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25.1.1.2
(07-18-2008)
Definition of Fraud
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Fraud
is deception by misrepresentation
of material facts, or silence when good faith requires expression, resulting
in material damage to one who relies on it and has the right to rely on it.
Simply stated, it is obtaining something of value from someone else through
deceit.
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Tax fraud is often defined as an intentional wrongdoing on the part
of a taxpayer, with the specific purpose of evading a tax known or believed
to be owing. Tax fraud requires both:
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a tax due and owing; and
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fraudulent intent.
25.1.1.2.1
(07-18-2008)
Definitions—General
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The compliance employee must be familiar with the following legal terms
in order to understand the requirements of proof:
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Burden of Proof
- the obligation
to offer evidence that a court (judge or jury) could reasonably believe in
support of a contention. In tax fraud cases, the burden of proof is on the
Government.
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Evidence
- data presented
to a judge or jury in proof of the facts in issue and which may include the
testimony of witnesses, records, documents, or objects. Evidence is distinguished
from proof in that the latter are the result or effect of evidence.
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Direct Evidence
- evidence
in the form of testimony from a witness who actually saw, heard, or touched
the subject of questioning. Direct evidence, which is believed, proves existence
of fact in issue without inference or presumption.
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Circumstantial Evidence
- evidence
based on inference and not personal observation.
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Presumption (of law)
- a rule
of law that a judge or jury will draw a particular inference from a particular
fact, or from particular evidence, unless and until the truth of such inference
is disproved.
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Inference
- a logical conclusion
from given facts.
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Preponderance of evidence
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evidence that will incline an impartial mind to one side rather than the other
so as to remove the cause from the realm of speculation. It does not relate
merely to the quantity of evidence. Simply stated, evidence which is more
convincing than the evidence offered in opposition.
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Reasonable doubt
- a doubt
that would cause a prudent person to hesitate before acting in matters of
importance to themselves. Such a doubt will leave a juror's mind uncertain
after examination of the evidence.
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Willful Intent to Defraud
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an intentional wrongdoing with the specific purpose of evading a tax believed
by the taxpayer to be owing.
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Clear and Convincing Evidence
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evidence showing that the thing to be proved is highly probable or reasonably
certain. This is a greater burden of proof than preponderance of the evidence
but less than beyond a reasonable doubt.
25.1.1.2.2
(05-19-1999)
Requirements of Proof
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Understanding the requirements of proof is essential in establishing
fraud. In all criminal and civil tax fraud cases, the burden of proof is on
the Government.
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The major difference between civil and criminal fraud is the degree
of proof required.
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In criminal cases, the Government must present sufficient
evidence to prove guilt beyond a reasonable doubt.
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In civil fraud cases, the Government must prove
fraud by clear and convincing evidence.
25.1.1.2.3
(05-19-1999)
Civil vs. Criminal
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Civil fraud results in a remedial action taken by the government such
as assessing the correct tax and imposing civil penalties as an addition to
tax, as well as retrieving transferred assets. Civil penalties are assessed
and collected administratively as a part of the tax.
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Criminal fraud results in a punitive action with penalties consisting
of fines and/or imprisonment. Criminal penalties:
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Are enforced only by prosecution;
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Are provided to punish the taxpayer for wrongdoings; and
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Serve as a deterrent to other taxpayers.
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A tax fraud offense may result in both civil and criminal penalties.
25.1.1.2.4
(07-18-2008)
Avoidance vs. Evasion
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Avoidance of tax is not a criminal offense. Taxpayers have the right
to reduce, avoid, or minimize their taxes by legitimate means. One who avoids
tax does not conceal or misrepresent, but shapes and preplans events to reduce
or eliminate tax liability within the perimeters of the law.
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Evasion involves some affirmative act to evade or defeat a tax, or payment
of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment,
attempts to color or obscure events, or make things seem other than they are.
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Common evasion schemes include:
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Intentional understatement or omission of income,
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Claiming fictitious or improper deductions,
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False allocation of income, and/or
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Improper claims, credits, or exemptions.
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