Taxes, penalties may await wealthy parents in college admissions scam

Personal Finance

If the IRS can show that the parents intended to defraud the government by claiming these payments as charitable deductions, there could be a civil fraud penalty, Blank said.

Civil tax fraud penalties can add up to 75 percent of the portion of the tax underpayment. The IRS must show that the offending taxpayer willfully defrauded the government in order for this penalty to apply, Blank said.

Under normal circumstances, the IRS has up to three years after you’ve filed a return to audit it.

However, if you omitted more than 25 percent of your gross income on your return, the taxman has up to six years to question your return and hit you with taxes owed.

Civil tax fraud isn’t bound by a statute of limitations. The IRS can dig through years of returns to search for phony deductions and levy penalties.

“With fraud, it’s like a basketball game with no shot clock,” said Blank. “You can shoot forever.”

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