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:
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.
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.
Some of the most common ways people might lie on their taxes include:
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.
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.
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.
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.
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.
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.
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.
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.