What is tax fraud?
There is a good reason the words “tax return” can strike fear in even the bravest hearts. No one likes to pay taxes and preparing your tax return may seem daunting, but failing to pay or including false information on your tax returns leads to penalties much more severe than a possible headache. You can be charged with tax fraud due to either an intentional attempt to defraud or negligence.
Both individuals and corporations can be penalized for attempting to evade Georgia state taxes. You may even find yourself liable for unexpected taxes and fraud charges due to incorrect advice from dishonest tax preparers. Knowing what is considered tax fraud in Georgia is the first step in protecting yourself and your business from fraud.
Types of tax fraud in Georgia
- Frivolous return: A frivolous return does not have sufficient information to compute the correct tax or contains information that is substantially incorrect. Often a tactic used by tax deniers to “protest” taxes, filing a frivolous return is interfering with Georgia tax law and is subject to a penalty of $1,000.
- Underpayment: There are two types of underpayment under Georgia tax law. If the state finds your underpayment was due to intent to defraud the state, you will be liable for steep penalties. Concealing or underreporting income, claiming false deductions, and hiding or transferring assets are all attempts to defraud the state and are therefore illegal. But intentional fraud isn’t the only reason you might face penalties for underpayment; underpaying due to negligence or intentionally disregarding rules and regulations will also cost you.
- Failure to pay estimated tax: Income that is not subject to withholding, such as rent, alimony, interest, or income from self-employment, will be taxed via estimated tax. Georgia taxpayers who expect to make a gross income that exceeds the personal exemption, credits for dependents, other deductions and $1,000 of personal income not subject to withholding tax must file for estimated tax. Your estimated tax must be paid in full by the due date to avoid facing penalties.
- False or fraudulent sales & use tax return: In Georgia, sales tax is imposed on the sale of tangible personal property and some services, such as accommodations, individual transportation, and admission sales or charges related to games and amusement activities. Use tax is imposed when a non-exempt tangible personal item is purchased outside of Georgia, then brought into the state. Upon the first use of the item in Georgia, it is subject to local sales tax. Improperly reporting these taxes on your return will also lead to fines.
- Failure to withhold employee taxes: As an employer, you may be required to withhold taxes on behalf of your employees. Employers who fail to comply with the state’s withholding requirements are liable for the taxes that were not withheld and can be fined for each affected employee.
- Fraudulent withholding receipt: Along with the duty to correctly withhold employee taxes, employers must provide employees with an accurate withholding receipt for use in filing their own tax returns. Giving a false or fraudulent withholding receipt to your employees will incur a fine for each receipt.
Watch out for tax scams
Beware: there are many tax scams and schemes that may try to trick you into not including the appropriate information on your tax return. This warning from the IRS also applies to state and local taxes: “If it sounds too good to be true, it probably is.”
Unfortunately, there are also unscrupulous tax preparers that may prepare a false or fraudulent tax return for you. Georgia is among the states with the highest cases of identity theft, and the personal information being revealed makes tax season a high-risk time. These abusive preparers will not only steal your money and identity but also leave you on the hook for tax fraud. Even if a third party prepares your taxes on your behalf, when you sign and return your tax returns you become responsible for the penalties for fraud.
Get help from an expert
Working with a Georgia tax attorney can help you avoid unintentional fraud as well as find legal avenues for reducing the amount of taxes you owe. Although some of these fraudulent practices may seem common or harmless, the legal risk, penalties, and damage to your reputation is not worth the risk. Working with a trusted tax attorney to file your taxes gives you access to both a financial professional and a preparer with the authority to represent you in court should litigation occur.