In 2020, the IRS processed more than 3.5 million compliance activities. These are activities that occur when the IRS thinks something might be wrong with a tax return. They include:
- Math error notices. The IRS sends a letter noting that someone made a math error on a tax return and the IRS corrected it.
- Automated substitute for return. Someone doesn’t file a required tax form and the IRS uses other documents to calculate how much they owe and sends them a bill.
- Automated under report. Someone doesn’t report their entire taxable income, so the IRS does it for them.
- Correspondence examination. This is an IRS audit of sorts that occurs via mail — the IRS requests additional documentation or asks you to explain something in writing.
- Field examination. This is the traditional audit many people think of.
As you can see, if you’re lying on a tax return to get more money, there’s a good chance the IRS may catch you and one of the above compliance actions may occur. Find out more about lying on your tax return below.
In This Article:
- Why Do People Lie on Their Taxes to Get More Money?
- How Does the IRS Know You’re Lying on a Tax Return?
- What Happens If You Accidentally Lie on Your Taxes?
- Keep Things Above Board
Why Do People Lie on Their Taxes to Get More Money?
People probably commit tax fraud to avoid liability for taxes or to increase the refund they’re given. This isn’t legal, and if you’re found to be engaging in the activity purposefully, you might face serious consequences.
How People Can Lie and Get More Money on Taxes
Some of the most common ways people might lie on their taxes include:
- Not reporting all their income
- Adding expenses or other deductions that didn’t actually occur to reduce the amount of taxable income
- Claiming dependents who don’t exist or aren’t theirs
If we haven’t made it clear yet, don’t commit tax fraud. It’s illegal, and it can cause some serious ramifications. Keep things easy and above-board by being honest on your taxes.
Note that claiming a deduction that actually exists or legally employing a tax loophole to save money is not lying on your tax return. However, the line between what’s legal and what isn’t may be confusing to someone without tax law experience. If you’re not sure if something is legal or not with regard to taxes, it might be a good idea to consult a tax professional for assistance.
How Does the IRS Know You’re Lying on a Tax Return?
The IRS uses a variety of tools to ensure tax returns are as accurate as possible. Here are some of the ways the IRS might figure out you’re lying on your tax return to get more money.
- Comparing income documents. When you receive a W-2, 1099 or other tax document notating income you received, the Social Security Administration also receives a copy of that document. The IRS has access to those records and can compare the income you reported to that information. If it doesn’t match, it could launch a compliance activity.
- Comparing expense documents. In some cases, the IRS may also get a copy of expense documents, such as Form 1098. If you receive official IRS forms from anyone and report those amounts as expenses on your taxes, it’s important to report the exact amount on the forms. If the forms are wrong, reach out to the entity that sent them to get a corrected form.
- Comparing to other information databases. The IRS may compare information on your taxes to other information, including IRS and other government databases. It can easily see if someone else claimed a dependent, for example, or what your Social Security income was.
- General benchmarking and averages. The IRS sometimes applies benchmarking to understand whether a tax return falls within normal averages on certain items. For example, if you report $60,000 in income and $50,000 in deductions, that might fall outside the normal range for someone with that level of income. This could cause the IRS to take a closer look at your return or request documentation from you.
What Is an IRS Audit?
An IRS audit occurs when the IRS reviews or examines tax returns to ensure authentic, accurate information. If the IRS finds something that doesn’t add up or believes someone might have made an error or is lying on their return, it may launch a correspondence or field examination. During these processes, you typically must provide documentation and proof of information on your tax return or pay the extra taxes.
Does the IRS Catch All Mistakes?
No, the IRS probably won’t catch all mistakes. But it does run tax returns through a number of processes to catch math errors and odd income and expense reporting.
What Happens If You Accidentally Lie on Your Taxes?
If you lie on your tax returns and the IRS catches you, you may end up owing a great deal of money or facing civil or criminal consequences. If the IRS finds something is off on a return, it will generally launch a compliance activity. You’ll receive a letter about the activity.
You may have a chance to respond to the correspondence to prove your case. Or the IRS may simply adjust your tax and send you a bill for the extra amount plus some hefty penalties and interest. Owing the IRS can be a serious hit to your personal finances.
What Should You Do If You Make a Mistake on Your Taxes?
If you make a mistake on your taxes, you should let the IRS know as soon as you realize your error. You may be able to file an amended tax return to fix the problem. If you file the amendment soon enough, there may not be any repercussions. However, if you don’t catch and report the error in time, you can face fines, penalties and other consequences.
Can You Go to Jail for Filing Your Taxes Wrong?
If you’re found to be guilty of tax evasion or tax fraud, there’s a chance you might face jail time or other criminal consequences. Because tax evasion and other tax crimes are very serious, you may want to consult a tax law professional if you’re faced with these issues — whether you purposefully lied or just made a mistake.
Keep Things Above Board
Honesty is definitely the best policy when it comes to dealing with the IRS. If you decide to do your taxes yourself this year, make sure to report everything correctly to the IRS to limit future problems with the government.
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