Last month, the Treasury Inspector General for Tax Administration (TIGTA) released a new report claiming that high income earners and sole proprietors are getting away with tax fraud and without paying appropriate penalties. In reaching this conclusion, TIGTA reviewed 100 office audits in which taxpayers agreed they owed the IRS at least $10,000. TIGTA found that in more than one-quarter of the cases, the IRS failed to notice potential fraud indicators that should’ve led to further investigation.
As a result, TIGTA is recommending that the IRS take action and is warning high-income earners who are underreporting income or overstating deductions that stricter enforcement is on the horizon. Specifically, TIGTA is telling the IRS and warning tax payers that, “Civil fraud penalties should be considered when appropriate because they discourage taxpayers from willfully underreporting substantial tax liabilities…” The civil fraud that TIGTA is referring to is not a simple miscalculation on a tax return, but rather having the fraudulent intent to pay less in taxes than what is truly owed.
Criminal tax fraud can include significant financial penalties and jail time if a taxpayer is convicted. In the past, the IRS has rarely accused taxpayers of this type of fraud. Yet, it has been done, and the IRS has said that it will revise its process for documenting the consideration of fraud after the TIGTA report. How much will change remains to be seen.
Our Oklahoma tax lawyers encourage taxpayers to be aware of the TIGTA report and IRS response.