Definition of Fraud

• The U.S. Tax Code states that anyone making a written declaration on any tax return that he does not believe to be true is guilty of a felony and, if convicted, faces a potential of three years in prison, a maximum of $250,000 penalty or both, plus the cost of prosecution.
  
  

Including SSI Earned Income

• When you file for an earned income credit, it includes all taxable income from working. The credit specifically states you only include income from money you received for work someone pays you for or money you earned in your own business. It specifically omits funds from interest, pension, Social Security benefits, including SSI, child support, alimony and unemployment.
  
  

What Happens to Your Return

• The IRS inputs your return into the computer. Unless you showed your SSI benefit as a business, the computer automatically catches the error by totaling all taxable earned income. The amount you reported won't coordinate with the total the computer calculated.
  
  

Fraud vs Inaccurate Return

• Even though the person may have intentionally meant to defraud the government, most of the time the IRS simply kicks back the return as one that is inaccurate, subtracting the credit taken and sending a bill for the balance due. The IRS understands that most taxpayers make mistakes and doesn't prosecute fraud in most cases but considers it an error on the taxpayer's part.
  
  

Why Risk It

• A Memphis, Tennessee woman received a 12-month and one-day sentence with two years of supervised release afterward because of four counts of fraudulent returns. One of the claims was filing for false earned income credit. She also created a fictitious business. In her case, she created false dependents, something that isn't normally an error. However, the amount of money you receive from earned income credit isn't enough to risk jail. If the IRS catches you, which normally occurs, you either pay back the credit or face a hearing where you not only pay back the credit but also serve jail time. Even if the IRS doesn't count it as fraud, since you knowingly lied on a return, it is a fraudulent act.