Common Consequences of Tax Evasion

Tax evasion refers to deliberate omission of income on a tax return, the nonpayment of taxes owed or not filing a tax return altogether, to avoid having to pay taxes to the government. The federal government and Internal Revenue Service (IRS) have severe penalties for tax evasion in any form. (Tax evasion is not the same thing as tax avoidance, which is the practice of using legal methods [such as deductions and credits] to reduce the total tax owed.)

The IRS has thousands of agents working each year to audit tax returns for errors and find evidence of tax evasion. Even people who have done nothing wrong may find themselves subject to an audit. Remember that the IRS has the power to look at all financial records, to garnish wages, to freeze bank accounts and even to seize property to obtain the money owed.

The Penalties for Tax Evasion

If the IRS believes tax evasion has been committed, the suspected party will have the right to a hearing with the IRS. After the case is heard, if the IRS believes income was omitted or can prove taxes owed were not paid or that a return was not filed when it needed to be, the person can be convicted of a crime. Depending on the nature of the offense, the following convictions are possible:

  • Tax evasion—This felony conviction carries potential penalties of up to 5 years in prison and up to $100,000 in fines.
  • Filing a false return—This felony conviction can result in up to 3 years in prison and up to $100,000 in fines. For this conviction, the IRS has to prove only that the party did not include truthful information on the return. No proof that the party attempted to evade taxes is necessary for a conviction.
  • Failing to file a return—This misdemeanor conviction can bring up to 1 year in prison and a $25,000 fine for each year a return was not filed.
(Note that these penalties are subject to change.)

Avoiding Even the Appearance of Tax Evasion

Make sure all the information reported on your tax return is correct. Don't attempt to take deductions and credits that cannot be supported with the appropriate receipts and tax forms.

If you file your own taxes, look over the forms and supporting documents for accuracy. If you have someone else calculate and file your taxes, realize the preparer assumes no liability for error. Some companies offer protection in the event of an audit for a fee. If you are worried about an audit, you may want to invest in this protection.

As long as you can prove your income and your eligibility for credits and as long as you have receipts to justify deductions, there should be no problem. Make payments on time as required, and if you cannot meet the normal deadlines, make arrangements to stay in good standing with the IRS.

Get Legal Help

If you are suspected of tax evasion, do not attempt to deal with the IRS on your own. Retain the services of a tax attorney who is experienced with cases like yours.

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