Tax fraud is a general term which can trigger many different laws found in Title 26 (the Internal Revenue Code) and Title 18 of the United States Code (or “USC”). The core distinguishing feature of tax fraud is a taxpayer’s intent to defraud the government by not paying taxes that he knows are lawfully due.
Specifically, New Jersey tax fraud involves making a representation that is false and material. The false representation is made by an individual or business on a tax return in order to limit their amount of tax liability. Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Examples of tax fraud include claiming false deductions, claiming personal expenses as business expenses, and simply not reporting income.
Income tax evasion occurs when a person does not file a tax return when they are required to in order for their tax filings to be complete and accurate. It usually involves paying less money for your taxes than you legally are obligated to.
“Tax evasion” should be distinguished from “tax avoidance.” Tax evasion is the unlawful act of trying to hide one’s tax liability. Tax avoidance, on the other hand, is perfectly legal, and simply involves using the tax laws strategically, to reduce one’s actual tax liability as much as possible.
Penalties for both crime can be civil and criminal. State and federal governments aggressively use the criminal law to enforce tax violations. In addition to state law penalties, individuals committing tax fraud can also be investigated by the Internal Revenue Service (IRS).