Can the IRS Send Me to Jail for Unpaid Taxes? Understanding Civil vs. Criminal Tax Penalties

If you received a tax bill in the mail from the IRS, you may be wondering what could happen if you cannot pay your bill. You may ask yourself, “Can the IRS send me to jail for unpaid taxes?”

In short, no, the IRS will not send you to jail just because you do not have the money to pay your tax debt. However, you may face other severe penalties for unpaid tax debt that could drastically affect your livelihood and lifestyle. Additionally, there are a few tax-related offenses that do land people in jail.

Read on to learn more about tax penalties, what tax crimes end in jail time, and how you can avoid any further punishments for your tax debt.

Is Jail a Possibility for Those Who Don’t Pay Tax Debt?

Rest assured, the IRS does not send people to jail for being unable to pay their tax debt. Instead, the IRS typically reserves jail penalties for people who fail to file their tax returns at all or who attempt tax fraud. This means that if you received a tax bill in the mail, you are probably not at risk of facing any jail time.

Civil vs. Criminal Tax Penalties

Most IRS tax penalties are civil penalties, not criminal. The IRS knows that taxes can be confusing and that people often make honest mistakes when filing their taxes. As long as you did not purposefully evade your taxes or attempt fraudulent activity surrounding your tax payments, you will not receive any criminal charges or jail time.

Instead, failing to pay tax debt will likely land you with a civil penalty, which is a financial penalty from a government agency. Because civil penalties do not correspond to criminal behavior, these penalties will not appear on your criminal record.

Once you resolve any civil penalties from the IRS—typically by paying your tax debt—you probably will not face any lingering consequences from the penalty. In most cases, tax penalties do not even appear on credit reports or impact consumer credit scores.

Tax Actions that Can Lead to Jail Time

While failing to pay tax debt will not land you in jail, other tax offenses might. Specifically, the following activities could lead to criminal charges that end with a jail or prison sentence:

●        Tax evasion: When individuals or businesses avoid paying taxes through illegal means, they attempt tax evasion. Companies sometimes evade their taxes by misrepresenting their income on their tax returns.

●        Aiding and abetting tax evasion: When individuals assist or participate in tax evasion schemes carried out by other individuals, they may receive criminal charges for “aiding and abetting tax evasion.” This crime can lead to up to five years in federal prison.

●       Tax fraud: Tax fraud is the attempt to avoid paying one’s full tax obligation by cheating on a tax return or failing to file a return altogether. Tax fraud goes beyond a simple tax mistake and involves willful activity to avoid tax obligations.

 As you can see, making a simple error on your tax return or being unable to come up with the funds to pay a tax bill will not result in jail time. Jail-related penalties are reserved for individuals who attempt to avoid their taxes altogether or help someone else do so.

Potential Penalties for Unpaid Taxes

The IRS commonly issues levies against taxpayers who owe unpaid tax debt and fail to make arrangements to repay their debt. A levy is a seizure of one’s property. The IRS can seize your physical property, such as your car, house, or jewelry to pay back your tax debt. It can also levy your wages, freeze your bank account, or reduce any federal payments.

How to Avoid IRS Penalties

Even though you probably will not face jail time for unpaid taxes, the consequences of tax debt can still be severe. You should do everything you can to settle your tax debt before the IRS takes more forceful action to resolve the debt for you.

The IRS offers a tax resolution program, known as the IRS Fresh Start Program. You may be eligible for one of the following tax relief solutions through this program:

Installment Agreement

An installment agreement is a plan to repay your tax debt over time. If the IRS agrees to allow you to use an installment agreement plan, you can extend your tax deadline, avoiding a harsher tax penalty.

Offer in Compromise

If paying your tax debt would place you in legitimate financial hardship, you may be able to qualify for an offer in compromise to reduce or even eliminate your debt. The IRS will consider your income, expenses, asset equity, and ability to pay to determine your eligibility for this offer.

Interest Abatement

If you have not received any previous tax penalties and have a payment plan in place, the IRS may reduce or eliminate interest on your tax bill.

If you owe unpaid tax debt, looking into all your resolution options can help you repay your debt quickly and avoid future penalties. At Levy & Associates, we have spent years helping taxpayers resolve IRS tax debt. We can look into your case and help you develop a strategic plan to pay your back taxes and avoid tax debt in the future.

Contact our team at Levy & Associates today at 800-TAX-LEVY to schedule an appointment.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.