No business ever wants to be on the wrong side of a tax fraud investigation. There are several basic points everyone should know about tax fraud in order to stay in the clear. Not every one of these issues will apply to you and your business every year—but at least one almost certainly will.
Check out our version of Tax Law 101, and be aware of what you need to stay in the clear. And remember, if you happen upon signs of tax fraud, it’s always better to reach out for professional help sooner rather than later.
Missed deadline for filing
We’ve all been there: missing a filing deadline is a problem for individuals and businesses alike. There are many reasons that business owners fail to file according to the deadline. Some merely forget and quickly remedy the issue. Other businesses miss the date intentionally, because they hope their failure to file won’t be noticed, or they feel they shouldn’t have to file.
Whatever your reasons for failing to file, missing that deadline can be a major problem. At the very least, not filing means you’ll be fined. You’ll end up paying your existing taxes, plus a fine for not paying—in fact you can be fined both for your unpaid taxes and your failure to file. Unpaid taxes and penalties add up fast, so it’s best, obviously, to file on time.
And remember this: if you don’t file you can also be charged with tax evasion, the deliberate failure to avoid paying taxes. The IRS just needs some evidence of an “affirmative act” of evasion to bring the charges. This means that even if you just stay in business on a cash basis after you fail to file, you might get hit with a tax evasion charge.
For even small businesses, employees and the payroll tax issues that can come with them can lead to serious problems. Intentional underpayment of employees, non-filing, and paying workers cash “under the table” are all forms of tax fraud related to payroll.
Your business may be reported to the IRS, but there are many other ways to get caught by the agency. For example, if tax fraud is common in your industry, you may fall under scrutiny randomly. Or, if you pay workers cash “under the table” or misclassifying them, their income can “pop up” somewhere else. If it does and the IRS notices, you may be their next stop.
Tax return errors
Believe it or not, one person’s errors can be the IRS’s tax fraud charges. Often, the kinds of omissions and errors that trigger audits have to do with unreported income. For example, a 1099 form that goes unreported is almost certain to cause an audit.
Anything from intentional tax fraud to simple mistakes can potentially trigger an audit. Extreme caution on your part is best, in either case. Once the process has begun, tax evasion charges can be based on any statements you make, and even honest mistakes can very easily snowball out of control. An abundance of caution can help you avoid unfair results.
Bitcoin and other cryptocurrencies
If you trade or have bought Bitcoin or other cryptocurrencies, your tax burden may be unclear to you. Although Bitcoin and other cryptocurrencies are digital money, to the IRS, they are property. This means when the value of your Bitcoin increases, you must report that as income and pay capital gains tax.
Both FACTA and FBAR also require filers to report foreign accounts, which may include Bitcoin wallets. Bitcoin wallets did not need to be reported under FBAR for 2014 only, but now it is often wisest to file an FBAR as well in many cases.
These issues are complex and they change fast as regulations shift. For these reasons, remember if you consult a tax professional, find one who understands not just tax issues but also the nuances of cryptocurrencies.
Residents of the United States must report all foreign bank accounts every year that have high balances of $10,000 or more. However, because FACTA, FBAR, OVDP, and IDES all provide requirements for assessing penalties, the rules surrounding this area are confusing. IDES, in particular, has moved banks around the world to report accounts to the IRS—even when the owners of the accounts fail to report them.
The bottom line
Although these five areas cause everyday tax filing businesses a lot of trouble, just about any business can run into tax fraud issues. Have you spotted any of your own business issues here? To get the best possible result in each situation, don’t wait until you’re audited or charged; it helps to consult a tax law attorney who can help you sort out your tax fraud situation.