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Last Updated: 2/13/2015

Tax Fraud

How to Recognize Tax Evasion or Fraud

Tax crimes usually involve repeated violations over time, rather than an isolated event or single occurrence. While there is no single element to watch for, certain behavior or patterns may indicate someone is committing tax fraud or evading taxes.

For example, it’s common for a tax evader to spend a lot more money than is typical for someone in their occupation. It’s often unclear where the additional funds for this spending could be coming from. Other possible signs that someone may be evading taxes include:
 
  • They use cash extensively and/or suddenly increase their spending, possibly on luxury items or collectibles.
  • They conceal financial or personal assets, or ask others to help them do so.
  • They don’t file state income tax returns, or falsely claim to be a resident of another state.
  • They don’t report all of their income, claim more dependents than they actually have, or make false or fraudulent claims for refunds.
  • Their business has weak financial controls, poorly maintained or missing records.
  • They micromanage their business’s books or accounts, and refuse to delegate financial or accounting responsibilities to employees.
  • They repeatedly open and close new businesses, or maintain a separate set of books that understates income (or overstates expenses) of their business.