What does the Treasury consider an offense when doing business as a Sole Proprietor?

Without a doubt one of the worst nightmares of a sole proprietor is getting a notice from the Treasury of an upcoming audit. Even if everything is in order and you are sure that you have not committed any violations, the thought of why the IRS wants to check the documents can deprive you of sleep.

Therefore, it is important to have an idea of what will constitute an offense for the tax inspectorate and how it will be measured.

The regulations classify tax violations as mild, severe, and very serious. It is the Law that sets the parameters for each of the classifications and the sanctions that will be used.

For classification, rules are applied based on two principles:

– hiding data

– use of fraudulent means.

So, hiding data will be considered if you do not send declarations or send fake/ untrue amounts in them, or, on the contrary, do not fully or partially reflect real transactions.

When using fraudulent funds, there are 3 options:
– Incorrect maintenance of accounting and registration books: from 10% to 50% of the basis of the fine will be considered serious and starting from 50% a very serious violation.
– The use of invoices, receipts and other forged documents: this would be a very serious violation if their share is more than 10% of the basis of the fine, and less than 10% is a serious violation.
– The use of persons or organizations that do not reveal the true position of the company: considered a very serious case.

The severity of the identified fines varies in 3 gradations:

Very serious:
– Whenever fraudulent means have been used to commit an offense.
– When the offense is based on withholding amounts and the amount of the fine exceeds 50% of the amount of the fine.

Serious:
– When the sanction base is higher than 3000 euros and there is a concealment. The IRS understands that concealment entails fraud on the part of individual entrepreneurs, although it considers it less serious than the use of fraudulent means.
– When the offense is based on amounts withheld that are equal to or greater than 50% of the amount of the fine.
– When using invoices, receipts and false documents, not exceeding 10% of the fine.
– Incorrect accounting, assuming from 10% to 50% of the sanction base.

Mild, in which none of the above conditions occur:
– When the fine is equal to or less than 3000 euros, regardless of whether there is harboring.
– When the amount of sanctions exceeds 3000 euros without concealment.

If the Treasury detects an inaccuracy, it draws up the dispatch of an inspector to the individual entrepreneur to confirm the fact. If a violation is found, the sanction will be proportional to its qualifications. That is, the individual entrepreneur will have to pay an amount in addition to the fine, which can range from 50% to 150% of the amount of the fine. Namely:
– with a minor violation – the amount of debt + 50%
– in case of serious – the amount of debt + 100%
– if it is very serious – the amount of debt + 150%

In the event of serious and very serious violations, the IRS will apply the criteria for re-commission and economic damage. In addition, if the subject unreasonably requests a refund, benefits or tax deductions, the violation becomes serious and a fine of 15% of the amount received will be imposed. And if the relevant data was omitted or false data were included, a surcharge of € 300 will be charged.