10 Reasons You Shouldn't Lie on Your Taxes (Besides The Obvious)

SAVING & SPENDING - TAXES
Trying to deceive the IRS can be much more costly than simply paying your taxes.
Updated April 9, 2024
Fact checked
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Tax fraud is a serious offense with hefty penalties, and the IRS isn't afraid to come knocking. While honest mistakes happen, intentional deception can lead to lasting consequences.

To help you avoid a costly mistake, here are 10 reasons why honesty is always the best policy when it comes to your taxes.

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Audits can stress you out for a long time

pkstock/Adobe Federal tax form with calculator

Many things can trigger IRS audits. They include making extra money while owing back taxes, digital currency transactions, your home office deduction, and even claiming that your hobby is a business. They can also be random.

As for how long an IRS audit can take, it’s up to the agency and how complex the situation feels. All the more reason not to try to pull one over on it.

Tax debt doesn’t go away

fizkes/Adobe stressed senior woman reviewing bills

Ignoring and trying to cheat IRS debt doesn't make it disappear — it gets worse. Interest accrues and is compounded daily, regardless of filing time. 

The failure-to-pay penalty adds up to half of 1% monthly. For late filing, it's typically 5% monthly, capped at 25%. After 60 days, there's a minimum penalty of $450 or 100% of owed taxes, whichever is less.

The IRS pays extra attention to the EITC

Andrey Popov/Adobe lawyer reviewing tax audit papers

The IRS is very particular about how it deals with some credits, like the Earned Income Tax Credit (EITC). If it thinks you've improperly claimed certain credits, you'll be ineligible to claim them again for a period.

Specifically, you could be barred from claiming them for two years after a final decision to reduce or deny your EITC due to reckless or intentional disregard of the rules or for 10 years after a final decision to reduce or deny your EITC due to fraud.

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Falsely claiming refunds and credits can hurt you

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Submitting an income tax refund or credit claim for an excessive amount without reasonable cause incurs the IRS’s “Erroneous Claim for Refund or Credit” penalty. 

This can clock up to 20% of the excessive or over-claimed amount beyond what's allowable for the taxable year.

Financial penalties can hit you hard

rh2010/Adobe senior couple reviewing bills together

Dodging your tax responsibilities might seem like a way to avoid paying up, but it carries a hefty fine.

Intentionally avoiding or evading taxes you owe can lead to fines of up to $250,000. Even filing taxes over 60 days late incurs penalties, which are more severe for failing to file than failing to pay.

There’s a difference between fraud and negligence

Яна Солодкая/Adobe business woman reviewing annual balance sheet

Fraud involves intentional deceit. Negligence refers to careless errors. Auditors are skilled at finding fraud, like overstated deductions or income concealment. If fraud is found, penalties apply. 

Fines for negligence are lower. To prevent issues, maintain accurate documentation and review paperwork carefully to avoid unintentional mistakes.

The IRS is looking for cheaters — and it wants you to report them

Lane Erickson/Adobe exhausted irs tax auditor

The IRS is always on the lookout for people who cheat on their taxes. After all, famed mobster Al Capone wasn’t taken down by gunfire — he was famously snagged for tax evasion.

The IRS is looking for false exemptions or deductions, kickbacks, false or altered documents, failure to pay, unreported income, and organized crime.

You could get a lien

elnariz/Adobe angry man doing taxes at home

Tax liens signify a serious step by the IRS. If you cheat and owe $10,000 or more, a lien grants the government rights to your assets, including property and financial holdings, if taxes go unpaid, and may prompt state and county liens.

Liens are public, too, so they hamper securing loans, jobs, or housing. Clearing a lien requires a full payment, with the IRS obligated to lift it within 30 days.

You could go to jail

kwanchaift/Adobe hands of prisoner in jail

It’s rare — with arguably the most famous case being film star Wesley Snipes — but you can be sent to prison for tax evasion.

It all comes down to whether or not you’re engaged in what the IRS considers a “tax crime,” and there’s a whole booklet about it online. If you are evading taxes or trying to defraud the government, federal charges can be brought against you.

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The IRS might take your passport

Jeff McCollough/Adobe hand holding american passport in airplane

Don't cheat on your taxes if you're looking for ways to travel more. The IRS can and will inform the State Department, and your passport could be revoked. 

Without a valid passport, you won't get a new one. However, if you're abroad, a limited passport can be granted to return home and address those tax matters.

Bottom line

dusanpetkovic1/Adobe happy woman reviewing bills at home

Skip the stress and avoid the risk. Filing an accurate tax return may seem daunting, but it's far less stressful (and expensive) than facing the consequences of tax evasion. 

Consider consulting a tax professional to lower your financial stress and ensure your return reflects your true tax burden. 

Remember, the IRS is there to collect what's due, not trick you. Honesty is the best policy, and it applies to your taxes, too.

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Author Details

Will Vitka Will Vitka is a D.C. area reporter and writer. He previously worked for WTOP, The New York Post, Stuff Magazine, and CBS News.

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