• There are a number of penalties that come along with not filing adequate taxes.tax forms image by Chad McDermott from Fotolia.com
  
  With the increase in technology, and many people filing their taxes through online sources, it has become significantly easier for the IRS to discover tax fraud. Taxpayers who use abusive trust schemes, set up fraudulent international business corporations, or commit bond transaction fraud, are subsequently subject to penalties under the law. In some situations, a person can be held civilly and criminally liable.
  
  

Abusive Trust Schemes

• One of the most common tax fraud schemes occurs when an entity sets up an abusive foreign trust scheme. This is achieved by the taxpayer setting up a number of domestic trusts one on top of the other. Once the funds are transferred into a foreign trust, the taxpayer opens a bank account under the name of the trust. This leaves the appearance that the taxpayer has turned over the assets to a trust, and no longer has any control within the business. However, in actuality the company or corporation is still under full control of the taxpayer. In the event that this happens, or any other variation of the scheme happens, the penalty is stiff: Those found guilty of abusive tax schemes are still liable for all taxes, interest and civil penalties. Under civil fraud, there is a penalty of up to 75 percent of the underpayment of tax that is attributed to fraud, in addition to the taxes that are owed. There is also a risk of criminal conviction. Criminal convictions may result in fines up to $250,000 and up to five years in prison.
  
  

International Business Corporations

• The taxpayer setting up international business corporations (IBCs) is also another fraud scheme. Here, the taxpayer sets up an IBC that carries the same name as his business/corporation, along with a corresponding foreign bank account. As the taxpayer receives capital, checks received are sent to the bank account in the foreign country. As the checks clear, the IBC foreign account is credited for the payments. This amounts to an undisclosed amount of income and fraud. According to the IRS website, under Title 26 USC § 7206(1) for fraud and false statements, if found guilty of a felony, “the person shall be imprisoned not more than 3 years, or fined not more than $250,000 for individuals ($500,000 for corporations, or both."
  
  

Fraudulent Bond Transactions

• Those who knowingly, or have reason to know, of fraudulent statements in a bond transaction are subject to penalties. Bond transactions are essentially situations in which an IOU is given by a borrower (the issuer) to a lender (the investor). When a false or fraudulent statement is subsequently provided regarding the tax benefit of the transaction, then a penalty is enforced under the Internal Revenue Code Section 6700. According to the IRC, the penalty is as follows: “the lesser of $1,000 or 100% of the gross income derived from the activity by the person on which the penalty is imposed.” Though the fraud in this situation is not on as grand a scale, fraud concerning bond transactions is prevalent.