What is tax evasion, and what are the possible consequences?

On Behalf of | Oct 2, 2023 | Financial Crimes |

Income taxes are a fact of life for everyone earning income while living in the United States.  Employers generally withhold money from every paycheck they issue to their workers to contribute toward their estimated annual tax obligations. Independent contractors and other self-employed professionals will withhold funds on their own behalf and send quarterly estimated payments. People even need to pay taxes on their capital gains from investments.

Most people make an effort when filing their tax returns to minimize what they pay and to maximize the value of any refund that they might potentially receive. They may claim every credit they can and even catch-up contributions to their retirement savings to help reduce their taxes due. The avoidance of taxes is perfectly legal, but some people will cross the line into tax evasion, which might put them at risk of prosecution.

What is tax evasion?

Attempts to minimize tax payments that violate the law or constitute fraud could lead to allegations of tax evasion. Someone claiming tax credits for which they do not qualify is one form of tax evasion. Intentionally underreporting personal income or seeking cash payment for work to avoid reporting it entirely are another form of evasion. Hiding assets that are subject to taxation, such as international bank accounts, could also lead to accusations of tax evasion. If the Internal Revenue Service (IRS) discovers a discrepancy between the assets and income reported to the IRS and the tax return of an individual, they may audit that person or ask federal prosecutors to bring charges against them.

What are the penalties for tax evasion?

If the federal government prosecutes someone for tax evasion, a guilty plea or conviction could carry major consequences. Tax evasion is typically a felony offense. The possible penalties include up to five years in prison and fines that could amount to $250,000. Additionally, the federal government will require that the person prosecuted pay for the costs of their time in court. Those costs are all in addition to the tax debt someone may owe and the penalties and interest that the IRS can assess.

Seeking legal guidance to learn more about tax evasion and the possible penalties it carries might help people better respond to allegations of intentional underpayment of their tax obligations.