Tax fraud occurs when an individual or business entity willfully and intentionally falsifies information on a tax return in order to limit the amount of tax liability. Tax fraud essentially entails cheating on a tax return in an attempt to avoid paying the entire tax obligation. Examples of tax fraud include claiming false deductions; claiming personal expenses as business expenses; and not reporting income.

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Tax fraud involves the deliberate misrepresentation or omission of data on a tax return. In the United States, taxpayers are bound by a known legal duty to voluntarily file a tax return and to pay the correct amount of income, employment and excise taxes. Failure to do so by falsifying or withholding information is against the law and constitutes tax fraud. Tax fraud is investigated by the Internal Revenue Service Criminal Investigation (CI) unit.