Wondering what happens if you don’t pay your taxes? It’s important to understand that there are three types of tax evasion: Willful tax evasion means doing any of the following on purpose, not paying all the taxes you owe, or paying less than what you owe by lying on your return or other tax forms. Here’s what you need to know if you haven’t paid your taxes. Discover what tax evasion and tax fraud are. You’ll also discover the difference between tax evasion and tax avoidance are, as well as tax evasion FAQs.
What Is Tax Evasion?
The term tax evasion generally refers to any behavior that is meant to illegally reduce taxes. Generally, tax evasion falls into one of two categories: fraudulent or non-fraudulent. Fraudulent tax evasion involves lying on your taxes in order to pay less than you should have to.
On the other hand, non-fraudulent tax evasion occurs when you fail to report income. Usually, it’s illegal and unreported (drug sales and taking cash under the table are common examples). Tax evasion is most commonly charged as a felony and carries severe penalties, including prison time and large fines.
Any person who, in any way, purposefully tries to escape or prevent paying a tax is guilty of tax fraud. Among the many kinds of tax fraud is tax evasion. It’s defined as not disclosing one’s income or incorrectly reporting their expenses.
The Difference Between Tax Evasion And Tax Avoidance
By claiming certain deductions and charitable contributions, you can reduce your tax liability. However, there is no way to get out of paying what you owe.
If you think tax evasion is tax avoidance, the former is illegal. The latter is perfectly legal—provided you claim valid deductions as the IRS stipulates. Tax evasion is categorically equivalent to tax fraud because the end goal is always to circumvent taxes.
Now, tax avoidance may also be achieved by prioritizing investments that have tax advantages, such as buying tax-free municipal bonds. Tax avoidance is not the same as tax evasion. Tax evasion relies on illegal methods such as underreporting income and falsifying deductions.
What Are The Penalties For Tax Evasion and Tax Fraud
Refusing to file your taxes, submitting false tax returns, making dishonest claims, and failing to declare your full income are examples of committing tax fraud or evasion. If you are caught committing either of the two, you can expect to be subject to a tax audit soon.
Unless you’ve done something wrong, you have nothing to worry about if you are audited by the IRS. However, if you have done something wrong, like cheating and you owe taxes, there is something to worry about.
What You Need To Know About Penalties
If a taxpayer doesn’t file a tax return, he or she will face a year in prison and up to $100,000 in fines. Additionally, they would still have to pay the money owed to the government and legal fees.
Now, you could be put in jail for a maximum of 10 years and given $250,000 in fines if you are convicted of conspiring to defraud someone for a false refund.
Filing or preparing a false tax return is punishable by up to three years in prison and up to $250,000 in fines.
Potential penalties for tax evasion, failure to pay taxes, conspiracy to commit a tax offense, or conspiracy to defraud are a maximum of five years in prison and a $250,000 fine.
For taxpayers, it’s important to note that when it comes to intentional evading paying income taxes. You could be subject to the possibility of incurring civil penalties, in addition to whatever taxes are owed.
This civil penalty could be 75% of the unpaid tax, plus the consequences of a more stiff criminal penalty.
Tax Evasion Penalty Structure
Now, there are different degrees of tax evasion.
Civil fraud, in other words, if the IRS suspects you have committed tax evasion, but it is not considered criminal, you could be fined up to 75% of the unpaid taxes attributed to fraud.
Fraud crimes: If you didn’t pay your taxes and it’s criminal, you could face court fines, prison time, or both.
If the IRS thinks you neglected to file or pay taxes, they can issue a tax penalty of 20% of the portion of the unpaid taxes attributable to your neglect.
The first two offenses, if they result in the apprehension of an individual and charges, are punishable with up to three years of imprisonment or fines and deprivation of public service. The civil or criminal classification has to do with the level of evidence, or proof, necessary to find someone guilty.
Civil fraud cases require the government to prove fraud with clear and convincing evidence. Criminal fraud cases require the government to present sufficient evidence to prove guilt beyond a reasonable doubt.
Tax Evasion FAQs
There are a lot of questions surrounding tax evasion. Here are some of our tax evasion FAQs.
1) Tax evasion is a crime, can I go to jail?
Yes, it is possible to go to jail for tax evasion, but usually not for failing to file or for underpaying your taxes. Instead you could be arrested for hiding or falsifying documents in an attempt to evade taxes by creating a greater tax liability than actually exists.
2) Do I need a lawyer?
No, you don’t need a lawyer, but some people choose to hire one in order to deal with any questions they have about how everything works and how things will progress through the court if they get charged with tax evasion.
3) If I’m audited, can I challenge the audit?
You have the right to dispute the results of an IRS audit if you disagree with them. Hiring an attorney or CPA can help prepare your defense, since tax avoidance and tax evasion are both federal crimes.
4) What’s the average length of an audit?
An audit lasts as long as it needs to, which will vary by what the type and complexity is, how much information you are able to provide, and how accepting or rejecting you are of the audit findings. But it is important to note that there is no one standard audit length. Keep your necessary receipts to lessen the audit time if necessary.
5) If you don’t file your taxes, what will happen?
Failing to file taxes could mean you get slapped with a penalty for not filing, as well as get interest tacked on for not paying them in time. Worst-case scenario, you could go to jail and end up with high fines.
Final Thoughts
As you can see, the penalties for not paying your taxes in the U.S. are quite severe, so it’s crucial that you come up with a strategy for staying on top of your financial obligations as soon as possible. Also, be sure to consult an accountant about strategies for reducing your tax burden and keeping a closer eye on your finances; there are many ways to take advantage of the tax laws without getting into trouble! And remember, even if you’re sure that you won’t be able to pay everything at once: always file those returns and don’t let yourself fall behind on the payments.
