Tax Evasion Penalties Guide & Tax Fraud Jail Time Sentences

Criminal tax evasion is not a joke. The federal government takes a stern view of those who have willfully not paid their taxes.

The law provides for significant tax evasion penalties to deter you from activities that could end up with you being convicted of evasion or fraud. In addition to financial penalties, the tax fraud jail time handed down to you will strip you of your liberty for several years.

That may seem harsh, but the IRS doesn’t shy away from seeking custody for those who have demonstrated a pattern of intentionally breaking tax law. The penalties vary based on the nature of the offense but the law clearly states the maximum fines and jail terms.

Is tax evasion a federal crime?

In an ideal world, you never want to be in a position where you are searching the internet for the answer to the question is tax fraud a federal crime? Federal tax crimes are no joke and if convicted, you could be looking at significant repercussions.

The justice system doesn’t take too kindly to those convicted of tax crimes so expect the harshest penalties possible under the law. There’s also the fact that felony convictions stay on your criminal record and that may significantly limit your ability to seek employment or even run your own business in the future.

Tax evasion is considered a federal crime as dictated by Section 7201 of the US Internal Revenue Code. The following section details the two potential offenses that when committed, would constitute a federal tax crime

First, a willful attempt to evade or defeat the assessment of a tax constitutes a federal tax crime. For example, if someone holds assets in another person's name or transfers assets to another person so that the Internal Revenue Service is unable to determine their actual tax liability, this would be considered willful evasion. 

The willful attempt to evade or defeat the payment of a tax is also a federal tax crime. Here, the person would have willfully attempted to evade the payment of a tax liability that has become due.

Note the repeated use of the word "willful." To secure a conviction under this section, the prosecution must prove beyond reasonable doubt that the accused performed an affirmative act with the intention to evade or defeat the assessment or payment of a tax. It must also be able to prove that additional tax is due and owed by the accused.

Tax fraud jail time: can you go to jail for tax evasion?

The consequences of tax fraud include fines and jail time. If you’re convicted, you can absolutely go to jail for tax evasion. The entire process does take time as the case would go through the court system but that's the ultimate reality. You can ask yourself “Why do I have to pay Uncle Sam my hard-earned cash?” Or, “why do I owe state taxes?“ until the cows come home, but if you purposely don’t pay them, you can end up behind bars.

A series of events happen before the IRS sets up a case for criminal prosecution. For some, it starts with the audit of a filed tax return. The IRS looks for trends in the return that indicate a pattern of willful evasion over several years and the error amounts tend to be significant. 

Most taxpayers that face criminal prosecution do so because of unreported income. Perhaps they make a habit of leaving out sizable transactions or even entire sources of income to lower their tax liabilities on purpose. Hiding records or making false statements on purpose during an audit is also a clear indication to IRS auditors that the case warrants criminal prosecution

As far as the tax evasion jail time is concerned, that depends on a variety of factors, such as the amount of money involved and whether the defendant is a repeat offender. The minimums laid down in the sentencing guidelines also dictate for how long a person convicted of tax fraud has to be locked up. 

Most taxpayers will only be hit by IRS audit penalties if the evidence shows they didn't break the law intentionally. Having good tax audit representation works in your favor as experienced tax audit attorneys can help the IRS reach that conclusion in your case, thus saving you from a long and arduous trial.

Tax evasion sentencing guidelines: who goes to jail for tax evasion?

The aforementioned reasons should shed some light on why a prison sentence may be given to you if you’re convicted of tax evasion. The federal sentencing guidelines provide a baseline of how many years in prison for tax evasion crimes you will have to serve. Prison may not be the whole punishment either. You may also be required to pay significant fines for tax evasion.

Criminal tax evasion is no joke. The law takes a stern view of those convicted as they make a conscious attempt to evade their tax liabilities. It would be wrong to expect leniency from the prosecution in such criminal cases. Most likely they would seek the highest possible jail time for tax evasion

If you've landed on this page wanting to find out whether you will go to jail for not filing your tax return on time, you can rest easy. A standalone failure to file a timely return is not enough to convict you of tax evasion. You will only be criminally prosecuted if you've made a deliberate attempt to not file tax returns or have been filing false tax returns, not if you made a mistake and forgot. If facing charges, it’s best to consult a tax attorney to create a solid criminal defense strategy.

Since you’re curious, here are a few deliberate acts that can earn you a jail sentence for tax evasion:

  • Hiding income your side hustle

Side hustles are very much a part of the modern economy. From driving for a ride share service on the weekends to making food deliveries and everything else in between, it's entirely possible to have a second significant source of income other than your primary job. It’s important to report income from side hustles. If you haven't been declaring it in your taxes over the past few years, chances are the IRS will view it as willful tax evasion.

