Tax Evasion Penalty

tax evasion penalty

Tax evasion is a deliberate attempt to avoid paying taxes. The key to proving tax fraud is that the individual accused of the offense did it with the objective of avoiding paying taxes. Failure to file a tax return or drafting a fake return are both examples. FYI, we have a whole article explaining what is tax evasion.

Although the penalty for a single error may appear harsh, the penalties for tax fraud convictions are even more severe. Failure to file can result in up to one year in prison and a $100,000 punishment while attempting to evade taxes can result in criminal prosecution with up to five years in prison and a $250,000 fine.

Furthermore, tax fraud is defined by the IRS as “the deliberate and material submission of false statements or fake documents in connection with an application and/or return.” Investigators will look for any signs of fraud, including but not limited to:

  • Underreporting income
  • Using a false Social Security number
  • Falsifying documents
  • Intentionally failing to pay taxes

If these frequent markers are missing, the IRS is likely to believe that a mistake was made unintentionally due to negligence. Though errors with your taxes rarely result in criminal charges for tax fraud, they can result in an accuracy-related penalty equal to 20% of the underpayment. 

When this penalty is imposed, anyone could be caught off guard, which is why it’s critical to double-check all tax information before submitting it to the IRS to avoid federal tax evasion penalties. It’s also crucial to remember that you have the right to a qualified tax attorney, especially if you believe you’ve been charged with criminal tax fraud in error. But it’s important to note that there’s a difference between civil and criminal tax fraud.

What is the Maximum Penalty for Tax Evasion?

Tax evasion is one of the most common criminal tax offenses. Any person who willfully attempts in any manner to evade or defeat any tax or payment required by federal tax law is guilty under Internal Revenue Code I(IRC) 7201.

Furthermore, tax evasion is punishable by a fine of up to $100,000 ($500,000 for a corporation) and up to five years in prison. If convicted, the defendant may be ordered to pay the prosecution’s costs. This criminal tax offense involves more than making a simple error, forgetting to write something on your tax return, or having a mathematical mistake; tax evasion involves intentional fraud. And in case you’re wondering, penalties and interest are not tax deductible.

The prosecutor must generally prove the following beyond a reasonable doubt after a criminal investigation:

  • In addition to what the defendant declared, a large amount of income tax was due and payable;
  • The defendant made a conscious effort to avoid or defeat an income tax; and  
  • The defendant made a deliberate attempt to avoid paying the tax.

What is the Average Sentence for Tax Evasion?

Tax evasion is one of the serious tax crimes. To be convicted of tax evasion, you must be charged with a crime and the federal government must prove its case beyond a reasonable doubt.

As provided by the IRS:

“Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.

Common evasion schemes include:

  • Intentional understatement or omission of income;
  • Claiming fictitious or improper deductions;
  • False allocation of income;
  • Improper claims, credits, or exemptions; and/or
  • Concealment of assets.”

For tax evasion, the average sentence is 3-5 years in prison. Tax evasion is a serious tax crime that can result in hefty fines, jail time, or prison time. Tax evasion and associated offenses, such as fraud, are aggressively prosecuted by the US government.

Can the IRS Put You in Jail for Not Filing Taxes?

It could have begun innocently enough. Let’s say, you have failed to pay your taxes for one year. After then, one year went into several. Now, you don’t have the funds to pay your debts, and you’re wondering if you can go to jail for failing to pay your taxes. 

Maybe is the quick answer to that. Not submitting your taxes might land you in jail. For lying on your tax return, you might face jail time. You cannot, however, go to jail for not being able to pay your taxes.

As such, you won’t go to prison for making an honest mistake on your tax return. The majority of tax law infractions are civil, not criminal. If you are audited and it is discovered that you owe money, a civil judgment is entered against you to recover the balance.

Moreover, compared to non-filers who did not pay tax, the IRS is more lenient with those who file but didn’t able to pay. Late payment penalties are substantially higher than failure to file penalties. If you file your return, the IRS will not throw you in jail for not paying your taxes. You could spend one to five years in prison if you do the following things:

  • Tax Evasion: Any action made to evade tax assessment, such as filing a false tax return, can result in a five-year prison sentence.
  • Helping Someone Evade Taxes: Depending on the circumstances, assisting someone else in evading taxes can result in up to 5 years in prison.
  • Failure to File a Return: Failing to file a return can result in a one-year jail sentence for each year you fail to do so.

Realistically, the IRS will not pursue a criminal offense unless you commit a big error and refuse to correct it. The IRS will often not strike until you initiate it. If they decide to file charges against you, you can always seek assistance from a tax professional or organizations that provide tax defense services. 

They can assist you in navigating criminal charges and navigating legal procedures. When it comes to these situations, having a team on your side is usually beneficial.

When Does the IRS Pursue Criminal Charges

A tax evasion lawsuit will almost always begin with an IRS audit of a previously filed tax return. The IRS will look for mistakes and assess if you made them willingly and intentionally. If you have made large-scale errors over a long period of time, it indicates a pattern of willful evasion of taxes.

Aside from that, here are other things that the Internal Revenue Service will look for: 

  • Failure to report your income: Unreported income is a serious offense that could lead to criminal charges. This could include details about transactions such as your source of income, including side hustles. A lot of gig economy workers have been penalized by the IRS for failing to report their side hustle revenue on their tax returns.
  • Dodgy conduct: The IRS auditor will know you’re trying to escape taxes if you’ve made false claims or willfully hidden records from them.

Meanwhile, civil tax fraud penalties are only monetary in nature and do not lead to criminal charges. The following are examples of common civil offenses and penalties:

  • Failure to file a tax return fraudulently: 15% of the net tax owed for each month up to five months, with a maximum penalty of 75% of the unpaid tax.
  • Filing  a false tax return: 75 percent of the underpayment amount . 

The potential punishment for criminal tax fraud is directly related to the criminal offense you are facing. Some frequent crimes and penalties associated with criminal tax fraud include:

  • Tax evasion: entails a maximum penalty of five years in prison and a fine of $100,000 for individuals and $500,000 for businesses.
  • Willful failure to pay taxes, submit returns, or keep adequate records: This offence carries a maximum sentence of one year in prison and a fine of up to $25,000 for individuals and $100,000 for businesses.
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