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What is Tax Evasion?

Tax evasion is where an individual or a business intentionally finds ways to avoid paying what would be their actual tax liability. When someone is caught trying to avoid paying their taxes in this manner, they can face serious criminal charges, including hefty fines and incarceration.

Tax evasion is a federal crime; under Title 26 USC 7201, any person who intentionally tries to defeat a tax commits a felony offense, punishable by:

  • Up to 5 years in prison
  • Fine up to $250,000 (individuals)
  • Fine up to $500,000 (corporations)

There are two main ways to commit tax evasion: 1) by willfully not paying taxes, and 2) by intentionally underpaying taxes. For instance, suppose a taxpayer earns money one year, but he or she decides not to file their taxes. Even though the taxpayer failed to send in their annual taxes for that year, the Internal Revenue Service (IRS) can still find out that the taxpayer earned money through information received by third parties. For example, the IRS can find out through 1099s, or through the taxpayer’s employer.

Intent to Evade Paying Taxes

Generally, for someone to be guilty of tax evasion, he or she must have willfully avoiding paying taxes. Was the failure to pay intentional? That’s what the IRS will be asking. To determine if the person intentionally deceived the IRS, the taxpayer’s financial situation will need to be closely examined. The IRS will be looking to see if the person concealed their reportable income and if he or she committed fraud.

Examples of fraud:

  • Concealing assets
  • Reporting income under a false name
  • Reporting income under a false Social Security number
  • Failing to report cash payments for work

While tax evasion has to do with illegal tactics to avoid paying the proper tax obligation,tax avoidance has to do with using illegal methods to avoid one’s tax obligations. For example, this can include transferring one’s income into a tax deferred account, such as an Individual Retirement Account (IRA), where taxes aren’t paid until the funds are withdrawn.

Are you facing federal charges for tax evasion in Plano or Dallas? If so, don’t hesitate to contact our firm immediately for help.