what is tax fraud 
tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return to limit the amount of tax liability tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation examples of tax fraud include claiming false deductions claiming personal expenses as business expenses using a false social security number and not reporting income tax evasion or illegally avoiding payment of taxes owed may be construed as an example of tax fraud understanding tax fraudtax fraud involves the deliberate misrepresentation or omission of data on a tax return 1 in the united states taxpayers are bound by a legal duty to file a tax return voluntarily and to pay the correct amount of income employment sales and excise taxes failure to do so by falsifying or withholding information is against the law and constitutes tax fraud tax fraud is investigated by the internal revenue service criminal investigation ci unit tax fraud is said to be evident if the taxpayer is found to have 2a business that engages in tax fraud may tax fraud vs negligence or avoidancefor example claiming an exemption for a nonexistent dependent to reduce tax liability is clearly fraud while applying the long term capital gain rate to a short term earning may be looked into more to determine whether its negligence although mistakes attributed to negligence are non intentional the irs may still fine a negligent taxpayer with a penalty of 20 percent of the underpayment famous people throughout the world have been guilty of tax fraud such as lionel messi given that the tax code in the u s is a complex compilation of tax imposition and laws a lot of tax preparers are bound to make careless errors tax fraud is not the same as tax avoidance which is the legal use of loopholes in the tax laws to reduce one s tax expenses 3 although tax avoidance is not a direct violation of the law it is frowned upon by tax authorities as it may compromise the overall spirit of tax law special considerationstax fraud cheats the government out of millions of dollars every year and is punishable by fines penalties interest or prison time 4 generally an entity is not considered to be guilty of tax evasion unless the failure to pay is deemed intentional tax fraud does not include mistakes or accidental reporting which the irs calls negligent reporting 