What You Need To Know To Navigate the Consequences of Tax Evasion

Not many people enjoy paying taxes, but most do it anyway. If you don’t, you expose yourself to hefty fines, property seizures, and even prison time. Whether you face criminal charges or civil penalties depends primarily on your intent.

This post covers how the IRS defines tax evasion, what behaviors constitute tax evasion, and how to navigate the potential consequences of tax evasion.

What Constitutes Tax Evasion?

Tax evasion is when an individual or business intentionally and illegally avoids paying their tax obligations.

You may think the IRS won’t know how much you owe unless you report all of your income on your tax return. However, the agency also receives information from other sources, such as W-2s from employers and 1099s from clients. 

Thankfully, not every failure to pay taxes constitutes tax evasion. Tax evasion is sometimes confused with other tax issues, such as the following: 

Tax Evasion vs. Tax Errors

US tax laws are complicated and offer plenty of opportunities for mistakes, leading to substantial consequences of tax evasion. The difference between tax evasion and tax errors is typically one of intent. If you accidentally pay less than you owe due to a reasonable error, the IRS is unlikely to consider it tax evasion. However, even innocent mistakes may trigger IRS penalties, so it’s important to understand your tax liabilities.

Tax Evasion vs. Tax Avoidance

Tax avoidance is when an individual or business takes advantage of legal opportunities to pay less in taxes. Examples include donating to a charity or putting income in a qualifying retirement account. Tax evasion differs from tax avoidance because it involves using illegal rather than legal means to avoid taxes.

Tax Evasion vs. Tax Fraud

While many people use the terms interchangeably, the IRS treats tax evasion and tax fraud differently. The maximum penalties for tax evasion are more severe than for tax fraud. Tax fraud can be a civil or criminal offense, whereas tax evasion is a felony. 

Examples of Tax Evasion

People evade taxes in a variety of ways, including the following:

• Failing to report all income received during the year
• Reporting that someone else owns your assets
• Claiming residency in another state
• Keeping two sets of books for your business
• Claiming dependents or credits you’re not entitled to

Potential Consequences of Tax Evasion

Tax evasion is a serious criminal offense that comes with the following potential penalties: 

• Imprisonment: Tax evaders face up to five years in federal prison.
• Fines: Fines can reach $250,000 for individuals and $500,000 for corporations.
• Both: Punishment may require both a fine and prison time.
• Interest: The IRS charges interest from the due date of your tax return until you pay your debt.
• Loss of benefits: The government can take 15% of your Social Security benefits each month until you pay what you owe.
• Liens and levies: The IRS may attach a tax lien on your property (which can prevent you from selling it) or a tax levy (which gives them the right to sell it to satisfy your debt).

Need a Tax Attorney? Contact Levy & Associates Today

Are you currently under investigation for failing to pay your taxes? Do you have questions about whether your actions could qualify as tax evasion? If so, contact Levy & Associates today. The consequences of tax evasion can be harsh, and you need an experienced tax attorney.

Founded in the 1960s, Levy & Associates offers tax resolution services across the United States. Our staff includes attorneys, CPAs, and former IRS revenue officers to help you resolve your tax troubles effectively and efficiently.

Call 800.TAX.LEVY or contact us online 24/7, and a team member will respond promptly.