Mark Loyd Discusses Tax Fraud in Kentucky CPA Journal
Bingham Greenebaum Doll LLP partner and chair of the firm’s Tax & Employee Benefits practice group Mark A. Loyd discussed the badges of tax fraud in his latest “Tax in the Bluegrass” column for the Kentucky CPA Journal. In it, he covers harsh penalties that apply for tax fraud, what constitutes tax fraud and more.
Loyd explains that it is perfectly alright to do federal and state tax planning to attempt to eliminate or minimize one’s taxes. But, what one cannot do is underpay one’s tax with the intent to defraud the government.
The federal courts have identified various indicia of fraudulent intent, which include:
- Understatement of income;
- Inadequate records;
- Failure to file tax returns;
- Implausible or inconsistent explanations of behavior;
- Concealment of assets;
- Failure to cooperate with tax authorities;
- Engaging in illegal activities;
- Attempting to conceal illegal activities;
- Dealing in cash; and
- Failing to make estimated tax payments.
According to Loyd, ways to protect against a charge of fraud, other than not underpaying tax, include doing just the opposite of the badges of fraud stated above and fully and completely disclosing the relevant facts to a tax advisor, and reasonably relying on the advice received. A spouse joining in a joint return may also be relieved of liability for tax, interest and penalties, including fraud, if that spouse can establish that he or she is an innocent spouse.