Is it negligence or straight-up tax fraud?

If you are one of the 17% of working individuals across Maryland and the U.S. who fail to comply with the tax code in some way, you may worry that the government will charge you with tax fraud.

Fortunately, if your mistake is an innocent one, the charge is unlikely to result in a conviction. However, what separates an innocent mistake from an act of tax evasion? FindLaw explores the answer more in-depth.

The IRS is aware that its tax code is complex and that mistakes are bound to occur. That is not to say the agency will not fine you for a mistake; you may still receive a bill in the mail for up to 20% of the amount you still owe. To be sure a mistake is just that — a mistake — the IRS will look for common signs of fraud. Some such signs are as follows:

• Falsification of tax documents
• Overstatement of exemptions or deductions
• Transfer or cover-up of income
• Claim of personal expenditures as business ones
• The existence of two sets of financial records
• Claiming the exemption for a non-existent dependent

There are several ways to con the government, most of which the IRS has seen before. If the revenue service discovers other signs of fraud, you may have a more serious issue than having to pay a fine.

While there are some tricks, such as those mentioned above, taxpayers will try to use to deceive the government, there are certain forms of blatant tax fraud that the IRS can spot a mile away. Those include intentionally failing to file an income tax return, making fraudulent claims, preparing and filing a false return, willfully failing to pay taxes due and intentionally failing to report all earned income.

The penalty for tax fraud varies depending on the extent of the crime and how much money out of which you tried to dupe the IRS. For instance, deliberately choosing not to file a tax return or pay taxes is a misdemeanor punishable by up to one year in prison, a fine of no more than $100,000 or both. However, if you attempt to avoid paying your taxes entirely, the IRS may charge you with a felony. If convicted, you face up to five years in prison, a penalty of up to $250,000 (or up to $500,000 for businesses) or both.

This article is for your learning purposes only. You should not use it as legal advice.