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IRS Criminal Penalties: Tax Evasion, Filing False Tax Return, Not Filing

Last year, 2,300 criminal tax convictions were made and 2,043 taxpayers were incarcerated. Incarceration refers to jail time, home confinement, and electronic monitoring.  Although civil penalties are normally assessed, in some cases, a taxpayer could experience criminal charges, fines and jail time. In rare cases, IRS auditors, or Revenue Agents, could report you to the Internal Revenue Service Criminal Investigation Unit. This happens many times without your knowledge. Whenever your case is handed over to the Criminal Investigation Department, other enforcement actions are typically paused.

Here are some common criminal penalties and/or consequences.

Filing a Fraudulent Return Penalty or Charge

It is a felony and a form of fraud. This is more common than tax evasion simply and less severe. It carries up to 3 years in prison, and up to $100k in fines.

Tax Evasion Penalty or Charge

This is a type of criminal felony whereby a taxpayer willfully uses illegal means to conceal or misrepresent financial details in order to evade tax laws and avoid paying taxes. If convicted, tax evasion carries up to 5 years in jail and up to $100k in fines. This is different than filing a false tax return.

Failing to File a Tax Return (Not Filing) Penalty or Charge

This is a misdemeanor, and normally civil tax penalties are assessed, instead of criminal. Although unlikely, you could face up to 1 year in jail and $25k in fines for each year you failed to file. One thing to note is that you can only face criminal charges for not filing a tax return (with civil penalties there is no time limit) if it was due no more than six years ago. As long as you file before the IRS contacts you, you are in the clear. This charge is more common than the former because the IRS only has to prove that you did not intend to file.

Willfully Failing to Pay Estimated Taxes or Keep Records

This is a misdemeanor, and normally civil tax penalties are assessed, instead of criminal. Although unlikely, you could face up to 1 year in jail and $25k in fines.

Realize that civil tax penalties for fraud are more likely than criminal penalties or consequences. In most cases, fraud is punished with civil penalties.

Willfully Failing to Disclose Offshore Bank Accounts

If the IRS can prove you willfully failed to disclose offshore bank accounts, you can face fines up to the greater of $124,588 per violation per year or 50% of the account balance at the time of the violation. Moreover, criminal prosecution can also take place with up to a five year prison sentence possible. A few years ago, the IRS offered the Voluntary Disclosure program for offshore tax evaders, and 15,000 taxpayers came forward. Those that came forward benefited from lower penalties and the avoidance of criminal prosecution.

If you are facing any of these charges or penalties, speak to one of our tax attorneys or professionals today.