Most people are guilty of putting off filing their tax returns at least once in their lives. In some cases, stress or personal issues can cause us to completely miss the deadline for filing. Taxation can be a source of anxiety for many, but can you really go to jail for not filing or paying your taxes?
The simple answer is, usually not, but it depends on why you’ve failed to file or pay your taxes.
The IRS won’t send you to prison because you simply forgot to file your taxes or because you can’t afford to pay. However, you could potentially face jail time and hefty penalties if you willfully commit tax evasion or fraud.
If you’re having trouble with the IRS, the best step you can take is to get professional legal help as soon as possible. Speak to our team at Wiggam Law today and enjoy the peace of mind that comes with guidance from genuine experts.
What Happens if You Don’t File Taxes?
It’s true that you can go to prison for not filing or paying your taxes. But the circumstances have to be quite extreme for that to happen.
If you simply forgot to file for a single tax year or even a few years, that’s not a serious criminal situation, and you’ll simply be asked to pay back those taxes plus interest and late filing/payment penalties. However, if you don’t file in an attempt to evade taxes intentionally, you can face significant financial penalties and, in extreme cases, jail time.
Failure to file taxes isn’t necessarily considered a crime. However, you will accrue interest and penalties on top of requests to pay back the taxes that you owe, and the IRS may take involuntary collection actions against you. Whether or not you could be charged legally for failing to file depends on your situation’s particulars and, specifically, whether or not you intentionally didn’t file to evade taxes.
What Happens if You Don’t Pay Taxes?
If you fail to pay your taxes for a particular year or even several years, you’ll incur late payment penalties on top of the tax you owe. Again, the vast majority of cases are resolved by simply paying back the penalties and taxes you owe. The IRS will only pursue legal action if they suspect you are committing criminal tax fraud.
That said, the IRS can use a wide range of collection actions to recoup the money you owe them, including the seizure of assets and garnishing income. But even in these circumstances, the possibility of facing jail time is reserved only for serious criminal cases of tax fraud.
What Tax Crimes Can Lead to Jail Time?
Tax fraud and tax evasion are the two tax crimes that could potentially lead to jail time or a prison sentence. Tax fraud is when you intentionally commit acts to avoid paying taxes. Tax evasion falls under the legal umbrella of tax fraud and refers to deliberately attempting to deceive the IRS to avoid paying or filing taxes you owe.
Penalties for Tax Fraud
Tax fraud or tax evasion charges can lead to fines of up to $250,000 for individuals and $500,000 for corporations. Those convicted of these crimes can also face up to five years in prison, per conviction.
While you can be fined and imprisoned for committing tax fraud, which includes lying about your income on a tax return, that only happens if the IRS pursues a criminal judgment against you. More often than not, the IRS uses civil judgments to pursue taxes owed.
Failure to File
While failure to file can potentially fall under the legal umbrella of tax evasion, you can’t be sent to prison simply because you can’t afford to pay your taxes or you forgot about a tax deadline. However, you may face penalties and other financial charges for unfiled tax returns.
What’s the Difference Between Civil & Criminal Judgements?
In law, there are different categories of judgments that courts can make. A civil judgment results from a civil lawsuit and generally determines that one party owes a certain amount of money to another. You can’t go to prison as the result of a civil judgment.
You can, however, go to jail for a criminal judgment against you. But it’s important to note that you won’t face jail time for making an honest error on your tax return. Most legal cases relating to taxation are considered civil cases, not criminal.
A civil judgment in favor of the IRS against a taxpayer allows the IRS to take collection actions. Depending on the extent of the situation, including how much money you owe, the IRS may seize assets, garnish wages, or issue liens against your property. But you won’t be sent to prison.
However, if a taxpayer is found responsible for civil charges that include fraud or tax evasion, the IRS may have grounds to go a step further and file criminal charges. From there on, those found guilty could face criminal penalties, including fines and jail or prison time.
Who Goes to Prison for Tax Crimes?
