and fraud?
The big difference between negligence and fraud is the intention of the person committing it. If an offending act was committed carelessly or recklessly, it is considered negligence. Typically, a negligent act is committed in error. However, it still often results in fines that can be as much as 20 percent of the underpayment.
If the offending act was committed intentionally, it is tax fraud. Tax fraud can incur criminal and civil penalties, including prison time and heavy fines. The severity of the penalties will depend on the specific situation.
Rights during an IRS Audit
If the Internal Revenue Service (IRS) has decided to audit you, you still have several rights. These include the rights to:
- Know why the IRS wants certain information, how the information will be used and what will happen if the information is not provided
- Have privacy and confidentiality regarding tax matters
- Be represented by an authorized professional, such as a certified public accountant or attorney
- Appeal disagreements within the IRS and in court
- Receive courteous treatment by IRS employees
If you think you may have made a mistake when filing your taxes or know you willfully committed tax fraud, it is important to understand your rights. This understanding will help you pursue your best possible outcome, while making sure you are being treated fairly.