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Our government designed a system long ago that requires each individual and entity of the country to pay its fair share of taxes. These taxes are vital to the ability of the nation to function and grow. Without them, our government would not be able to protect our lands, maintain and improve public systems and make other opportunities available to its citizen.

In order to collect the proper amount of taxes, the Internal Revenue Code (IRC) was created to dictate how to calculate a taxpayer’s income. The Internal Revenue Service (IRS) is in charge of applying the IRC to make sure that every nickel is collected. In an effort to reduce the amount of money a taxpayer has to pay to the government, a taxpayer may choose to engage in tax fraud.

Tax fraud involves a taxpayer knowingly and intentionally defrauding the government out of the income taxes that they are responsible for paying. There are many ways a taxpayer can engage in tax fraud and some of them are discussed below.

Off-Shore Accounts

Some taxpayers own and operate off-shore bank accounts. These accounts store and accumulate massive amounts of wealth that remain untaxed. The taxpayers that operate these accounts do not report these assets on their tax returns, which enable them to avoid paying income tax on the earnings that accumulate in them. The IRC stipulates that all international bank accounts owned by a taxpayer need to be reported on a specific form, which many people avoid using.

‘Under-The-Table’ Earnings

There are some taxpayers and companies that pay their employees in cash. When it comes time for the ‘employee’ taxpayer to prepare their tax return, there is no record of these payments and the taxpayer will likely avoid reporting this income on their return.

The ‘employer’ tax payer will take those cash payments and then deduct them on their tax return as expenses of the business. However, they will likely be labeled something other than employee wages. When this course of action is employed, the employer avoids having to pay unemployment insurance premiums for the employee, as well as the employer’s duty to pay half of the FICA.

Cash Businesses

Businesses that deal strictly in cash, such as bars and nightclubs, are able to take large amounts of cash each week and make it disappear. Income is usually recorded by the cash register receipts. These businesses will try and hide their income by interfering with the cash register receipts such as removing them in the middle of the night or closing down the register. As a result, the income that was earned will not be taxed.

Engaging in tax fraud is a serious offense that can result in the taxpayer paying hefty fines and jail time. Make the conscious decision to pay your fair share of income tax so that you do not have to be subjected to fines and other litigious hassles.