Tax fraud is punishable by either civil or criminal penalties, depending on the severity of the fraud. The Internal Revenue Service provides detailed penalties for all forms of tax fraud. Civil violations are outlined in Title 26, while criminal violations are outlined in Title 18 of the U.S. tax code.
The Internal Revenue Service decides whether tax fraud is committed by looking for indicators or badges of fraud. These indicators include: understatements of income; failure to file tax returns; implausible or inconsistent explanations of behavior; inadequate or faulty records; failure to make estimated tax payments; concealment of assets and failure to cooperate with tax authorities.
In general, acts of tax fraud include filing a false tax return, evading tax payments, filing false documents, failing to collect employment taxes and filing to file a tax return. The penalties for these acts range to up to five years in prison, plus fines of up to $250,000 for individuals, plus the costs of prosecution for each tax-fraud charge.
Title 26 of the U.S. tax code states that any individual who willfully attempts to defeat or evade any tax imposed on them is guilty of tax fraud. Punishments for this form of tax fraud include a fine of no more than $250,000 for individuals and no more than $500,000 for corporations and/or imprisonment of up to five years.