How Does the IRS Know If You Cheat on Your Taxes?

The Internal Revenue Service will know if you are cheating on your taxes in part because the agency already knows how much you owe, so red flags may be raised when  you report less. Other tactics employed by the IRS include data analytics, social media posts, and other public information. If any suspicions remain, the agency may call for an audit.

Our experienced tax lawyers at Ayar Law represent individuals and businesses dealing with significant tax challenges. Whether these problems are related to you, your spouse, or your own businesses, our we can help with a wide range of issues.  Schedule a free, no-obligation consultation because you should never face your tax problems alone.

How the IRS Catches People Who Cheat on Taxes

The New York Times estimates that United States loses $1 trillion yearly to tax cheats. The IRS has expressed particular concerns about cryptocurrency and corporate pass-through provisions. But how does this federal tax agency know when you file less than you owe?

The IRS has several methods at its disposal, including the following:

  • Data analytics. The IRS could never employ enough people to monitor each entity that potentially owes taxes in America, so it employs bots. The Information Returns Processing system matches tax returns to data reported from third parties.
  • Whistleblowers may be incentivized to turn people in. The IRS Whistleblower Program offers sizable rewards of up to 30%. These cases have a $200,000 or $2 million threshold for the total amount due after taxes and penalties, depending on the type of evasion.
  • Your social media posts may raise suspicions. The IRS might use social media platforms to audit tax filers. An agent may raise suspicion after seeing posts about extravagant lifestyle purchases or evidence of unreported income. Social media can lead to damning information that only an experienced tax fraud attorney might help you resolve.

What Will the IRS Do If It Suspects You Cheated on Your Taxes?

The first step is usually an audit. While not all result from fraud investigations, they help identify taxpayers who may be cheating on their taxes.

Here are a few things that may trigger audits:

  • Discrepancies in tax returns
  • Unreported income
  • Large deductions
  • Participation in illegal tax shelters and schemes
  • Random selection

If the IRS discovers a notable discrepancy, it may refer the taxpayer to its Criminal Investigation Division. The consequences of getting caught cheating on your taxes can be severe. The most common penalties include fines and settlements. In 2022, it also had a 90.6% conviction rate for cases accepted for criminal trial.

How Can a Tax Lawyer Help If the IRS Accuses You of Tax Cheating?

Whether the allegations are true or result from errors, hiring a tax lawyer is wise. We can analyze your finances to build a strong case in your defense. Sometimes, we may reach a much lower settlement with the IRS or get you on a payment plan. Contact us at Ayar Law for a free consultation.