  • Helping someone else evade taxes

Even if you’re not concealing sources of income from the IRS or filing false returns, you could still be convicted of tax evasion if you’re found to be helping someone else evade taxes. Section 7201 of the US Internal Revenue Code clearly states that a person who helps another evade their tax liability can be prosecuted.

  • Failure to disclose offshore bank accounts

Americans are required to pay taxes on foreign income. Concealing foreign income in an offshore bank account can land you in hot water. If the IRS is able to prove that you willfully failed to disclose the accounts, you'll be subject to heavy fines and even a prison sentence.

Tax evasion punishment: How long do you go to jail for tax evasion?

It’s important to understand how a tax fraud punishment is calculated. The sentencing range is provided in the federal sentencing guidelines so the answer to the question of how long can you go to jail for tax evasion largely depends on these guidelines. The range is determined using a numeric system that's based on the seriousness of the offense as well as the criminal history of the defendant.

The guidelines have 43 levels in total that represent the seriousness of the offense. As a rule of thumb, keep in mind that the more serious the crime, the higher the base level is going to be. The base level offense can be lower or higher which is rated on the specific characteristics of the offense. There's room for offense level adjustments to be applied to any crime. For example, a guilty plea may result in a reduced offense level. 

The criminal history of the defendant also plays a major role in determining how long they'll be spending in jail. The sentencing guidelines are based on the policy that repeat offenders should be given a harsher sentence. It's pertinent to note that these guidelines are "advisory" and the presiding judge has the authority to sentence the defendant above or below the range provided by the guidelines. 

When determining the punishment for tax evasion, the primary consideration in ascertaining the offense level is the amount of tax loss to the government. The guidelines provide some input on how to compute this loss. Tax loss is defined as “the total amount of loss that was the object of the offense, i.e., the loss that would have resulted had the offense been successfully completed” for crimes of tax evasion, fraud, or false statement.

The defendant may agree to what the tax loss is if they take a plea. If a tax loss has not been agreed upon and it can't reasonably be calculated, the tax law will be presumed to be 28% of the gross income plus 100% of any false credits claimed for tax crimes that involve underreporting

The base level offense is determined from a chart in the federal sentencing guidelines called the tax table once the tax loss has been calculated. The base offense levels for tax crimes vary from level 6 to level 36. 

The specific facts of each case dictate whether the base level will be increased or decreased. For example, the base level will be increased in cases where the defendant committed the tax crime using more elaborate conduct compared to an average tax case or if a defendant evaded taxes by using a money laundering scheme.

What is the average jail time for tax evasion?

The average jail time for tax fraud is between 3 - 5 years. The specifics of the case will dictate the jail sentence for tax evasion. Defendants who are convicted can generally expect to be sentenced for a similar duration.

What is the longest sentence for tax evasion?

The maximum sentence for tax evasion is five years. It is provided in section 7201 of the US Internal Revenue Code. You may also be liable to pay financial penalties in addition to serving time. 

Income tax evasion penalties and expected tax evasion prison sentence

A tax evasion sentence isn’t the only repercussion you’ll likely face once the prosecution has been successful in establishing a case against you. The law also provides for tax evasion fines that are quite significant. Any tax fraud penalties charged to you will be announced once the court makes a decision on your case. Whether you can attain an IRS penalty abatement should be discussed with a qualified tax attorney.

Fraud and tax evasion penalties

The law provides a maximum penalty for tax fraud but that doesn’t mean that’s what you’ll need to pay once tax evasion charges have been proven against you. Depending on the circumstances of your case, you could be fined a lower amount, the full maximum, or nothing at all. That’s something to keep in mind when you’re wondering what is the penalty for tax evasion.

For fraud and tax evasion, the tax law dictates that if you're convicted, you may be fined up to $100,000 and sent to jail for up to five years. The maximum fine for corporations is $500,000. 

False tax return penalty

The penalty for filing a false tax return is less severe than outright evasion but it's still enough to make it sting. Individuals may be fined up to $100,000 for filing a false return in addition to being sentenced to prison for up to three years. This is a felony and a form of fraud. 

Married taxpayers often commit low dollar tax fraud by filing head of household and not jointly to receive higher refunds that they're not eligible for. The significant criminal penalties for false tax returns are meant to deter taxpayers from resorting to such antics. 