Plenty of celebrities have served jail time for tax evasion, including Wesley Snipes, Lauryn Hill, and even Chuck Berry. Many others, such as Willie Nelson and Nicholas Cage, have faced considerable fines and liens with the IRS.
But you’ll also find plenty of cases where regular taxpayers have faced jail time for tax crimes. Here are a few recent examples:
- A man in Texas was sentenced to 30 months in prison for embezzling funds from his employer over a seven-year period and for filing a false tax return. He was also judged to owe almost $900,000 in restitution.
- Two Florida businessmen were sentenced to 18 months and nine months in prison, respectively, for attempting to evade over $1.1 million in income taxes.
- A Maryland security guard was sentenced to 24 months in prison for tax evasion, failing to report over $1.6 million in income tax between 2011 and 2020. He was also ordered to pay restitution of $219,167.
While it takes an extreme situation to end up with a criminal charge for tax fraud, these cases are not uncommon. The Tax Division of the Justice Department posts press releases regarding major criminal tax case results almost daily.
Can an Audit Lead to Jail Time?
While it is possible, most IRS audits don’t lead to tax crime charges. Even if you face an audit and made some mistakes on your return, the IRS will adjust the return and assess the tax due. You’ll then be requested to pay the adjusted balance, or you can dispute the tax assessment within certain deadlines. If you miss those deadlines, you can request an audit reconsideration if you disagree with the IRS’ decision.
An audit will only lead to jail time if you’ve been intentionally reporting false income levels or otherwise taking intentional steps to avoid paying the true amount of taxes you owe.
What are the chances of being audited by the IRS?
The IRS conducts randomized audits generally based on income levels. You’re most likely to be audited if you report no income or if you report over $5 million in income in any given year.
Based on 2022 data, taxpayers reporting incomes ranging from $1 to $500,000 have a 0.5% chance of facing a random audit. Once you get above that threshold, your audit risk increases incrementally until it passes 8% for people who report $10 million or more in income.
Generally speaking, most people’s chances of being selected for random IRS audits are extremely low. The IRS uses complex data analysis to select taxpayers for audit who they believe have a tax issue.
Can you go to jail for not filing taxes?
If you intentionally choose not to file to avoid paying taxes, yes.
Can you go to jail for not paying your taxes?
Yes, you can be imprisoned for failing to pay your taxes. However, for this to happen, the government must prove you acted with criminal intent. In most cases, you can avoid both civil and criminal charges by agreeing to pay back the taxes you owe, including any penalties issued.
What if I report illegal income?
According to the IRS’s tax code, taxpayers must report all income, including that earned from illegal sources. For example, if you earn money from selling drugs or other illicit goods or if you embezzle from your employer, you are legally obliged to report that income.
But what happens if you actually report illegal income? The answer is, it’s complicated. Generally, the rule is that you must report illegal income, but you don’t necessarily have to incriminate yourself by revealing its source.
Illegal income is obviously not likely to be reported, but if the IRS catches wind of your unreported income, you may be charged with tax evasion in a criminal court. For example, this is why Al Capone was sent to jail. He incurred criminal tax evasion charges for not paying income tax on his illegal income.
What are the statutes for the IRS charging a criminal case?
The statute of limitations for tax assessment is usually three years after the date you filed your return, except for cases where more than 25% of your income was omitted from your return. In that case, the IRS has a statute of six years. However, if fraudulent, fake, or unfiled tax returns are involved, the IRS has an unlimited amount of time to bring forward charges.
The statute of limitations for tax crimes is six years.
Getting Help with Unfiled & Unpaid Taxes
Unfiled and unpaid taxes can quickly become a heavy burden, both financially and mentally. If you’re worried about unfiled returns or unreported income or just made a simple mistake on a tax return, you may need legal help from tax professionals.
At Wiggam Law, we’ve got the expertise you need to help solve your tax issues without judgment. To learn more, call us at (404) 233-9800 or schedule a consultation. Our tax attorneys will help you regain your peace of mind and get back on track with the IRS.