Fudging on deductions: IRS warns of possible penalties

"Fudge" is a peculiar word. As a noun, it refers to a soft, creamy candy or, more generally, to foolish nonsense. As a verb, it means to fake or falsify something, or to bend the rules.

When filing taxes, what does it mean to fudge and what can happen if you do?

Fudging is hardly a technical term. But generally it means to overstate deductions, inflate business expenses or use credits you aren't entitled to.

Of course the motivation for behaviors such as these depends on the situation. Someone who made a good faith mistake on the amount of deductible business expenses is hardly intending to commit tax fraud.

The IRS has become increasingly concerned, however, about padded or improperly taken deductions or credits. Refundable tax credits, particularly have the Earned Income Tax Credit and the Child Tax Credit, have come under particular scrutiny.

As a result, the IRS listed false or padded deductions on its annual "Dirty Dozen" list of tax scams for 2017. The IRS has also warned that its automated systems are becoming more efficient at detecting padded deductions.

What are the possible consequences of this for a taxpayer?

For taxpayers who take substantial deductions, such as for large charitable contributions, the increased IRS concern about padded deductions can make an audit more likely.

If the IRS determines that your return was incorrect, there can also be substantial penalties. For example, the penalty for filing an erroneous claim for a refund or credit is one-fifth of the disallowed amount. And if there was an underpayment of tax due to fraud, the penalty is 75 percent of the amount of tax owed.

Criminal prosecution is also possible in cases of willful tax evasion or other wrongdoing.

To be sure, an audit may turn up nothing and criminal charges may not stick. But it's important to be aware that fudging on your taxes can lead to trouble with the IRS.

No Comments

Leave a comment
Comment Information
  • ABA | American Bar Association
  • AV Preeminent | Peer Rated for Highest level of Professional Excellence | 2018
  • Virginia State Bar | 1938
  • Super lawyer | 2018
  • DC Bar
  • American Bar Academy of Attorney - CPAs | The power of the dual view
Email Our Team

Contact Us to Get Started Today

Located in the Washington, D.C area, we serve clients in the District of Columbia, Maryland and Northern Virginia, as well as across the country and overseas. For a free initial consultation, call 202-381-1261 or complete our brief online form.

Bold labels are required.

Contact Information
disclaimer.

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.

close

Privacy Policy

Six Convenient Office Locations in and around the DC Metropolitan Area

Washington, D.C.
1629 K Street NW, Suite 300
Washington, D.C. 20006

Phone: 202-618-1873
Fax: 888-235-8405
Map & Directions

Columbia Office
10440 Little Patuxent Parkway, Suite 300
Columbia, MD 21044

Phone: 410-497-5947
Fax: 888-235-8405
Map & Directions

Annapolis Office
888 Bestgate Road
Suite 400
Annapolis, MD 21401

Phone: 410-497-5947
Fax: 888-235-8405
Map & Directions

Fairfax Office
8280 Willow Oaks Corporate Drive
Suite 600
Fairfax, VA 22031

Phone: 703-621-7169
Fax: 888-235-8405
Map & Directions

Rockville Office
199 E. Montgomery Avenue
Suite 100
Rockville, MD 20850

Phone: 240-599-5009
Fax: 888-235-8405
Map & Directions

Baltimore Office
400 East Pratt Street
8th Floor
Baltimore, MD 21202

Phone: 443-743-3381
Fax: 888-235-8405
Map & Directions