Six Ways Lying On Your Tax Return Can Get You Into Trouble With the IRS

Other than a guilty conscience, what can happen if you lie on your tax return to get a bigger refund or owe less? The consequences fall into six categories.

1. The IRS can identify discrepancies on your return and send you a notice.

This is the simplest and normally mildest IRS response.

As the IRS processes your return, the IRS will automatically check for mismatches between your return and information the IRS has on file about you. The IRS gets this information every year from your employers, banks, and other third parties.

The IRS will flag any mismatches and may send you a “CP2000 notice” proposing more taxes.

2. The IRS can audit you.

The IRS has a formula for picking out returns to audit.

The IRS is more likely to audit certain types of tax returns – and people who lie on their returns can create mismatches or leave other clues that could result in an audit.

Audits can be costly and long. Individual taxpayers owe, on average, $9,500 in additional taxes (not including penalties and interest) in an audit. And complicated audits can last more than a year.

Audits can also lead to other consequences, especially if the IRS thinks you intentionally lied on your return. Those can include civil penalties of up to 75% of the taxes you owe.

3. You can lose tax credits in future years.

If the IRS audits your return and determines that you incorrectly claimed the Earned Income Credit (EIC), two things can happen:

  • You’ll have to pay back the EIC portion of your refund.
  • You may not be able to claim the EIC for two years – and maybe even 10 years if the IRS thinks you fraudulently took the credit.

4. You’ll be paying for professional help.

Any time you’re dealing with an IRS audit, penalties, or other significant tax problems, you’re probably going to need the services of a qualified professional.

While this is often money well-spent and can lessen some of the other consequences, the fees can add up for more complicated issues. Be sure to use a reputable professional. For civil (non-criminal) matters, you normally won’t need an attorney.

In most cases, an enrolled agent or CPA familiar with tax problem-solving can handle the situation, saving you time, money, and stress in the long run.

5. You could face civil penalties.

Penalties will vary based on how much your understated your tax. If you made a simple error and the IRS adjusted it, you might not have to pay any penalty.

Bigger understatements mean bigger consequences. In this case, the most common penalties are:

  • Negligence penalty: 20% of the additional tax
  • Fraud penalty: 75% of the additional tax due to fraud

Learn how to address an IRS penalty.

6. In rare cases, the IRS can press criminal charges.

When the IRS identifies fraud, the IRS can pursue civil or criminal charges.

The IRS prosecutes relatively few cases each year – and they usually involve large omissions of income, tax evasion or tax protest schemes, or lying to the IRS in an audit.

In 2016, the IRS prosecuted slightly more than 1,000 taxpayers for tax crimes. The IRS takes these cases seriously, with average jail times of over three years.

Best move: Prepare a complete and accurate return

Taxes can get complicated, and your situation may not be black and white. That’s why it’s important to take the time to gather all your records, research your IRS account (if needed) and even consider hiring a tax pro to prepare your return or amend a return you’ve already filed.

A good tax professional will always try to help you pay the lowest amount of tax or get the largest refund that you’re legally entitled to.

If the IRS has already contacted you about your return, you’ll need to take action:

Need expert help? Learn more about H&R Block’s Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.

Related Topics

Related Resources

IRS Notice CP87A – Verify a Claimed Dependent

Learn about IRS Notice CP87A, why you received it, and how to resolve a dependent discrepancy. Get tax help from the tax experts at H&R Block.

IRS Letter 5972C – You Have Unfiled Tax Returns and/or an Unpaid Balance

The IRS is requesting that you file a return and/or pay a balance due. Learn more about IRS letter 5972C from the tax experts at H&R Block.

IRS Notice CP260 – Credit Reversal Adjustment

Learn more about notice CP260 and how to handle an IRS tax bill for your business with help from the tax experts at H&R Block.

IRS Notice CP128 – The IRS Applied Your Overpayment and You Still Have a Balance Due

Learn more about notice CP128, why you received it, and how to handle an IRS CP128 notice with help from the tax experts at H&R Block.