Even though you understand the importance of filing your taxes on time and paying in full, it’s natural to think of the many ways you can save yourself money.
While it’s not ideal, it’s okay if you make an honest mistake on your tax return. For example, a math mistake may result in owing additional money, but it won’t result in criminal charges.
Tax evasion is more than a mistake. It comes into play if you take deliberate action to underpay your taxes. Generally speaking, there are two primary types of tax evasion:
- Evasion of payment: Behavior to evade payment, such as by concealing income or hiding assets in offshore bank accounts.
- Evasion of assessment: Any action designed to alter the assessment of a particular tax, such as under-reporting income.
The tax code is complex, so what you consider a minor mistake the IRS may deem something much more serious. Here are five of the most common forms of tax evasion:
- Filing a false or fraudulent income tax return
- Hiding any source of income
- Knowingly taking deductions you don’t qualify for
- Keeping two sets of books
- Destroying records that may implicate you of a tax crime
What are the penalties?
Any crime against the government is typically associated with serious penalties, and tax evasion is no exception to the rule. Here are some of the penalties to expect as the result of a conviction:
- Up to five years in prison
- Up to a $250,000 fine
- Payment of all back taxes, along with penalties and interest
For example, if you’re convicted of concealing financial information from the IRS, it’s a criminal felony that can lead to a maximum of $100,000 in fines and five years in prison.
As a serious white collar crime, any charge related to tax evasion should be taken seriously. The moment you receive notice from the IRS is the moment you should learn more about your charges, legal rights and the next steps in the legal process.
Even though a charge alone is enough to turn your life upside down, it doesn’t always result in a conviction. There are steps you can take to protect yourself and hopefully escape the serious penalties detailed above.