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Fraud

For the most part, there is no single crime called “fraud.” However, fraud is an intrinsic part of a number of offenses, most notably those in the theft category. The early theft crime of larceny required a taking of property from the possession of another; therefore using deceit to take the property of another that had been entrusted to the offender was not punishable because it was not larceny. The crime of embezzlement was established to close this loophole in theft law. Embezzlement is committed when the offender fraudulently converts the property of another, which is already in the offender’s possession. Fraudulent conversion occurs when the offender seriously interferes with the victim’s rights over the property by using it up, giving it away, unreasonably withholding possession from the victim, or seriously damaging the property with the intent to benefit himself and deprive the victim. Fraudulent intent requires a finding that the offender had the specific intent to deceive the victim, and mere negligence in the handling of the property will not sustain a conviction.

Fraud is also at the heart of the crime of false pretenses, which is committed when the offender knowingly makes a false representation of fact with the intent to cause the victim to pass title to his or her property to the offender. The crime of false pretenses requires a false representation; making misleading statements or merely remaining silent does not satisfy the requirement of a false representation. Neither are opinions enough to make a false representation; “In my opinion, your property is worthless,” is not a false representation for the purposes of the crime. The false representation must be about an important fact. A false statement about an unimportant fact generally will have little impact on the victim’s decision to complete the transaction, and therefore will not support a charge of false pretenses.

Fraud is an important part of the federal mail and wire fraud statutes. The scope of fraud under those statutes is broader than under embezzlement and false pretenses including using tricks, schemes, or devices to defraud; therefore an unimportant misstatement in conjunction with other misstatements or deceptive behavior can serve as one element of a scheme to defraud. In addition, federal crimes can be charged when the offender secures a service through fraud, not just takes property. Other federal crimes that prohibit fraud protect the banking industry and stock market transactions. Statutes prohibit the use of fraud in obtaining government goods or services and in the filing of fraudulent tax returns.

It is important to note that statutes exist to protect consumers against various kinds of business fraud, but they are generally not criminal in nature.

Checklist: Avoiding Behavior the IRS Considers Criminal or Fraudulent

According to the Internal Revenue Code, it is not criminal to reduce, avoid, or minimize personal income taxes by legitimate means. In other words, avoidance is acceptable, but evasion is not. When you avoid taxes, you do not conceal, misrepresent, or make things appear as they are not. Making an honest mistake is not criminal either. It all boils down to whether you intentionally try to deceive the IRS to avoid paying some or all of your taxes. If the IRS determines that your behavior was criminal, you may find yourself paying a fine or, in a worse case, spending time in jail. If you are being investigated for a tax crime by the IRS, it is critical that you consult an attorney who is familiar with both tax and criminal matters.

Although the following list is not all-inclusive, it gives a number of common examples of taxpayer behavior that the IRS considers fraudulent and/or criminal:

  • Deliberately underreporting income.
  • Taking payments in cash and failing to deposit them in order to avoid tax consequences.
  • Inflating the value of business expenses.
  • Creating false business expenses for tax purposes.
  • Using a false social security number.
  • Keeping two sets of financial records for your business.
  • Claiming an exemption for a spouse when you are not married.
  • Claiming an exemption for a dependent whom you never supported.
  • Destroying your books to conceal tax evasion.
  • Creating false checks or receipts to support deductions that do not exist.
  • Denying that deposits into your accounts are income when they are income.
  • Concealing financial accounts.
  • Transferring assets to conceal them.
  • Reporting personal expenses as business expenses.
  • Claiming more charitable deductions than were made.
  • Failing to file tax returns even if you make a substantial amount of income.
  • Making false statements to the IRS under oath.
  • Failing to file returns despite having been contacted in prior years by the IRS for failing to file.

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