Can You Go to Jail for Not Filing Taxes?

Most people know that having unpaid taxes is a serious problem. The fees and penalties can add up, significantly increasing the amount you owe the government.

The good news is that owing back taxes is typically not a criminal offense. But, this doesn’t mean that you’ll be immune from a criminal investigation. If you attempt to avoid paying your taxes, you may face charges for criminal tax evasion.

For example, if you don’t file tax returns for several years, the government will want to know why. If the government selects you for an IRS audit and finds that you have committed criminal tax fraud, the penalties are pretty severe.

Here, we’ll explain what happens to people who commit tax crimes. Specifically, we’ll discuss whether you can go to jail for not filing taxes.

What Is Tax Evasion?

You don’t have to be an expert in tax law to know that not filing income taxes is illegal. Regardless of the amount of tax you owe, the law requires that you file a tax return every year that you earn income. If you fail to do this, you may face tax evasion charges.

Tax evasion involves the nonpayment and underpayment of taxes through illegal means. The IRS must show that you acted intentionally to be found guilty of tax evasion. The government doesn’t pursue criminal charges against someone who underpays their taxes by honest mistake or due to a reasonable error. 

Generally, the IRS cannot send you to jail for late filing. Tax evasion requires that you intentionally file taxes or lie on your tax return.

In most tax evasion cases, the government must show that you falsified your tax return or submitted false documents to the Internal Revenue Service. The government must also show that you did this to underreport your income or otherwise reduce your tax bill.

Common Types of Tax Evasion

As stated above, forgetting to file your tax return on time or having unfiled returns does not constitute tax evasion. Nor is it illegal to make an honest mistake on your return. Tax evasion involves deliberately avoiding paying taxes or paying less than you actually owe.

Some common examples of tax evasion include:

• Unreported income
• Deliberately overstating expenses or deductions
• Claiming illegitimate tax credits
• Not filing income tax returns when you have taxable income
• Filing a false tax return
• Not claiming self-employment income
• Falsifying information on your return to get a larger tax refund

If you engage in any of these, there’s a good chance the IRS will conduct an audit and assess late fees, interest, and tax penalties. They may also file criminal charges against you for tax evasion. If this happens, you’ll face a possible prison sentence in addition to the financial penalties.

Tax Evasion vs. Tax Avoidance

Tax evasion is different than tax avoidance. Tax avoidance is when a taxpayer takes legal steps to reduce their tax bill by structuring their finances or asset ownership in a manner that lowers their tax bill.

If you have any questions about whether the IRS will view your efforts at tax avoidance as tax evasion, contact a local tax attorney for legal advice. You can also consult a tax professional to review your tax returns and help prevent tax issues.

Tax Evasion vs. Tax Fraud

People often use the terms tax evasion and tax fraud interchangeably, but they are entirely different crimes. Under the U.S. Tax Code, individuals or entities who commit tax fraud may face civil and criminal fraud penalties.

However, the government treats tax evasion as a criminal act. That means you may face jail time and harsh financial penalties.

Tax Evasion Penalties

There is a long list of potential penalties and consequences for tax evasion. In the grand scheme of things, you’ll be better off reporting your actual income and paying your tax liability.

If you engage in tax evasion or tax fraud, you could face the following repercussions.

Civil Penalties

If you attempt to avoid paying taxes, the government can fine you up to $250,000. Even if the IRS doesn’t formally charge you with tax evasion, it will assess fines and penalties if you file your return more than 60 days after the due date.

The failure-to-file penalty is up to ten times more than the failure-to-pay penalty. The IRS recommends that even if you can’t pay in full, you should file your tax return and pay as much as possible. You can always negotiate a payment plan or submit an “Offer in Compromise.” At least this way, you’ll avoid criminal liability and hefty penalties.

Interest

The tax code requires that the IRS charge taxpayers interest when they don’t pay their taxes on time. The government will charge interest from when your tax return is due until you pay your tax debt in full. This includes interest and IRS penalties.

The interest rate you’ll pay on your tax debt depends on how much you owe and how late your tax payments are. Check with your tax preparer or CPA to see how much interest you’ll have to pay.

Criminal Charges

Tax evasion is a felony criminal offense. The United States Attorney’s Office will file charges in federal court.

As with most criminal prosecutions, before a judge can send you to jail, the court must find you guilty beyond a reasonable doubt. This is different than the "clear and convincing evidence" standard the court uses for financial penalties associated with tax fraud.

Prison Time

If the court finds you guilty of tax evasion, you’ll face up to five years in federal prison.

Loss of Social Security Benefits

If you owe the IRS for back taxes, the government can take 15% of your monthly Social Security benefits until you pay the tax debt in full. The government does this through the “Federal Payment Levy Program.”

Tax Lien on Your Property

When you owe taxes, the IRS can file a federal tax lien. The lien arises automatically when you don’t pay your taxes within ten days of the IRS’ tax assessment. Once the lien is in place, the IRS will send you a notice of taxes due and demand full payment.

The IRS may also include a notice of the federal tax lien in the public records. This notice alerts creditors that the IRS has a claim against your property. This includes property you acquire after the IRS files its tax lien.

Once it files its lien, the IRS can’t release it until you pay the tax debt, penalties, interest, and recording fees or until the statute of limitations expires.

Loss of Personal or Real Property

Once the IRS places a lien on your real and personal property, it can put a levy on your property to pay off your tax debt. A levy is a legal seizure of your property, such as your house, car, income, bank accounts, retirement accounts, and Social Security payments. The IRS will seize this property and, where possible, sell it, using the proceeds to satisfy your tax debt.

Damage to Your Credit

The filing of a “Notice of Federal Tax Lien” will not appear on your credit report. However, it is a public record and can make it challenging to secure a loan.

Loss of Passport

The Department of State will not issue or renew your passport if you have a seriously delinquent tax debt. It may also revoke a passport it previously issued to the taxpayer.

Additional Questions? Talk to a Lawyer

The possible civil and criminal penalties for tax evasion are severe. If the IRS contacts you regarding a past-due tax bill or possible tax evasion, you should speak to a local tax lawyer immediately. 

It’s essential to understand your rights in a tax evasion case. A tax lawyer or criminal defense attorney can ensure that the government plays fairly. A local tax attorney can also offer insight into the possible consequences of an IRS criminal investigation.