What are the consequences of commiting tax fraud? Do they usually have to pay fines or get prison time?

Question

I have a friend who is married. They only supplied their tax preparer his W-2's and not hers. They made a deal with a cousin who did not work for the entire year that they would claim her two sons and my friends would pay her $1000.00. Their entire refund was well over $8000.00. What are the odds that they will get caught and if so what will probably happen?

Answer 1

This will one day be a terrible ordeal for the fraudulent parties.
One thing that a lot of people who live on pubic assistance don't seem to understand is that when they "sell" their children for dependents, when and I wish I could underline, when they are caught, the "cousin" who has been drawing public help can be excluded from food stamps, medicaid, housing for 10 years or life. Then, the other participants will be thousands of dollars in trouble and possibly face prison time.
If you can convince the ones who received the refunds to file an amended return and pay back the money it will be much better than if they wait.....

good luck

Answer 2

I TOTALLY AGREE with what everyone here has already said.

I just wanted to add that the IRS will probably catch the missing W2 pretty quick---it won't take years---maybe months. One year after we had already filed our taxes, we received an additional W2 in the mail---it was the same company but had additional income on it that they had left off the first W2. We had no idea it was coming or even what to do, and 3 months later we received a notice from the IRS correcting our return and adjusting our income and refund based on that additonal W2, and we actually owed money and had to pay the IRS back.

So, the IRS is totally on it's toes and this incident will not just slip through the cracks. Somebody is going to have to pay big time, so that was a totally foolish thing that your friend did. Yes-they will get caught!

Answer 3

If she was issued a W2, the big computer at the IRS has the info -
When her SSN is processed on that return without the income , the **** will hit the fan (although that processing time can take a couple of years)
I once forgot to list a $50 savings bond I cashed in and they caught it ( got the notice 3 yrs later)
As long as they are planning to skip the country some time this year, they can beat the prison time . . .
Just don't come back to the US .
When they are audited for the missing W2 info, the whole return will be screened and they will have to prove custody of the children at that time.

Answer 4

Oh dear. Well, they will probably get caught for EIC fraud. Usually no jail time but all involved can be banned from receiving EIC for up to ten years. That's anything up to $40,000 down the swannee.

Failing to declare a W-2 is incredibly stupid. The IRS gets copies of them. It will take them months, maybe even a year or so, but they will notice and they will ask for the tax, interest and penalties. There are additional penalties if income is under-declared by 25% or more.

If it is discovered that they paid to claim the children, it is a more serious offense (it demonstrates that they knew it was wrong) and jail time is possible.

Please try to persuade your friends to correct this before April 17th and to repay as much money as possible before then.

Answer 5

Odds that they'll get caught are pretty high. On not turning in all the W-2's, odds are close to 100%. And on the illegal dependent claims, are also fairly high. The refund being that high will probably increase their chances of getting caught.

They're more likely to pay penalties or fines than get prison time, although it's possible they'd get prison time also.

Answer 6

Are these people morons? Do they have a meth lab in their basement?...

No one can say what the odds are of them getting caught. But, if they are, they're possibly facing jail time for tax evasion. At the very least, very still interest and penalties.

Their employers file their W-2s with the government. So, if they're ever audited, they can say goodbye to their refund, plus a lot more.

I guess they can always say, "We were too busy smoking meth to remember to include both W-2s in our return."

Answer 7

WOW! Are they stupid!!! There are red flags all over the place on their return. Yes, they will get penalties, BIG fines and if the IRS realizes the extent of their fraud, they will get jail time too.

Answer 8

the odds are real good that they get caught. the IRS has access to all W-2's.

Answer 9

IRC § 7201. Attempt to evade or defeat tax.

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $ 100,000 ($ 500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.


IRC § 7203. Willful failure to file return, supply information, or pay tax.

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $ 25,000 ($ 100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting "felony" for "misdemeanor" and "5 years" for "1 year".