You’re getting ready to file your income tax returns for the year. You then notice the large amount of taxes you owe. There are many possibilities as to why you owe a significant amount. It could be a result of multiple incomes, or perhaps it’s because you’re a business owner with various other side ventures generating income. Or, perhaps you’re someone with offshore accounts and assets.
With all of this information you’re furnishing to the IRS, missing a couple of points wouldn’t hurt, right?
Wrong!
The IRS takes withheld information very seriously. Many people every year consider giving incorrect information, or simply withholding specific information, but this is not a wise idea.
Contrary to popular belief, the information you furnish to the IRS isn’t their only source of information about you. They have connections with banks, financial investment firms, and other government agencies. To put it bluntly, the IRS can easily realize your hidden secrets.
Audits are the most potent tool in the IRS’s arsenal. Powerful computer programs are designed to spot any inaccuracies and discrepancies in taxpayer returns.
There are four noteworthy systems of this type:
-
The Discriminant Function System (DIF):
This is a computerized system that analyzes each tax return on the basis of several factors. The higher the score, the more accurate the return is thought to be. Tax returns with low scores are red flags.
-
The Unreported Income Discriminant Function (UIDIF):
This is another computerized system that checks whether a taxpayer seems to be spending more than he or she is earning, thus raising doubt about an unreported income source.
-
The Information Returns Processing System (IRP):
The IRS has a huge database of third parties who provide tax related information, like employers, brokerage firms, and banks. It cross checks information from tax returns; if anything reported seems out of place, an audit is initiated.
-
Audits of Related Entities:
If an audit was initiated and it is found that information was indeed wrongly reported, anyone related to the taxpayers or organizations is also audited.
It’s pretty obvious that hiding or furnishing the wrong information will get you nowhere. As technology advances, it will become more difficult to escape the clutches of the IRS. Evading high taxes comes with the risk of several penalties, not to mention criminal prosecution. Failing to provide the correct information or ignoring it entirely can result in:
- Up to 3 years in prison
- Up to $250,000 in fines ($500,000 for corporations)
- Seizure of assets and property
- Seizure of bank accounts, deposits, insurance accounts, retirement funds
Substantial discrepancies in filing tax related information can result in extremely high penalties. Defaulting taxpayers with significant assets and accounts can be charged penalties of up to 40{bf3da7fb6a4d0e0e3790d09a79b980fc065e33e2f3a2d49280f7e95b82f4982b} of taxes owed, which can amount to thousands and thousands of dollars.
The good news, however, is that these dire consequences can be evaded. Pay taxes on time and in full and supply the correct information to the IRS. If you’re in doubt about how much you should reveal to the IRS or how you should go about doing it, seek professional help. A certified tax professional will advise you not to withhold any information.
A few simple steps will keep you out of trouble. Trying to cut corners during the initial phases of tax returns can cause much more trouble than it’s worth. Our advice is simple: pay taxes on time, every time, and pay them completely – it will keep both you and the IRS happy!
Leave a Reply