According to FindLaw, 17% of taxpayers fail to comply with the tax code in some way. This is unsurprising, as the tax code is a complicated set of rules and regulations that even the most tax-savvy individuals struggle to comprehend. Because of its complexity, the IRS will usually attribute careless errors to an honest mistake rather than the intentional evasion of the tax code. In such cases, it may fine a taxpayer for underpayment, but take no further action. However, if the IRS suspects fraud, it may perform a criminal investigation.

Income tax fraud differs from tax code violations in that it refers to the willful attempt to defraud the IRS or evade tax law. Tax fraud can occur in a number of ways. However, the most common cases of tax law involve the intentional failure to file an income tax return; the deliberate failure to pay past-due taxes; making untrue assertions on a tax return; preparing or filing a false return, and deliberately neglecting to report all earned income.

To distinguish careless errors from willful evasion, the IRS will conduct an audit. During the audit, the investigators will search for signs of fraudulent or suspicious activity. Examples of such activities include the concealment or transfer of income; overstatement of exemptions and deductions; multiple sets of financial ledgers; alteration of documents; the use of false Social Security numbers; the falsification of business and personal expenses; and claims of exemptions for nonexistent dependents.

If necessary, the IRS will call in agents of the IRS Criminal Investigation team, the agency’s law enforcement branch. The CI may use advanced technologies and methods to reveal information protected by passwords, encryption software and other barriers.

You should not use this article as legal advice. It is for educational purposes only.