Taxing Definitions

Badges of Fraud

Thanks for sharing!
picture of a shieldImage source:

The penalties for tax fraud–the willful attempt to evade or defeat the payment of tax–are steep. For instance, under Internal Revenue Code section 6663(a) (dealing with civil fraud penalties), if any part of the underpayment of tax required to be shown on your return is due to fraud, the penalty is 75% of the portion of the underpayment attributable to fraud. Criminal fraud penalties can be as high as $500,000, and involve jail time as well.

To impose fraud penalties, the IRS has to prove, by clear and convincing evidence, that you underpaid your tax and that the underpayment was due to fraud. The IRS can prove fraud by circumstantial evidence, and your conduct may establish the requisite fraudulent intent.

“Badges of fraud” are circumstances that show intent to defraud. The term dates back to at least the year 1601 CE, to a case involving a fraudulent deed (Twyne). In tax cases, badges of fraud include failure to report substantial amounts of income from business activities, failure to file returns, failure to keep records, and implausible explanations of behavior.


Other posts you might enjoy

Definitions — Order in the court Image source:   If it please the court … A few weeks ago, the national taxpayer advocate released the 2017 Annual Report to Congress, as required by law. (Section 7803(c)(2)(B)(ii)) Part of the first volume of the report discusses the ten most litigated issues as measu...
Definitions — Written in stone Image source: ©creativecommonsimages Dreamstime Stock Photos   If nothing is written in stone, then something must be written in stone, and that something is nothing. The stone referenced in a recent revenue procedure (revenue procedure 2017-60) was the aggregate used in residential f...
Definitions — Taxing business Image source: ©publicdomainphotos, Dreamstime Stock Photos   In September, just in time to celebrate the upcoming fiscal new year, the Joint Committee on Taxation released a report on the present US federal income tax law and data related to the taxation of business income. In addition t...
Definitions — Curtailing the number Image source:   Voluntary truncation hardly sounds like an enjoyable pastime. But cutting off part of taxpayer identification numbers may be a way to reduce identity theft. Back in 1936, when the Social Security Board created the nine-digit social security number to id...
Tagged , ,