The Indiana Department of Revenue's (DOR) tax fraud program has stopped over $140 million in fraud since it's inception in 2014. Each tax year the tax fraud program detects less fraud, through a substantial fraud deterrence program. This program detects fraud before tax returns enter the financial system. This means less fraudulent refunds are processed and paid.
Tax fraud comes in several forms:
- Inflation of state or local withholding taxes
- Claiming credits or deductions the taxpayer was not entitled to
- Fake Schedule C business income or loss
- Inflation of Indiana earned income on Earned Income Tax Credits
While most taxpayers are honest and seek to pay their fair share for the services they receive from the state. There are individuals and businesses who work hard to evade paying what they are required to by law.
What is Tax Fraud?
Fraud is a deception deliberately practiced to secure unfair or unlawful gain. In Indiana, taxpayers are bound by a legal duty to file a tax return and to pay the correct amount. Failure to do so by falsifying or withholding information is against the law and constitutes tax fraud.
Examples of Tax Fraud
Tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return to limit the amount of tax owed. Tax fraud essentially means cheating on a tax return in an attempt to avoid paying the entire tax obligation. Examples of tax fraud may include, but are not limited to:
- Deliberate failure to file all types of tax returns
- Deliberate failure to report all income received during the tax year
- Made false or fraudulent claims for refunds
- Claiming to be a resident of another state while living in Indiana with the intention of evading taxes
- Overstating the number of children or other dependents on an individual income tax return with the intention of evading income taxes
- Prepared documents, books and records that understate the true income or overstate the expenses of a business and with the deliberate intention of evading tax
- Failed to maintain records that show the true income and expenses of a business in an attempt to evade taxes
- Overstated expenses to reduce income in an attempt to evade taxes
- Selling of imported beer, liquor or wine and deliberately failing to pay the excise tax on these products
- Filing an Indiana sales tax return deliberately omitting sales tax transactions on which sales tax was collected
- Sales of imported cigarettes and other tobacco products without payment of the excise tax in a deliberate intent to evade paying those taxes
- Paid cash to employees for the purpose of evading Indiana withholding tax
- Opening and closing of new businesses to evade taxes
- Operated a business using someone else’s name to evade business and income taxes
- Misrepresented or omitted data on a tax return deliberately
- Continued to operate business even though they are not allowed because they have not paid taxes to the state
- Ignored the requirements to report and pay use taxes on goods imported into the state
Tax Delinquent Businesses
Indiana law requires the Department of Revenue (DOR) to list online all retail merchants whose Registered Retail Merchant Certificates (RRMCs) have expired. This can result from nonpayment of delinquent sales tax. If a business continues to conduct retail transactions with an expired RRMC, it is tax fraud.
Tax Preparation Fraud
Tax preparation fraud generally involves the preparation and filing of false income tax returns (in either paper or electronic form) by corrupt preparers. Examples include, but are not limited to:
- Inflated personal or business expenses
- False deductions claimed
- Unallowable credits or excessive exemptions, fraudulent tax credits, such as the Earned Income Tax credit
- Filed a tax return using a taxpayer’s name and/or Social Security number without their knowledge or consent
- Altered taxpayer’s return without their knowledge or consent
- Provided the taxpayers with a copy of their return, which is different from what was filed with the IRS
- Received all or a portion of the taxpayer’s refund without their knowledge or consent
- Had a taxpayer’s refund or a portion of their refund directly deposited into an account that was the preparer’s
- Promised the taxpayer a refund that was never received, received but was a different amount, or received a refund check that “bounced”
The preparer’s clients may or may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. This is why it is very important taxpayers review their returns carefully before signing anything!
Report Tax Fraud
In the past, the department has successfully investigated tax fraud cases brought to our attention by concerned citizens. If you suspect a case of tax fraud, report it.
There are two ways to report tax fraud:
Indiana Department of Revenue
Special Investigations Unit
PO Box 6480
Indianapolis, IN 46206-6480
Fax Number: 317-233-6107