Trending September 2023 # How To Report Tax Fraud Or Fraudulent Activities? # Suggested October 2023 # Top 10 Popular |

Trending September 2023 # How To Report Tax Fraud Or Fraudulent Activities? # Suggested October 2023 # Top 10 Popular

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Definition of Tax Fraud

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Tax fraud means tax evasion. It means if you earn something, you do not intend to pay your country’s government. Let’s understand why paying taxes is essential.

The government of any country is responsible for every citizen of the country, its defense, its cash flow, its growth, its infrastructure & many other things. It needs to ensure the availability of basic essential facilities for every country resident. Basic essential facilities such as hospitals, transportation, food supplies for the poor, infrastructure, etc. For expenditure on such necessities, it needs funds. Thus, the most significant government source is tax revenue (direct and indirect).

Using such tax revenues, the government can ensure the facilities. The government also needs to fund the research & development within the country, its defense equipment & defense army. Countries are in the process of discovering vaccines for COVID-19. Such research work requires fund flow. The government provides the same. So, at least the taxpayer’s money comes around him.

That’s the reason why we pay taxes. So, now you may understand that tax frauds are conducted by those inhuman beings who do not care for their country & its people.

Tax fraud refers to misrepresentation of facts, suppression of facts, falsely claiming the expenditure, not offering any income to tax, etc.

IRS has specified the following as tax frauds:

False claim for exemptions or deductions

Failure to withhold tax when asked for


Failure to payment of tax, even if liable

Organized Crime

Unreported income

Alteration of document

Example of Tax Fraud

We can make a classic real-life example of Walter Anderson. The details are as under:

Anderson started his career in the telecommunication sector as a salesman at MCI Communications in 1979. He invested $ 100,000 in the foundation of Mid-Atlantic Telecom in 1948. He founded Esprit Telecom Plc (in London) in 1992 & sold the venture in 1999 by earning a huge capital return. In 1988, he founded International Space University, providing a multicultural & multidisciplinary graduation course for space studies. He promoted the commercial development of many space programs to resolve many challenges of the planet.

The United States Government investigated Mr. Anderson’s businesses through the years 2002 to 2005. He was alleged of hiding wealth in foreign countries.

He was thus charged for tax evasions of around $ 364 million. He was arrested on February 26, 2005, at Dulles International Airport & sentenced to imprisonment for 6 years. He was also asked to pay restitution amount to the government.

He was released on December 28, 2012.

Types of Tax Fraud


Under-reporting of Income

This is the basic method of tax evasion. The root cause of such fraud is the receipt of revenue in cash.

Thus, transactions in cash are a curse to the economic growth of the country since there is no trail of money flow from one person to another.

Thus, there are huge penalties for high amounts of cash transactions.

Misrepresentation of figures

Here the fraudulent person does not report a proper picture of financials.

Providing fake numbers in financial statements is the basic type of fraud under this category.

Also, this fraud occurs when there is no basic maker-checker system in the company.

Claiming deductions even if you are not eligible

The government allows some deductions to be claimed by rightful persons.

Fraudulent persons claim such deductions even if they are eligible.

This fraud is due to weak tax returns, which allow such deductions without taking full information.

Also, in some cases, such fraud goes unidentified due to a lack of manpower at the end of a government department.

How to Report Tax Fraud?

IRS maintains the confidentiality of the person reporting the tax cases. Hence, no status or progress update is provided by IRS.

It has enlisted the types of fraud to be treated as tax fraud.

IRS insists on sending a formal letter with the following minimum details:

Name of the person or business for whom you are reporting

Address of the person or business for whom you are reporting

Social security number or Employer identification number for tracing the person or business.

A brief description of the fraud.

How did you become aware of the fraud or the way you obtained the information?

Years of suspected tax fraud.

The estimated amount of unreported income.

Your name, address & contact number.

IRS also gives rewards for reporting fraudulent activities. The relevant persons need to claim the reward by submitting form 211.

Tax Fraud Penalties

Particulars Explanation

Civil or Criminal Penalties

In the case of civil cases, the fraud is normally due to mistakes, calculation errors, or minor negligence of the taxpayer & the government assumes that the intention was not fraudulent.

Civil penalties are (for example) 5% of the tax not paid.

In Criminal cases, the government is sure that the intention was fraudulent.

Thus, penalties are higher in case of criminal cases. The penalty can be imprisonment for a certain number of years. However, no death penalty is imposed in criminal fraud cases.


Fines are imposed for certain fraudulent activities.

Fines can be imposed up to $ 250,000 in the case of individuals and $ 500,000 for corporate tax persons.

Government, tax authorities, or courts can impose these.


Courts have the right to impose or confirm imprisonment.

Normal imprisonment ranges from 2 years to 10 years, depending on the seriousness of the fraud.

Cost of Prosecution

In addition to fines, courts also require the person convicted to pay for the cost incurred for the prosecution of the person.

The cost of prosecution varies from case to case in each jurisdiction.

Payment of tax amount

The basic order given by any court is to restitution of tax amount under fraud case.

The tax amount is the basic recovery for the government.


Tax fraud cases enable the identification of existing loopholes in the tax laws & their provisions. It certainly identifies the action points to be taken by the government not to let such cases arise in the future.

Fraud cases enable stricter drafting of new tax laws by the government in future years.

The government in any way recovers the double tax not received in fraud cases. Thus, revenue doubles.

More & more tax frauds are the result of a lack of stringent punishments.

The government should disable the convicted person from doing business in future years.

It strongly demotivates the honest taxpayers of the country.


The basic question that arises is, “who is responsible for the occurrence of tax frauds?” the answer is “everyone in the loop. Every person from the drafting of tax law to personally witnessing the fraud is responsible.” the lawmaker is responsible for the weak drafting of provisions. He is also responsible if he does not amend the provisions quickly with retrospective effect. Corrupt officers of government are at the center of this fraud. The auditors of the fraudulent companies did not raise red flags for the fraudulent events. everyone in the loop is held responsible. tax frauds are the result of loopholes in tax provisions & weak tax collection system of the country.

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