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Sales and use tax fraud: How to deal with the IRS

On Behalf of | Dec 2, 2021 | blog, tax crimes |

Sales and use tax fraud includes willful or intentional filing of false sales returns and failing to remit use taxes. It involves either underreporting the sales worth or the value of the items you are using in another state. Sales and use tax fraud can lead to severe penalties and/or fines. The Internal Revenue Service(IRS) treats all forms of tax evasion seriously, and it could be a matter of time before it catches up with offenders.

What to do if you are accused of sales fraud

Correct the errors the IRS has pointed out

The IRS offers several options to traders and individuals who underreported or evaded paying taxes. Sometimes accusations of sales and use tax are just genuine errors in tax calculation and can be remedied by contacting the IRS. However, you must be proactive and approach the IRS before taking more drastic measures.

The IRS will first send a notice indicating areas you should rectify in your tax returns. In most cases, it would be sales figures that do not tally with the tax due. Your organization is expected to correct them or reply to the IRS letter explaining why you think your submissions are correct.

Commit to paying the dues

In 2011, the IRS came up with the Fresh Start program, which focused on reducing or withdrawing liens on individuals and businesses committed to paying their back taxes. You may contact the IRS and commit to paying taxes as a lump sum or in installments. Installments shouldn’t exceed three years.

Ask the IRS to delay the taxes

You may ask the IRS to delay collecting taxes until your financial situation improves in the worst-case scenario. Unfortunately, this option comes with penalties until you can pay the entire amount. Besides, this option is only available to businesses that prove they made a genuine error or are facing severe financial issues.

Reach a Settlement in Court

If there is evidence that the business has been involved in widespread sales tax fraud, the IRS may sue for the lost revenue. This is usually the last option and is reserved for cases where the amounts involved are very high. Some organizations use it when other dispute resolution methods do not work.

Depending on the court’s judgment, the organization may be fined for the fraud or its owners face criminal proceedings for their role in the scam.

After being notified of the possible sales fraud, acting fast may save you from high interest, penalties, and a jail term.