What Are the Penalties for Tax Evasion?



The IRS does far more than collect people's taxes and send out refunds to taxpayers each year. It also pursues people who fail to file returns and pay what they owe the government. You can avoid trouble with the IRS by learning about the monetary and legal penalties for tax evasion.

What is Tax Evasion?

Tax evasion is a type of tax fraud that involves failing to report and pay your taxes by the April 15 deadline each year. It can include:

  • not reporting your cash income
  • reporting less than your actual income
  • hiding money in overseas bank accounts
  • improperly claiming tax deductions
  • taking personal deductions on your business tax returns
  • falsely claiming or inflating your donations to charity
  • under reporting the value of an estate
  • paying your employees in cash to avoid paying payroll taxes

The IRS investigates these and other types of tax evasion by comparing your earning statements like your W-2 or 1099 with your returns and the amount of money that you have in your bank accounts. It also relies on whistle blowers to find and investigate cases of tax fraud.

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Punishments for Tax Evasion

The IRS can impose monetary fines, jail time, or a combination of both on people who purposely try to evade filing and paying their federal income taxes. Tax evasion is a felony crime. With that, it is often punished with the most stringent of penalties.

Depending on the nature and severity of your tax evasion, you could incur a penalty of up to $250,000. The fine could be double that amount if it is imposed on a case of business or corporation tax evasion.

You also may be sentenced to one to five years in federal prison. The length of time that you serve in jail depends on the nature of your case and how much money you attempted to hide from the government.

Along with serving time in prison and paying heavy fines, you also may be ordered to pay court costs. Of course, you will also be ordered to file your tax returns and pay in full the money that you owe the IRS.

How to Avoid Tax Evasion Penalties

The punishments for tax evasion are designed to deter people from committing this federal offense. If you have committed this type of tax fraud, you may be given an opportunity to avoid the harshest penalties. 

You may be able to avoid being fined or sentenced to jail by filing your late or amended returns. The IRS is more likely to go easy on you if you file late or amended returns of your own volition. If the IRS must compel you to file these returns, you could incur any of the possible penalties for tax evasion.

Preventing Tax Evasion

Avoiding tax evasion is as easy as filing and paying your taxes on time each year. Make a note of the day that your federal taxes are due and then pay in full what you owe to the IRS.

If you cannot pay your tax debt, take advantage of one of the options to pay off or settle your account. You can take care of your IRS tax obligation by:

  • requesting an installment agreement
  • making an Offer in Compromise (OIC)
  • asking that your account be put in Currently Not Collectible (CNC) status
  • using the IRS Fresh Start Program to pay your taxes

If you are not sure of what forms to file, how to file and pay your taxes, or what option to use to settle your tax debt, you should rely on the services of a tax professional. 

A tax pro can help you file your current year's returns as well as any late or amended return. Tax pros are also available to help you avoid committing tax fraud and tax evasion.

The IRS expects you to file and pay your taxes on time each year. It has the right to impose a variety of penalties on you if you commit tax evasion. You can avoid these punishments by learning what tax evasion is and how the IRS investigates and penalizes this federal crime.

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