Even the simplest tax returns are complex legal documents that are difficult to navigate. Add in other factors like business ownership or foreign assets and it is easy to see how a simple mistake could lead to big concerns. One possibility: imprisonment.
It is possible to go to prison for making a mistake on tax returns. Some of the more common examples that can result in a prison sentence include the following.
#1: Tax evasion
If the Internal Revenue Service (IRS) believes the mistake is more than just a mistake but an attempt to evade tax obligations, they may move forward with charges for tax evasion. Tax evasion occurs when a taxpayer tries to get out of paying their taxes. Examples include inaccurate reports of income, inflating deductions, or hiding money in offshore accounts.
If convicted, individuals can face up to 5 years imprisonment per offense along with hefty fines that could add up to hundreds of thousands of dollars.
#2: Filing false tax returns
This involves knowingly providing false information on a tax return to reduce tax liability and can come with up to 3 years imprisonment per false return filed and significant fines.
#3: Failure to file a tax return
Willfully failing to file a tax return can also lead to criminal charges if the intent to evade taxes is evident and can result in up to 1 year of imprisonment for each year a return was not filed as well as additional fines.
#4: Payroll tax fraud
Business owners who withhold but do not forward payroll taxes to the IRS can face serious charges including up to 5 years imprisonment and additional fines.
Engaging in tax crimes can have long-lasting legal repercussions beyond jail time. These can include:
- Permanent criminal record
- Loss of professional licenses
- Difficulty in securing employment or loans
Tax crimes carry serious legal consequences including the possibility of imprisonment. It is important to note that this area of law is evolving, and the penalties can change. Regardless, those who face allegations of a tax crime can counter the allegations. One of the key elements that the IRS will look to establish to build their case is intent. They will want to show that the taxpayer was trying to avoid their tax obligations. This is just one of many elements to explore when building a defense to these allegations.
