Definition. Tax evasion is the illegal non-payment or under-payment of taxes, usually by deliberately making a false declaration or no declaration to tax authorities – such as by declaring less income, profits or gains than the amounts actually earned, or by overstating deductions.
However, if your income is below a certain cut-off amount, which for 2016 federal income tax returns was $10,350 for a single individual, then you have no legal duty to file a tax return and therefore you could not be said to have committed tax fraud or tax evasion.
If the government is going to file criminal charges against you for failing to pay your taxes, there is a limited time to file charges. Depending on the exact nature of the alleged wrongdoing, criminal charges are generally filed within 6 years of the violation.
But here's the reality: Very few taxpayers go to jail for tax evasion. In 2015, the IRS indicted only 1,330 taxpayers out of 150 million for legal-source tax evasion (as opposed to illegal activity or narcotics). The IRS mainly targets people who understate what they owe.
You cannot go to jail for making a mistake or filing your tax return incorrectly. However, if your taxes are wrong by design and you intentionally leave off items that should be included, the IRS can look at that action as fraudulent, and a criminal suit can be instituted against you.
The IRS recognizes two different forms of tax evasion: evasion of assessment and evasion of payment. If a person transfers assets to prevent the IRS from determining their true tax liability, they have attempted to evade assessment.
IRS computers have become more sophisticated than simply matching and filtering taxpayer information. It is believed that the IRS can track such information as medical records, credit card transactions, and other electronic information and that it is using this added data to find tax cheats.
Lying on your tax returns can result in fines and penalties from the IRS, and can even result in jail time.
If you get audited and don't have receipts or additional proofs? Well, the Internal Revenue Service may disallow your deductions for the expenses. This often leads to gross income deductions from the IRS before calculating your tax bracket.
Failing to file tax returns. Having bank deposits that far surpass the taxpayer's reported income. Omitting or understating income. Reporting sales less than the sum of your 1099's.
How do I know if HMRC is investigating me? Every tax investigation starts with a brown envelope marked 'HMRC' falling through your letterbox. Your company records will face varying degrees of scrutiny, depending on the reason the investigation has been launched.
Remember that the IRS will catch many errors itself
For example, if the mistake you realize you've made has to do with math, it's no big deal: The IRS will catch and automatically fix simple addition or subtraction errors. And if you forgot to send in a document, the IRS will usually reach out in writing to request it.
Information statement matching: The IRS receives copies of income-reporting statements (such as forms 1099, W-2, K-1, etc.) sent to you. It then uses automated computer programs to match this information to your individual tax return to ensure the income reported on these statements is reported on your tax return.
Tax audit triggers: You didn't report all of your income. You took the home office deduction. You reported several years of business losses. You had unusually large business expenses.
Audit rates sharply spike for taxpayers with an annual income of more than $500,000. In fact, wealthy taxpayers with annual income of at least $10 million have the highest audit rate of all groups, at more than 6%.
Last year out of over 160 million individual income tax returns that were filed, the IRS audited 659,003 – or just 4 out of every 1,000 returns filed (0.4%). This was only slightly lower than the overall odds of audit from FY 2019, and above FY 2020 levels where just 3 out of every 1,000 returns filed were examined.
Tax evasion is a felony, the most serious type of crime. The maximum prison sentence is five years; the maximum fine is $100,000. (Internal Revenue Code § 7201.) Filing a false return.
Revenue agents and revenue officers usually call or send a letter before they show up at your home or business. That's standard operating procedure, so that they spend their time productively with you. Special agents can show up unannounced.
And for good reason—failing to pay your taxes can lead to hefty fines and increased financial problems. But, failing to pay your taxes won't actually put you in jail. In fact, the IRS cannot send you to jail, or file criminal charges against you, for failing to pay your taxes.