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Padding Your Tax Deductions? The Consequences Are Serious

“In this world, nothing can be said to be certain, except death and taxes” is a quote often attributed to Benjamin Franklin. With that in mind, it’s best to be prepared, at least financially, for taxes and tax season each year.

The Risks

When it comes to deductions, things can get a little sticky. What’s the harm in taking a little extra here or a little extra there?

Taxpayers “shouldn’t gamble with their taxes by padding their deductions,” an IRS Commissioner once said. Overstating charitable contributions, padding business expenses, and falsely claiming earned income or child tax credits are common ways unscrupulous taxpayers try to cheat the IRS. But the organization is wise to these gambits and is catching cheaters with its efficient automated systems.

The Penalties

If you knowingly file incorrect tax returns, the government may apply the following civil penalties:

  • 20% of the disallowed amount for filing an erroneous claim for a refund or credit.
  • $5,000 for filing a “frivolous tax return” — that is, one missing enough information to figure the correct amount or one that contains substantially incorrect information.
  • In addition to the tax owed, a 75% penalty if the underpayment resulted from tax fraud.

The IRS also can take you to criminal court and seek additional fines and/or prison time if it suspects and proves you are guilty of the following:

  • Tax evasion.
  • Purposely failing to file a return or pay taxes due.
  • False or fraudulent statements.
  • Identity theft.

Note that the exact penalties may change over time, but the IRS will always take these infractions very seriously, and seek out commensurate punishments.

Although dedicated debtors prisons may no longer be in use in the United States, there are plenty of consequences that can affect your business and your life, as you can see.  


Please reach out to us with specific questions so we can help steer you in the right direction. We want you to have all the information you need to make an informed decision about the contracting resources available to you in the market today.

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