Voluntary disclosure of tax fraud .. how harsh a punishment

[Confused20]

I’d wanted to originally do an amended return but need to be fully honest. Here’s my story on what happened. I claimed my sisters kids because they moved in with me. She was okay with me claiming them since she was in another state. The daycare they attended gave me a tax form and ADMITTED they made the form appear more was paid than actually had been. Lie number 1. Number two , although they lived with me .. my sister paid the daycare fee. I never did. I still received the credit although she paid. Lastly I didn’t know then that the credit could only be claimed by them attending daycare as a means for me to be able to work. They went more so for leisure .. I worked overnight so it was no benefit for me. I didn’t know back then (years ago) that I could claim the kids without claiming the daycare credit. I have NO clue how much was actually paid to the daycare since the owner lied on the form. I want to pay back the money I received for the childcare credit. I THINK the form said about $600 was paid? How harsh do you think the irs will be on me for filing a voluntary disclosure ?

[tagteam · Accepted solution]

You might want to consult with local legal counsel.

See https://www.avvo.com/tax-lawyer.html

However, this smacks more of ignorance of the law than outright fraud (which is a willful attempt in any manner to evade or defeat any tax imposed - Section 7201).

You can also read through the doc below for more information, but you should consult local legal counsel if you are overly concerned.

https://www.justice.gov/tax/file/1293361/download

[Carl]

This is a legal matter, not a tax matter. You "need" to consult with a lawyer yesterday, if not sooner, as your sister "may" be implicit also, for all we know.

[Opus 17]

Financially, you owe your correct tax.  If you are paying the tax late (with your amended return), you can be charged interest at 0.5% per month back to the April 15th deadline. If the IRS were to investigate and determine fraud was committed, the penalty starts at 25% of the tax owed.  

Assuming you don’t want to spend thousands to get legal advice over a matter of hundreds, I would file a correct tax return and pay what you owe.  Wait and see if the IRS bills you for interest or contacts you for more information.  

[tagteam]

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@Opus 17 wrote:

Assuming you don’t want to spend thousands to get legal advice over a matter of hundreds, 

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An initial consultation with legal counsel, to briefly describe the circumstances, will hardly cost "thousands".

[Mike9241]

if you do decide to consult with a lawyer, you could ask what they estimate the cost to be so you know.  fees vary by location and size of the law firm.  

[Opus 17]

@Confused20 

You can certainly start by preparing the amending return and see what your damages, and then take your time to think about whether to file it.

[tagteam]

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@Confused20 wrote:

I didn’t know back then (years ago) that I could claim the kids without claiming the daycare credit. 

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@Confused20 

How many "years ago"? The entire matter here could be time barred. 

Again, an initial consultation with local legal counsel should be your first course of action.

[Opus 17]

@Confused20 

[edited]

Many states have a child care credit that uses the same rules as the federal credit. If you were move the credit from your federal tax return and pay it back, you may also have to remove the credit from your state return and re-pay something to the state. The state credit is usually smaller than the federal credit.

I think you said this happened several years ago. The normal statute of limitations for the IRS is three years, and for California and some other states up to four years, from the filing deadline.  For example, a 2018 return, which was due April 15, 2019, is past the federal statue limitations as of April 15, 2022.  While correcting old errors is honorable, it may not be something you could get penalized for, depending how long ago this happened.

[Confused20]

It’s now been 4 years …I’ve always wanted to amend but was terrified 

[Confused20]

Thank you. It occurred 4 years ago when I filed. I’ve wanted to amend but have been TERRIFIED. Again had I known I could’ve filed the kids without the childcare credit I would’ve just done that. I thought it was an all or nothing kind of thing … I knew the daycare owner giving me that document with altered numbers was wrong therefore making me fraudulent for filing