Tax Evasion Penalties Including Prison & Other Criminal Punishment

tax evasion penalties

While all Americans can take steps to minimize their tax liability by taking advantage of existing tax laws and regulations, acting intentionally and illegally in order to avoid paying taxes is tax evasion. In contrast with legally claiming deductions to which they are entitled on their tax returns, people who commit criminal tax evasion break the law, usually by failing to report all of their income, or by claiming certain deductions on their tax returns to which they are not entitled.

Criminal Tax Evasion

In the United States, tax evasion is a criminal activity, with significant criminal penalties. The federal tax evasion statute is located at Sec. 7201 of the Internal Revenue Code, which states the legal definition of tax evasion:

    “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”

In order to prove that a person has committed tax evasion, the prosecution must prove the following elements beyond a reasonable doubt:

  • an unpaid tax liability exists,
  • the taxpayer has acted in any manner so as to evade the tax, and
  • the taxpayer intended to violate a known legal duty.

A person who is guilty of tax evasion will be liable for the original amount of the income tax due, as well as interest and penalties. Additionally, a person who commits tax evasion faces serious criminal implications, including the lifelong stigma of a felony conviction, substantial fines, and even incarceration.

Facing Federal Prosecution for Tax Evasion

A federal prosecution for income tax evasion starts with a thorough investigation by the Criminal Investigation Division (CID) of the IRS. It is not unusual for tax evasion investigations to last for one year or more. CID is responsible for thoroughly investigating your case, and determining whether it is appropriate to send your case on to the Tax Division of the U.S. Department of Justice for prosecution. The U.S. Department of Justice, which is the body that prosecutes federal crimes, usually holds a grand jury, which can indict, or formally charge a person with the crime of tax evasion under federal law. There is a six-year statute of limitations on federal tax evasion. This means that the U.S. Department of Justice has up to six years from the time of the tax evasion was committed within which to prosecute you for tax evasion.

If the Justice Department decides to accept your case for tax evasion, an assistant U.S. attorney will present your case before a grand jury. If the grand jury hands down an indictment, or a formal charge of tax evasion against you, law enforcement authorities can arrest you. Next, you must post bail as specified by the federal court, or the court may release you without paying bail, depending on the circumstances. At this point, you should be sure to seek the assistance of a criminal defense attorney who is experienced in federal tax evasion crimes.

Criminal Tax Evasion Punishment

Tax evasion is a serious crime that results in a felony conviction under federal law. The punishment for a federal tax evasion conviction is a sentence of incarceration for no more than five years, and a fine of no more than $100,000. As you can see, the penalties for tax evasion are quite significant, and the felony conviction will remain on your criminal record for life. Aside from the obvious disadvantages of being in jail for tax evasion, a felony conviction can prevent you from working in certain industries and at particular jobs, and can negatively affect your rights in other ways, as well.

Civil Tax Evasion Penalties

In addition to the criminal penalties detailed above, a person convicted of tax evasion also is still responsible for the actual tax owed to the IRS, plus interest and penalties allowable under federal law for the past-due tax obligation. The IRS charges interest and penalties on any tax obligation that a taxpayer fails to pay when due. If a tax debt is several years old, then, the interest and penalties can reach substantial amounts. For example, if you fail to file a tax return at all and you owe taxes, the IRS can assess a penalty of 5% per month, up to a maximum of 25% (failure to file tax penalty). Plus, the amount of the interest and penalties is based on the amount of tax due, and the nature of the tax evasion. For example, a taxpayer with significant tax debts will face higher amounts of interest and penalties than a taxpayer who owes a small tax debt. Likewise, a taxpayer who fails to file a tax return altogether, which is tax evasion, faces higher rates of civil penalties than a taxpayer who files a tax return, but simply fails to pay the tax due in a timely fashion, which may not rise to the level of tax evasion. While there is a six-year statute of limitations or time limit on filing criminal tax evasion charges, there is no time limit on the IRS attempting to collect tax owed by you, or the interest and penalties owed for past-due taxes.

Incidence of Criminal Tax Evasion Charges

As a practical matter, CID investigates very few cases for suspected tax evasion, and the U.S. Department of Justice prosecutes even fewer cases for tax evasion. The amount of resources necessary to conducting a full investigation by CID, gathering sufficient evidence, and prosecuting a person for tax evasion is enormous. As a result, the U.S. Department of Justice tends to prosecute only those cases that involve significant tax liabilities, high profile people or businesses, and airtight evidence showing criminal tax evasion has occurred.

Tax Evasion Help & Related Articles

IRS Tax Evasion
Tax evasion is when a person, company, or other entity uses illegal means to avoid paying taxes. See specific examples of tax evasion and how to identify

IRS Tax Fraud Penalties
Tax fraud is a serious offense in the eyes of the IRS. The IRS has many different classifications of tax fraud and different penalties for each type.

Back Taxes Solutions
Settle IRS back taxes for a fraction of what is owed if you can prove you meet strict IRS specifications.

File Back Taxes
Setting up a payment plan with the IRS can sometimes be the easiest solution to dealing with back taxes. See what payment plan fits your situation the best..

When To Use A Tax Professional
Tax Professionals can be the best option for many people when dealing with a lot of money and complex tax problems.

When To Use A Tax Attorney
Tax Professionals can be the best option for many people when dealing with a lot of money and complex tax problems.

What Is an Enrolled Agent? When Should You Use One?
Tax Professionals can be the best option for many people when dealing with a lot of money and complex tax problems.