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Can You Go to Jail for Not Paying Taxes?

It may have started innocently enough. You forgot to file or pay your income taxes one year. Then, one year turned into several years. You are now afraid to file because don't have the money to pay what you owe, and you're wondering if you can go to jail for not paying your federal taxes.

The short answer is maybe. You can go to jail for not filing your taxes and also for lying on your tax return. However, you can't go to jail for not having enough money to pay your taxes.

To better understand when you are risking jail time for not paying your taxes, we will take a closer look at civil and criminal penalties.

Tax Avoidance Is Legal

Tax avoidance is where you take steps to reduce your tax bill that are not prohibited by law. This can be anything from simply claiming deductions for which you are eligible to structuring the ownership of your business to reduce the taxes you will owe.

Tax avoidance is not a criminal or civil violation of the U.S. tax code. Additionally, making an honest mistake on your tax return will not land you in prison. In general, the Internal Revenue Service (IRS) does not initiate civil or criminal proceedings against taxpayers unless they intentionally violate U.S. tax laws.

Criminal vs. Civil Tax Penalties

You can only go to jail for not paying your taxes if criminal charges are filed and you are prosecuted and sentenced in a criminal proceeding. Criminal tax violations are clearly outlined in the tax code and criminal tax charges can only be brought for violations of those provisions.

When an IRS tax audit determines that you owe money, the IRS will take action to collect the tax due. If the IRS determines that you intentionally underpaid your taxes, you may only be subject to a civil tax fraud penalty of 75% of the underpayment that is attributed to your fraud.

Tax fraud is different than a taxpayer being confused by a tax form or placing numbers in the wrong line. In a civil tax fraud case, the IRS must show through clear and convincing evidence that you intentionally committed tax fraud.

It is important to note that the IRS can bring civil and criminal tax fraud charges against you for the same action.

Actions That Can Land You in Jail

The IRS is more forgiving with people who file their taxes but can't pay as opposed to non-filers who don't pay. Failure to file penalties are much more severe than late payment penalties. The IRS will not put you in jail for not being able to pay your taxes if you file your return. The actions can land you in jail include:

  • Tax Evasion: Any action taken to evade the assessment of a tax, such as filing a fraudulent return, can land you in prison for five years.
  • Failure to File a Return: Failing to file a return can land you in jail for one year for each year you didn't file by the due date.
  • Helping Someone Evade Taxes: Helping someone else get out of paying their taxes can result in imprisonment for up to five years, depending on the situation.

Statute of Limitations for Criminal Charges

If the government is going to file criminal charges against you for failing to pay your taxes, there is a limited time for doing so. Depending on the nature of the alleged wrongdoing, criminal charges must generally be filed within six years of the violation. However, there is no statute of limitations if you are facing civil charges of tax fraud.

The IRS also has a time limit on collections. In general, the IRS will not take collection action after 10 years from the date of the assessment. If you filed a return 10 years ago but never paid the associated taxes, you will not be criminally charged and the IRS will not try and collect on the unpaid taxes.

Can't Pay? Consider a Payment Plan

If you have more tax debt than you can afford to pay, you have better options than simply not paying. Some examples include:

  • Individual Installment Agreement: You can set up a plan that allows you to pay down your back taxes over time through regular monthly payments. You'll need to provide the IRS with detailed information on your assets, such as bank account information, investments, assets, and household expenses.
  • Offer In Compromise: This is an agreement between you and the IRS to settle your tax liability for less than the full amount owed. It's not offered when the IRS thinks you are able to pay down your debt through a payment plan. This determination is based on your reasonable collection potential.

Still Have Questions? Talk to a Tax Lawyer

Failing to comply with IRS or state taxation rules can result in serious civil and criminal penalties. The longer your taxes go unpaid the more serious the situation becomes, especially if you are the subject of an IRS audit or criminal investigation. 

If you have not filed a tax return or have filed a return that may include incorrect information and believe you owe money to the IRS, it's generally a good idea to contact a local tax attorney about resolving your tax problems. An experienced tax lawyer can advise you on how best to proceed in resolving your tax issues, be with you if you have a meeting with an IRS agent, and represent you in court.

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