Penalties for Tax Evasion
Tax evasion refers to any attempt to avoid payment of taxes owed using illegal means. Every citizen and business has the right to take lawful steps to decrease their tax liability, including tax deductions and charitable contributions. However, avoiding payment of necessary taxes through illegal measures is criminal and will lead to serious consequences.
The common forms of tax evasion are failing to report cash income, reporting less than actual income, hiding money in overseas accounts and improperly claiming tax deductions. Taking unauthorized deductions for personal expenses on a business tax return or falsely claiming (or inflating) charitable deductions are forms of tax evasion. Other types include filing a false tax return, omitting property, under reporting an estate’s value and overestimating the value of property donated to charity. Corporations may commit tax evasion by paying employees in cash and not filing proper returns.
After the Internal Revenue Service notifies the taxpayer of suspected criminal behavior with a letter, phone call or personal visit, an IRS agent can impose penalties immediately or deploy the Criminal Investigation Division to begin investigating. The CID will conduct a thorough investigation and has the right to contact friends, employers, co-workers, neighbors and the spouse of the suspected criminal. They may use a phone tap to track money that is moved to offshore accounts. To be found guilty in prosecution, the facts must declare that the defendant owed substantial income tax beyond what was declared on the tax return, and the defendant knowingly attempted to defeat or evade the tax.
Three crimes could be charged to a citizen or business evading taxes. Tax evasion is a broad category that includes any cheating on taxes owed to the government. This is a felony and carries up to a five-year prison sentence and/or fines up to $250,000 ($500,000 for corporations). Filing a false return occurs when a taxpayer has passed false or misleading information on the tax return as fact. This is also a felony and can carry a punishment of up to a three-year prison sentence and/or up to $250,000 in fines ($500,000 for corporations). Not filing a return at all is the least serious of the three, carrying a maximum of one year in prison and/or fines totaling up to $100,000 ($200,000 for corporations). In any case, you will be required to pay any and all taxes owed as well as all legal fees.
If the taxpayer comes forward and files amended tax returns of their own volition and begins to pay the debt, the IRS usually does not pursue criminal charges. Also, the IRS tends to be forgiving of those that volunteer late returns, instead of giving the IRS time to pursue the errant taxpayer.
Tax evasion is a crime, so the obvious preventative measure to avoid the crime is to follow the rules. If you are unable to file on time, request an extension through the IRS. If you still owe taxes from previous years, it is best to pay on this debt as quickly as possible. Even if you have not filed taxes in years, it is wise to begin filing now, before the IRS discovers the omission.