What is Tax Fraud? 

Tax fraud is committed when intentionally falsified information is submitted on an individual or business tax return.

Examples of Tax Fraud

• Intentionally failing to file individual income tax returns
• Intentionally failing to report all self-employed income on individual tax return
• Filing an individual income tax return and deliberately understating the amount of income that was earned during the tax year
• Overstating the number of children or other dependents on an individual income tax return
• Filing an individual income tax return claiming to be a resident of another state while residing in Montana
• Making false or fraudulent claims for refunds
• Failing to maintain records that show the true income and expenses of a business
• Preparing documents, books, and records that intentionally understate the true income or overstate the expenses of a business
• Operating a business without registering with the Montana Secretary of State or Department of Revenue
• Paying cash wages to employees for the purpose of avoiding Montana withholding tax
• Opening and closing of new businesses to evade taxes
• Operating a business using someone else’s name to avoid business and income taxes

Tax Avoidance vs Tax Evasion

Tax Avoidance (Legal)

• Involves legal tax planning to minimize one’s tax liability
• Reduces, avoids, or minimizes taxes by changing the nature of a transaction to comply with a tax exemption or exclusion (Details of the transaction are disclosed.)
• Does not conceal or misrepresent
• Shapes and pre-plans events to reduce or eliminate tax liability by taking advantage of favorable tax laws
• Prepares documents showing the details of the transactions and reports the transactions

Tax Evasion (Illegal)

• Hiding or misrepresenting the true nature or the facts, through deceit or deception, to take advantage of a tax exemption or exclusion that doesn’t actually apply
• Intentional concealment and misrepresentation
• Structuring events and transactions to hide the true nature of the transactions
• Concealing, altering, destroying, or failing to prepare the documents that show the true details of the transactions

The Importance of Reporting Tax Fraud

When dishonest people fail to pay their fair share of taxes, honest taxpayers and the general public are left with the burden of covering these shortages. Tax fraud impacts businesses, consumers, and vital state services. It can lead to:

• higher prices
• possible tax increases
• under-funded schools
• poor roads, bridges, and infrastructure
• cutbacks for government programs

If you know or suspect someone is committing tax fraud, please report it immediately.