The images on T.V. are powerful. The media depicts a famous celebrity or former professional athlete being escorted away in handcuffs for failure to pay taxes. You think, if it happened to them it surely can happen to me as well.
Is there any truth to the threats from the IRS about fines or jail time for owing back taxes? What about if discrepancies are found in an audit? What exactly are the penalties or punishments for a tax audit?
Owing vs. Cheating on Tax Audits
Proper tax education goes a long way. The truth is no one in the United States gets locked up for owing taxes. The only way you can get arrested and sent to jail is if the IRS proves you cheated on your taxes or evaded paying them. There is a huge difference between owing and cheating on taxes, with most cases of audits being a result of the first example more than the latter.
The rare, high profile cases you see on T.V. that involve celebrities evading taxes are not very common with the IRS. It is not easy for the IRS to prove tax fraud, and in order to do it, it generally requires a costly and timely court case which the IRS is not going to pursue in every single audit.
The analogy that the IRS only goes after the “big fish” has truth to it, at least in terms of potential jail time, yet that does not mean that you should regard an audit lightly.
It is important that you understand tax laws to avoid any trouble or hassle. Penalties related to a tax audit are sometimes stiff, with jail time being the least of your problems.
The IRS cannot legally seize anything you own without proper notice and presenting an opportunity for you to challenge any claims. When an audit assumes that taxes were miscalculated and you still owe money, the traditional route is a written notice that will be sent with the options to resolve the settlement.
Audit penalties are sometimes severe, they may include:
- Interest and late fees charged on back taxes
- Income from personal or business bank accounts deducted by the IRS
- Wage garnishments
- Seizure of assets like a car or house
Tax Education: Will you spend time in jail?
The IRS cannot imprison someone that files taxes yet doesn’t have the means to financially pay them. The only way you face harsh punishment is if you purposely evaded or cheated to avoid paying taxes.
Thankfully, there are many ways to avoid serious audit punishments. The IRS will work with individuals well versed in tax education if they owe back taxes.
In worst case scenarios, taking the IRS to court immediately halts any collections until the case is settled—and taking the IRS to court can take years. In more common situations where the individual does not want to fight the money owed but needs help, the IRS can offer payment plans, withhold more taxes from a current employer, or even squash some of the back taxes owed.
Can you go to jail as a result of an audit? The answer is probably not. The IRS is only going to go after the most serious tax crimes with the possibility of imprisonment, and those cases only happen when the individual had been proven to have cheated or evaded taxes for years.
In almost any other instance, the greater risk is losing finances or other assets like a car or house because the IRS cannot put you in prison for owing taxes you cannot afford to pay.
Learn more about your tax rights and representation for a tax audit by contacting Levy & Associates by visiting our website.