Failure to file penalty

Failing to file a tax return is classified as a misdemeanor and the most common outcome is the assessment of civil tax penalties against the taxpayer. That's not to say you still can't go to jail for it. The penalty is $25,000 for each year you failed to file. 

You can face criminal tax evasion charges for failing to file a tax return if it was due no more than six years ago. If convicted, you could be sent to jail for up to one year.

Failing to pay estimated taxes or keep records

If you have willfully failed to pay estimated taxes due or failed to keep records of items claimed in your returns, you may get hit with a civil tax penalty and avoid criminal charges. That’s also what happens if you get audited and don't have receipts to justify claims in your return that are obviously fraudulent.

What happens if you get audited and don't have receipts? Well, you won’t go to jail if you can show bank statements and other documentation that can validate the tax deductions or exemptions claimed on your return. If you can’t, you may end up paying a $25,000 fine. In rare cases, the Internal Revenue Service may opt for criminal prosecution in which case you're looking at up to one year in jail if convicted.

Willfully concealing offshore bank accounts

The IRS doesn't like it when taxpayers conceal offshore bank accounts. If it's able to prove that you did so willfully, you're looking at fines of up to $500,000 and possibly even up to ten years in jail. 

If the concealment wasn't a willful failure, the civil penalties may range from $500 per account to a $10,000 one-time penalty. It may also choose to hit each individual account with a $10,000 penalty per year for up to six years.

Need help dealing with tax evasion law or a federal tax fraud case?

Have you been caught in a tax violation or facing tax fraud charges? Contact Brotman Law today for legal advice. We are tax audit attorneys that have a successful track record of defending clients facing the very intimidating consequences of tax evasion laws. From IRS penalty abatement to leveraging sentencing wiggle room to extracting the best possible outcome for our clients, our tax audit representation will take on the brunt of your load. We've done it all, and we can do it for you too.

Final points on penalties for tax evasion

In 1931, Alphonse Gabriel Capone was sentenced to 11 years in prison and fined $50,000 for tax evasion. This was the harshest sentence ever delivered for tax evasion. Al Capone ran an enterprise that included many illegal doings – his was the era of our country’s Prohibition – and he was said to have raked in as much as $100 million a year.

Many years hence, there have been a handful of tax evasion “criminals” that made the news from Willie Nelson to Leona Helmsley. As interesting as these stories may be, you are probably not concerned about the rich and infamous’ attempted tax evasion stories. What’s relevant is whether YOU are facing this kind of tax crime.

In any case, it is critically important to consult a defense lawyer and one that knows tax law could be vitally important, too. Forty-three different levels of tax crimes offense promises a lot of sentencing wiggle room depending on your charges. 

The IRS estimates that about 17 percent of taxpayers fail to comply with the tax code in one way or another when filing their returns,” but a very tiny percentage of that percentage are ever convicted of a tax crime

Can the IRS tell the difference between illegal activity and an honest mistake? If you’ve met with some special agents from the IRS and now you need a good attorney, I think you know the answer to that. 

Give me a call. I can and will defend you with all my resources and experience in tax law if we decide working together would be mutually beneficial. If not, I can give you references that could be of some help. 

FAQs

Is tax evasion a white collar crime?

White collar crime refers to crimes committed by people involved in professions that don't involve physical labor. Most white collar crimes are prosecuted in federal court. Tax evasion is considered to be one of the most common white collar crimes and has some of the toughest IRS audit penalties.

Who investigates cases of tax evasion and fraud?

Criminal investigations into cases of tax evasion and fraud are conducted by IRS Criminal Investigation Division. These are initiated using information obtained from within the IRS or from the public. If the evidence is sufficient, a report is filed by the special agent on the case to recommend prosecution.

Is tax evasion a felony or misdemeanor?

Section 7201 of the United States Internal Revenue Code ends all speculation about the question is tax fraud a felony. Under this statute, tax evasion is regarded as a felony criminal offense. Misdemeanor criminal offenses are highlighted in Section 7203 of the Internal Revenue Code which detail “failure to pay.”

Can I go to jail for not filing taxes?

You can go to jail for not filing taxes. The tax law provides for a year of imprisonment for every unfiled tax return. However, this harsh penalty is only sought for taxpayers who willfully fail to file returns and also decline every opportunity to resolve their tax issues.

Can you go to jail for filing taxes wrong?

You can go to jail for filing your taxes wrong but only if you have been doing so intentionally. You won't go to jail if you've made an honest mistake while filing your taxes. The IRS will give you an opportunity to rectify your tax problems.

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