If you were to hear the two phrases “tax negligence” and “tax fraud” you would probably be inclined to think that they are the same thing. They both sound serious and they both deal with taxpayers who haven’t fulfilled their tax obligations with the IRS, at least according to the IRS. But even though they are relatively similar, the differences are crucial enough that they deserve an explanation.
Tax fraud is the more serious of the two claims. Tax fraud involves a willful attempt to evade the IRS and/or to circumvent your tax obligations. For example, you could intentionally fail to file your tax return, or willfully fail to pay the taxes you owe. You could intentionally reduce or mask your income when filing, or make fraudulent or false claims. All of these things constitute tax fraud.
Tax negligence, on the other hand, is akin to making a mistake without knowing it. Examples of tax negligence are overstating your deductions, using exemptions that you don’t qualify for, or generally underreporting or overreporting your income. Since the tax code is complicated and the processes are complex, these things qualify as negligence and the IRS understands that these mistakes can happen. Still, you are on the hook for these mistakes.
Investigations into allegations of tax fraud or tax negligence can lead to serious consequences. For the former, it can lead to jail time. For the latter, it can lead to serious financial penalties. If you have been accused of tax fraud or tax negligence, consult with an experienced tax attorney as soon as possible.
Source: FindLaw, “Income Tax: Fraud vs. Negligence,” Accessed June 23, 2016