What is the difference between tax fraud and tax evasion?

Purposely and knowingly attempting to evade or otherwise defeat state or federal taxes could lead to tax fraud or tax evasion charges.

Benjamin Franklin once said nothing in this world is certain, "except death and taxes." Californians, like the residents of other states, are subject to state and federal taxes. Whether intentionally or by mistake, sometimes people may not pay enough or fail to pay their taxes altogether. Under some circumstances, such mistakes may lead to civil or criminal legal issues. In order to avoid these types of costly troubles, it is helpful for people to understand the difference between tax fraud and tax evasion.

Tax fraud

There are situations when people provide incorrect information on their tax returns. This includes preparing their records to overstate their expenses, neglecting to report their full income, failure to file tax returns altogether or claiming to live in one state while residing in another. When people knowingly or purposely give false details, it may be considered tax fraud.

Individual people who are convicted of tax fraud may face severe consequences. They may be ordered to pay a fine of up to $250,000, sentenced to a maximum of three years in prison or both. Additionally, those who are found guilty of tax fraud may also be required to repay the prosecution costs.

Tax evasion

No one wants to pay more in taxes than they must. It is generally okay for people to reduce or otherwise limit their obligations through legitimate means. However, they may be charged with tax evasion if they use deceit, concealment or other affirmative acts to dodge or defeat their taxes. For example, intentionally understating income, claiming fake or inappropriate deductions, or concealing their assets may be considered forms of tax evasion.

A tax evasion conviction also carries potentially serious penalties. Those who are found guilty of or who plead guilty to this offense may be fined a maximum of $250,000, sentenced to up to five years in prison or both. Furthermore, people convicted of tax evasion may also be ordered to pay back the costs associated with their prosecution.

Working with a legal representative

With or without professional assistance, navigating the tax system may be challenging for people in California and elsewhere. Even what might have been a small, unintentional mistake may turn into a costly error with lasting consequences. Therefore, those who are under investigation or who have been charged with tax-related offenses may benefit from seeking legal counsel. An attorney may help them understand their rights, as well as determine how best to proceed given their unique situations.