Tax Evasion Penalties • What are they?

Tax evasion is punishable in every state in the country; the IRS has the power to prosecute you and send you to jail if you fail to make your tax payments. You can face a five-year sentence or a $100,000 fine.

In addition, in almost all cases, you will have to pay tax and civil penalties; eventually, you will end up paying the IRS more than you evaded in your taxes.

What is the penalty for tax evasion?

According to IRC 6663, “if any part of any underpayment of tax required to be shown on a return is due to fraud, shall add an amount equal to 75% of the underpayment attributable to the fraud to the tax”.

When you face prosecution for tax fraud or tax evasion, you will first have to respond to civil assessments and, depending on the case; you may face criminal charges. When it comes to criminal matters, the matter is handled by a criminal prosecutor and not by the IRS.

In IRC 7201 it states that all persons who attempt to evade or avoid their taxes will be charged with a felony; penalties range from fines of $100,000, and in the case of a corporation, the figure would increase to $500,000, up to five years in prison and must bear all costs of prosecution.

Of course, the IRS assesses the situation and determines what you must pay; criminal tax offenses also include:

  • IRC § 7202 – Willful failure to collect or pay taxes
  • IRC § 7203 – Willful failure to file a return, furnish information or pay tax
  • IRC § 7204 – Fraudulent misrepresentation or failure to disclose to employees
  • IRC § 7205 – Fraudulent withholding exemption certificate or failure to provide information
  • IRC § 7206 – Fraud and False Statements

You would also be in legal trouble for helping someone commit tax fraud and face criminal charges for aiding and abetting tax fraud.

What is the penalty for paying taxes late?

Among the evasions considered for tax evasion penalties are willfully refusing to file your taxes, making false statements, misreporting, and underreporting your income.

When you fail to file a tax return, submit false tax documents, or there are erroneous withholding exemptions, the sentence will be one year in prison or a $100,000 fine in addition to all taxes owed and payment of legal fees for your case.

If you are charged with conspiracy to defraud regarding false refund claims, the penalty is ten years in prison and $250,000 in fines. If you file or prepare your returns and they are faulty, you must pay three years in prison and $250,000 in fines.

When tax evasion is filed for failure to pay taxes, the maximum imprisonment is five years and a $250,000 fine. If the evasion is deliberate, you must also be liable for a civil penalty.

You can add up to 75% of your unpaid tax attributable to the fraud to the taxes owed.

Punishment for tax evasion

When you fail to file a tax return for the corresponding month or are delinquent on your taxes, the IRS will investigate you to determine what is going on and decide what penalty you will have to pay. The IRS classifies evasion into three groups:

  • Negligence: when the IRS considers that you have not filed or paid your taxes, you may face a tax penalty of 20% of the portion of the missing payments on your taxes and consider it negligence
  • Civil fraud: if the IRS considers it to be tax evasion, but does not consider it a criminal offense, then the penalty will be 75% of the underpayment of taxes
  • Criminal fraud: after proving that the tax evasion is deliberate, it is automatically considered illegal; here, you face high court fines, imprisonment, or both penalties

Late payment penalty IRS

Due to different factors, you may fall behind in paying your taxes; when that happens, the IRS has a penalty of 0.5% of the unpaid taxes for each month the tax is not paid.

These penalties usually do not exceed 25% of the unpaid taxes, but you must catch up to avoid a more intense investigation and determine that you should be fined or penalized for tax evasion.