Tax Law FAQ

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What is tax fraud?

The Internal Revenue Service has a Fraud Handbook that is contained in Part 25.1 of the Internal Revenue Manual. Fraud is defined in the Manual as follows:

  • Fraud is deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to one who relies on it and has the right to rely on it. Simply stated, it is obtaining something of value from someone else through deceit.

See IRM 25.1.1.2 (01-23-2014). The Fraud Handbook provides an overview and definitions of fraud, and instructs IRS employees such as an IRS Revenue Agent how to recognize and develop fraud. The primary objective of the fraud program is to foster voluntary compliance through the recommendation of criminal prosecutions and/or civil penalties against taxpayers who evade the assessment and/or payment of taxes known to be due and owing. See IRM 25.1.1.1 (01-23-2014). Generally, for fraud to be considered, an IRS Revenue Agent must show:

  • An additional tax due and owing as the result of a deliberate intent to evade tax; or
  • The willful and material submission of false statements or false documents in connection with an application and/or return.

Id. The Government has the burden of proof in establishing fraud, and the major difference between civil and criminal fraud is the degree of proof required. See IRM 25.1.1.2.2 (01-23-2014). In criminal cases, the Government must present sufficient evidence to prove guilt beyond a reasonable doubt. Id. In civil fraud cases, the Government must prove fraud by clear and convincing evidence. Id.

Individuals who are concerned about possible tax fraud should contact competent tax counsel, who can evaluate the case, explain the options, and develop a defensible strategy.

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