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If you underreport your earnings, is that tax fraud?

On Behalf of | Jan 27, 2022 | Tax Law

When you file your taxes, you’re required to report your earnings to the IRS. For many workers, this is fairly simple and they just have a W-2. But it can be much more complicated for those who own businesses or who are self-employed. 

In these cases, you may worry about forgetting some of your income and reporting it inaccurately when you file your taxes. If you do this, is it fraud? Are you going to face serious ramifications if the IRS figures out what you’ve done?

The role of intent is important when it comes to fraud

There are a lot of different things to consider in a situation like this, but perhaps the most important is intent. For what you did to be illegal, you had to have the intent to do it on purpose. It had to be your goal. You had to purposely take action to refrain from telling the IRS about money that you knew you made. Your goal was to commit fraud, and that is illegal.

On the other hand, maybe you just made a mistake. Maybe you forgot about some of your paperwork or wrote a number down wrong. It’s just an error. In a case like that, without intent, you haven’t committed fraud and you haven’t committed a crime. That doesn’t mean there will be zero ramifications, and you’ll likely have to pay what you owe in back taxes after the audit, but making a mistake on your taxes is not illegal.

All that being said, dealing with the IRS can be very stressful and complicated. You must know about your legal options and exactly what steps you have to take to protect your future.