People end up not paying their taxes for a variety of reasons. Often, it is because they fear that they owe money they do not have or are confused about how to file. Some even forget. There is some good news: Making an honest mistake, such as innocently miscalculating the amount owed, will not lead to criminal charges, but the government will ask for the full payment of the amount it estimates is correct. While intentionally not paying taxes is a civil offense, there are only specific circumstances that can lead to criminal charges and incarceration.
Most tax violations are civil offenses. Common reasons for civil tax evasion charges involve intentionally doing the following:
- Negligence or not following rules and regulations
- Substantial valuation misstatement
- Substantial underreporting of income tax
- Substantial understatement of estate or gift tax valuation
These and other illegal actions could result in a 20% penalty on top of paying all other tax obligations. The taxpayer does have the opportunity to argue that their mistakes were not intentional, which may reverse some of the penalties.
Actions that lead to criminal charges
Depending upon circumstances, these can involve one to five years in jail:
- Anything to intentionally avoid the proper assessment, such as filing a fraudulent return.
- Helping someone else file a fraudulent return.
- The IRS will probably not put you in jail if you file but don’t pay, but each year of not filing comes with the potential for up to a year in jail.
There are options
Those who owe money to the IRS can set up a payment plan to pay in installments. Those who owe may also try an offer in compromise to settle the amount owed. In circumstances where negotiation is necessary, it is wise to work with a tax law expert who understands the system and knows how to minimize the penalties imposed upon their client.