Tax fraud and evasion refer to the intentional avoidance to pay taxes. Fraud means that you understood that you owed the tax and still didn't pay and is different from paying late or using 'creative' accounting or loopholes to reduce your taxes. Auditors are trained to detect 'badges of fraud,' in tax returns. For example, a company that has two sets of bookkeeping records or has no records at all will probably be investigated by the Internal Revenue Service, or IRS (I-R-S). Similarly, freshly made or false receipts or altered checks may indicate fraudulent practice. Other examples of tax fraud include using a false Social Security number or incorrectly reporting any information on your tax return. On the other hand, tax evasion occurs when you don't report income or make false claims on your tax return. For example, not reporting cash income received or taking deductions you shouldn't have are examples of tax evasion. If an auditor suspects that you've cheated on your income taxes, he or she can impose civil fines or refer your case to the IRS' Criminal Investigation Division. Civil penalties can add up to 75 percent to your original tax bill. If you're tried in a criminal proceeding for tax fraud, the IRS must establish without reasonable doubt that you intentionally evaded paying your taxes. The outcome of such cases can significantly impact your finances, your family, and your business relationships, so it's generally a good idea to seek legal representation if you're suspected of tax fraud or evasion.