Tax Evasion Penalties and Other Consequences

By now, you probably know that having unpaid taxes is a serious problem. The fees and penalties can really add up, significantly increasing the amount you owe the government. The good news is it’s typically not a criminal offense to have back taxes.

However, when you attempt to avoid the assessment or payment taxes owed by using illegal means, you may face criminal charges for Tax evasion. Common examples of tax evasion include: not declaring all your income, deliberately overstating expenses or deductions, or attempting to avoid detection by failing to file tax returns when you have taxable income.

Tax Evasion Penalties

There’s a long list of potential penalties and consequences for tax evasion. Paying your taxes is a better deal than having any of the following happen to you.

Pay a Penalty

If you act with the purpose of avoiding or defeating any tax owed to the IRS, you could be fined up to $250,000. Even if you’re not formally charged with tax evasion, you will be assessed fines if you file your return more than 60 days after the due date. The failure-to-file penalty is 10 times more than the failure-to-pay penalty. So the IRS recommends that even if you can’t pay in full, you should file your tax return and pay as much as you can.

Pay Interest

The IRS is required by law to charge interest when you don’t pay on time. The interest accrues from the due date of your return (regardless of extensions) until you pay the amount you owe in full, including all interest and any penalty charges. Interest rates are variable and may change quarterly.

Face Criminal Charges

Tax evasion is a felony criminal offense. If you are charged with tax evasion, the United States Attorney’s Office will prosecute you in federal court.

Go to Prison

If you’re found guilty of tax evasion, you can go to federal prison for up to five years.

Forfeit Your Social Security Benefits

If you owe the IRS, 15 percent of your Social Security benefits can be taken each month until the debt is paid in full. The government uses the Federal Payment Levy Program to garnish your payments.

Tax Lien on Your Property

A federal tax lien is a legal claim to your property. The tax lien arises automatically when you don’t pay in full the taxes you owe within 10 days after the IRS makes a tax assessment. It will then send a notice of taxes owed and demand for payment. The IRS may also file a Notice of Federal Tax Lien in the public records, which notifies your creditors that the IRS has a claim against all your property, including property acquired by you after the filing of the Notice of Federal Tax Lien. Once a lien arises, the IRS generally can't release the lien until the tax, penalty, interest, and recording fees are paid in full or until the IRS can’t legally collect the tax.

Lose Your Property

A levy is a legal seizure that takes your property (such as your house or car) or your rights to property (such as your income, bank account, retirement account or Social Security payments) to satisfy your tax debt. When property is seized (“levied”), it will be sold to help pay your tax debt.

Damage to Your Credit

The filing of a Notice of Federal Tax Lien may appear on your credit report and may harm your credit rating.

Lose Your Passport

The Department of State will not issue or renew your passport if you’ve been certified by the IRS as having a seriously delinquent tax debt, and may revoke a passport previously issued to such individual.

Learn More About the Consequences of Tax Evasion from an Attorney

The possible civil and criminal penalties for tax evasion are severe. It's also important to understand that you have rights and protections when it comes to the tax collection process. Contact a local tax attorney to discuss your situation and learn more about the penalties and consequences of tax evasion.