Civil Tax Fraud

Civil Tax Fraud

Civil tax fraud refers to the intentional act of falsifying information on tax returns or failing to report income with the purpose of avoiding tax liabilities. Unlike criminal tax fraud, which can lead to prosecution and criminal penalties, civil tax fraud is typically addressed through civil penalties and fines imposed by tax authorities.

In cases of civil tax fraud, the IRS or other tax agencies may assess substantial fines—often up to 75% of the underpayment due to fraud—based on the amount of tax that was avoided. For example, if a taxpayer deliberately omits $100,000 of income to evade taxes, and the tax owed on that income is $20,000, the civil tax fraud penalty could amount to $15,000 (75% of the tax avoided).

Taxpayers found guilty of civil tax fraud may also face limitations on their ability to contest tax bills or claim certain deductions in the future.