5 Types of Tax Fraud Activities You Should Know About In 2021

Tax fraud is a heavily laden term that means much more than an error in judgment. The violation occurs when a person knowingly provides incorrect information on the tax returns.

Tax fraud activities investigation

Strangely, a simple tax problem could spiral out of control and attract hefty penalties, including criminal charges and jail terms. The Internal Revenue Service (IRS) treats all tax issues seriously, and this includes filing a false tax return and accompanying documentation.

Most tax matters can be amended with the help of an experienced tax specialist or attorney with a deep understanding of IRS investigations and tax laws. Here are five types of tax fraud activities that you should be aware of in 2021:

Willfully underreporting taxable income

Different background checks serve varied purposes. An employer can order a background check to ascertain various job prospects, such as criminal records, employment history, education, and past activities. The information garnered can go a long way to avert hiring the wrong person who may turn out to be a liability to the employer. In addition to a job background check, background information is normally ordered when purchasing a firearm and assessing drug use.

The other widely available screenings include criminal background checks, e-verify background checks, criminal background checks, OIG background checks, and credit background checks.

Overstating non-cash donations

Giving to charitable causes championed by organizations like the Salvation Army is a worthy undertaking that should be emulated. It is reassuring to know that most organizations will hand you a receipt showing all the items you’ve donated. Charitable donations feature prominently in the new tax law. However, the write-off is difficult to itemize, so a person may be tempted to fudge or exaggerate the actual figures.

For instance, a taxpayer may hand over a case full of archaic, stained shoes and claim an inconceivable deduction of $400. It is essential to value your donations soberly to guard against fraud. One way of making a truthful determination is by asking how much the items will cost should you decide to sell or how much deduction is right.

Filing claim with false deductions

Taking the time to file taxes correctly and promptly is a time-honored marker of a responsible and reliable citizen who understands the law. It is important to acknowledge that people make mistakes; it is human nature. Claiming false deduction may increase your deductions and lower tax payment. However, a deliberate effort to evade taxes in blatant disregard of the law is punishable.

The IRS may have limited manpower and resources to peruse through every return, but it will impose serious charges where a taxpayer is caught subverting the tax code. If the underpayment is deemed substantial, the IRS may request the taxpayer to produce appropriate reason and documentation. A taxpayer may also be subjected to criminal prosecution for actions such as fraud and false statements, and willful failure to pay the tax due.

Hiding and transferring income or assets

Revelations regarding unreported proceeds from the sale of a business or income from side hustle may subject a taxpayer to criminal investigations. Taxpayers found to have undisclosed income may also be liable to pay a fine. Persons suspected of having hidden or transferred earnings or assets are highly advisable to seek the services of a tax lawyer to provide a guide on the way forward.

The legal counsel can analyze your case professionally and suggest several remediation measures, including paying off the tax liability to get the IRS off your back and eliminate any chances of having criminal charges filed against you.

Entering false entries into books

Making false entries in records and books is listed by the IRS as a fraudulent activity. If the books of accounts are falsified, an income tax officer may initiate proceedings to have the taxpayer penalized. Other common causes of false entries include providing fake invoices or documentary evidence and omitting a relevant entry when computing total income.

Where substantial evidence indicates fraudulent entry, the assessee under probe may be asked to pay an amount equivalent to the falsified or omitted entry.


Proceeds from taxation form the backbone of development at both the local and the national level. In developing countries, governments that are highly affected by tax evasion often fail to honor their pledges to the citizens by allocating inadequate funds to critical causes like education, agriculture, health, and pivotal projects geared towards improving overall living standards.

The allure to deny the government its rightful taxes seem to gain more steam every tax season. People engage in tax evasion for a variety of reasons, including limited tax knowledge, ethical tax awareness, complexities in the tax system, disparity in tax fairness, and steep compliance cost.


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