It has been well documented that taxpayers can commit tax fraud through various methods, not limited to; claiming excessive deductions, under-reporting taxable income, or concealing assets and they would need a tax fraud lawyer. There is another angle that is not often thought about which is that employers and tax preparers can also commit criminal tax crimes. In recent months, tax preparers and employers have come under scrutiny for tax fraud and tax evasion.
A New York State tax preparer was recently penalized $750,000 for tax fraud committed. Preparers can exaggerate expenses or manipulate numbers so that taxpayers can deduct more expenses or claim more credits than they should when preparing returns. What is happening now is that the IRS and New York State are starting to penalize the return preparer. For example, if on a New York State Return, the tax preparer manipulated and prepared a return so the taxpayer received a $4,000 refund when they should have only received $1,000. In the past, it would have been the responsibility of the taxpayer to pay the $3,000 back to New York State, but now, the preparer is responsible. Tax preparers in criminal cases are now assuming the responsibility to pay the difference in fraudulently prepared returns.
Tax evasion and tax fraud are felonies, and they can be punishable by monetary fines and prison. The IRS Criminal Investigation Unit exists to find individuals who file inaccurate tax returns.
Taxpayers should be cautious when selecting a tax preparer to work on their yearly returns because there is a risk they could be defrauded by a tax preparer who promises large refunds. Taxpayers must sign their returns whether they were prepared by the taxpayer or if they paid a tax preparer, and need to review their returns before signing them.
If an employer pays their employees solely in cash, they could face criminal tax evasion charges. Instead of using a payroll and properly documenting wages to staff, if an employer pays only in cash to their employees they are not running their business legally. If the person is an employee, they should always receive a wage statement. If an independent contractor makes more than $600 from a single person over the course of a year they should receive a Form 1099-MISC from that person. This form covers miscellaneous income such as nonemployee compensation or other income for services provided. Most Forms 1099 are mailed out in January, no later than the 31 for the previous year. However, some companies will issue the form throughout the year when the issue checks. No matter when the forms come, they need to be reported on your Form 1040, Individual Income Tax Return. If you do not report this income on your tax return, you are inviting an audit, and even if you do not receive the Form 1099-MISC, you still need to report the income.
The problem occurs when business owners decide not to treat the employees as employees, and pay them in cash. This allows the employer to save money on payroll, workers compensation, and payroll taxes. When deciding how much a business has to pay for workers compensation or disability insurance, agencies look at the company’s payroll. If an employer is paying in cash and not reporting a payroll, the company saves money by having to pay smaller amounts for workers compensation and disability insurance, and they save in taxes.
This payment method is fraudulent and could be viewed as tax fraud conspiracy between the employer and employee for both to save money on taxes and require a tax fraud lawyer.
Our New York tax law firm offices are located in New York State but we are able to help you in any state across the country. We can work with you no matter where you live. Mr. Hart is licensed to deal with the IRS in every state in the entire country.