Chapter 18
The Tax Compliance
Process
Noncompliance Penalties Negligence
• Applies when the IRS determines that the “taxpayer
did not make a good faith effort to compute the
correct tax.”
• Penalty = 20% of any underpayment attributable to
the taxpayer’s failure to make this reasonable attempt.
• Negligence versus mistake?
• complexity of issues, taxpayer’s education/experience,
cooperation with IRS, advice from professionals
Noncompliance Penalties - Civil
Fraud
• 75% of tax underpayment due to fraud.
• Fraud is the “intent to cheat the government by
deliberately understating tax liability.”
• Systematic omission of substantial amounts of income
• Deduction of nonexistent expenses
• 2 sets of books
Noncompliance Penalties - Criminal Fraud
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Tax evasion = criminal fraud
Up to $100,000 individual, $500,000 corporation
Prison
IRS must show guilt beyond a reasonable doubt