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Chap 16 Lecture - Unit 5 Chapter 16 Tax Fraud 1 Define tax...

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Unit 5 Chapter 16 Tax Fraud 1: Define tax fraud. Tax evasion is tax fraud. Tax Evasion - Illegally avoiding paying taxes, failing to report, or reporting inaccurately. The government imposes strict and serious penalties for tax evasion. Tax evasion is different from tax avoidance, which is making use of legal methods to minimize a tax burden. Another definition of tax evasion is a prohibited or illegal act or omission which is designed to reduce a person’s tax liability. The definition can actually be broadened. There are many, many ways to commit tax fraud, including ways that don’t affect one’s tax liability or amount paid in taxes. For example, IRC § 7203 makes it a crime to willfully not maintain records, or to willfully supply false information. Tax fraud is the intentional wrongdoing on the part of the taxpayer with the specific purpose of evading a tax known or believed to be owed. It means that you have intentionally broken the tax laws by providing incorrect information on your tax return for the purpose of financial gain or completely evaded the tax by knowingly not filing a return. Tax laws are broken to include but are not limited to: Deliberately underreporting income Deliberately omitting income Keeping two sets of books Overstating the amount of deductions Making false entries in books and records Claiming personal expenses as business expense Hiding assets or income Claiming false deductions Transferring assets or income The Internal Revenue Service (IRS) created the Criminal Investigation Division to research and correct improper tax filing and improper tax payment. The Criminal Investigation Division of the IRS investigates a wide variety of individuals and corporations including business owners and self-employed wage earners. It is the main component of the IRS's efforts to directly influence taxpayer compliance. The Tax Fraud Program is the Criminal Investigation Division's largest enforcement program that covers a variety of tax fraud and tax and money laundering crimes. According to IRS statistics there were 1,863 investigations initiated by the Tax Fraud Program in 2006, leading to nearly 700 people being sentenced and incarcerated for breaking the tax law. The Tax Fraud Program classifies tax fraud crimes into two basic programs, legal source tax crimes and illegal source financial crimes. Legal source tax crimes involve people who earn wages legally but choose to evade taxes by violation of tax laws. These cases involve behaviors that threaten the tax system, such as questionable claimed refunds, unscrupulous tax return preparers, and persons who challenge the legality of income
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taxes. The prosecution of these cases is essential in supporting the IRS's overall compliance goals, encouraging voluntary compliance with the tax laws, and promoting fairness and equity in the American tax system.
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