tax fraud

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TAX FRAUD

TB 280 SlideGeneral Course for Revenue OfficersTMD

TOPIC 280

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• Definition of Terms • Conceptual Nature of Fraud• Distinction between Tax

Evasion and Tax/Avoidance/Fraud and Negligence

• Classification of Tax Fraud• Burden of Proof in

Establishing Fraud• Effects of Fraud• Sources of Fraud Cases

• Indications of Fraud• Processing of a Tax

Fraud Case• Ways of Conducting

Preliminary or InformalInvestigation

• Classification of Evidence• Rules which Govern

Documentary Evidence Rule

TOPIC OVERVIEW

General Course for Revenue OfficersTMD

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OBJECTIVES1. Understand the basic principles in tax fraud, such as

elements of tax fraud or tax evasion, their classification and related techniques;

2. Identify the sources of tax fraud cases and indications offraud;

3. Familiarize and enumerate the stages and methods infraud investigation; and

4. Differentiate standard of proof required in criminal andcivil tax fraud cases.


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TAX FRAUD - is the actual evil motive or intent to evade taxeswhich are legally due to government.

NEGLIGENCE - is the unintentional omission.

FRAUD - refers to deceit or trickery deliberately practicedin order to gain some advantage; dishonesty; aninstance of such deceit, deception or artifice ofany kind, anything contrived or intended to deceive.

DEFINITION


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Definition - means the elimination orreduction of one’s correct andproper tax by fraudulent means.

Purpose - minimize, reduce, eliminate taxliability to the payment of tax

Instrument - Illegal means

Manner of Assessment - Prescribes in 10 years from

the discovery of the falsity, fraud or omission

- is the attempt to minimize thepayment or altogether eliminatetax liability by lawful means.

- same as Tax Evasion

- resort to legal and acceptablemeans

- prescribes in 3 years after thefiling of the tax return


TAX EVASION VS. TAX AVOIDANCE

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EXAMPLES OF TAX EVASION

1. omitting to report one’s income2. understatement of income done intentionally3. overstatement of deduction done improperly and

intentionally4. claiming false personal exemption5. claiming as exempt corporations even if they are not6. misdeclaration and underdeclaration of estate in the

estate tax return7. making withdrawals of articles subject to excise taxes

contrary to the provisions of the Tax Code


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FRAUD VS. NEGLIGENCE

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The fraud contemplated by law is actual and not constructive.It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to induce another to give upsome legal right.

Negligence, whether slight or gross, is not equivalent to fraudwith intent to evade the tax contemplated by the law. It necessarily follows that mere mistake cannot be consideredas fraudulent intent.

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CLASSIFICATION OF TAX FRAUD

1. CIVIL FRAUD - is one where the accused cannot be proven beyond reasonable doubt to be guilty, though, a little more than a mere preponderance ofevidence but short of being beyond reasonable doubt, the fact of fraud can still be proven.

2. CRIMINAL TAX FRAUD - is one when all the elements of fraud can be proved beyond reasonabledoubt and that the accused taxpayer can be chargedguilty.


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1. Civil penalties - 50 % surcharge imposed by BIR2. Criminal penalties - imprisonment and/or fine

imposed by RTC3. Extension of the prescription period up to 10 years

from date of discovery and 5 years prescriptionon the filing of criminal action

4. Fraud Cases cannot be subject to compromise5. Suspension and temporary closure of the business

operations of the taxpayer

EFFECTS OF FRAUD


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1. From routine examination of returns

2. From information furnished

3. Through the initiative of the revenueofficers concerned

4. Third party information

SOURCES OF FRAUD CASES


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� Maintaining two sets of books and records;

� Concealment of assets;

� Destruction of books and records;

� Large or frequent currency transactions;

� Paying fictitious companies or persons;

� False or altered entries of documents;

� Over declaration of purchases or under declaration of sales;

INDICATIONS OF FRAUD

General Course for Revenue Officers

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� Use of false names or nominees;

� Large company loans to employees or other persons;

� Payee names on checks left blank and inserted at a later date;

� Excessive billing accounts;

� Excessive spoilage or defects;

� Double payments on billing;


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� An individual negotiating checks made to a corporation;

� Second or third-party endorsement on corporate checks;

� Excessive use of exchange checks or clearing accounts;

� Personal expenses paid with corporate fund;


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� An understatement of income attributable to specific transactions and denial by the taxpayer of the receipt of the income or inability to provide a satisfactory explanation for its omission;

� Substantial unexplained increases in net worth over a period of years;

� Failure to file a return especially for a period of several years, although substantial amounts of income were received;


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� Concealment of bank accounts, brokerage accounts, and other property;

� Inadequate explanation for dealing in large sums of currency, or the unexplained expenditure of currency (especially when in a business not calling for large amount of cash);

� Failure to deposit receipts to business account contrary to normal practices;

� Claiming fictitious or improper deductions;


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� Substantial amounts of personal expenditures deducted as business expenses;

� False entries or alterations made on the books and records, backdated or postdated documents, false entries on invoice or statements, or other false documents;

� Failure to keep records, especially if put on notice by the BIR as a result of prior examination, concealment of records, or refusal to make certain records available;


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� Distribution of profits to fictitious partners;

� False statements, especially if made under oath about a material fact involved in the investigation;

� Attempts to hinder the investigation, failure to answer pertinent questions or repeated cancellations of appointment, avoiding the investigator;


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� The taxpayer’s knowledge of taxes and business practices where numerous questionable items appear on the returns;

� Destruction of books and records, especially after the investigation was started;

� Transfer of assets for purpose of concealment;

� Involvement in illegal activity (illegal income);

� Failure to disclose all relevant facts;


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� Unsubstantiated or unexplained wealth;

� Mental handling of ones affair to avoid keeping records usual in transactions of the same kind;

� Keeping no records or inadequate records despite substantial transactions in the return;


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� Standard of living of the taxpayer such as possession of luxurious cars, mansions, expensive jewelries, etc; and

� Any conduct or action that would be to mislead or to conceal material facts.


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Informal Investigation

Preparation of a Preliminary Report

Formal Fraud Investigation

PROCESSING OF A TAX FRAUD CASE


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Ê Covert / Discreet Investigation

Ë Overt Investigation

a Open Surveillancea Stocktakinga Apprehensiona Raid

WAYS OF CONDUCTING PRELIMINARYOR INFORMAL INVESTIGATION


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+ Direct and circumstantial evidence

+ Prima facie and conclusive evidence

+ Object (Real ) evidence

+ Documentary evidence

+ Testimonial evidence

+ Expert evidence

+ Primary evidence and secondary evidence

+ Positive and negative evidence

CLASSIFICATION OF EVIDENCE


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+ Corroborative and cumulative evidence

+ Relevant evidence and material evidence

+ Irrelevant , incompetent, inadmissible and immaterial evidence

+ Rebuttal

+ Substantial evidence

+ Competent evidence

CLASSIFICATION OF EVIDENCE


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� The Best Evidence Rule (Sec.3-4, Rule 130)

� The Second Evidence Rule (Sec. 5-8, Rule 130)

� The Parol Evidence Rule (Sec.9, Rule 130)

� Rule on Authentication and Proof of Documents(Sec.19-33, Rule 132)

Rules which Govern Documentary Evidence Rule


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tax fraud

Documents

criminal tax fraud

elements of tax fraud

revenue officerstmd

sources of tax fraud

slidethe fraud

slide4tax fraud

tax fraud case ways

intentional fraud