Many taxpayers have heard the term “tax evasion,” but they don’t necessarily know what it means. Investopedia defines tax evasion as, “an illegal activity in which a person or entity deliberately avoids paying a true tax liability.” When someone is caught evading their taxes, they can eventually face criminal prosecution and significant penalties that can take many years to pay off. When someone intentionally fails to pay their taxes, they commit a federal offense, which is covered under the Internal Revenue Service (IRS) tax code.
But tax evasion goes further than willfully not paying your taxes. You can be accused of tax evasion if you intentionally avoid paying your taxes or you illegally underpay your taxes. “But what if I failed to file my taxes, how would the IRS know what I owe?” Even if you fail to file your taxes by the April 15th deadline every year (the deadline was extended to July 15 this year due to COVID-19), the IRS can still decide if you owe taxes based on information sent in by your employers or clients if you’re self-employed.
Examples of Tax Evasion
With tax evasion, the taxpayer intentionally avoids paying taxes. Often, the authorities will examine the taxpayer’s financials to confirm if the nonpayment of taxes was because the individual concealed their income or committed fraud.
Some ways a person can commit tax evasion:
- Intentionally underreporting income or cash received
- Intentionally exaggerating your deductions, such as personal travel, and claiming it as a business expense
- Concealing assets
- Hiding a side hustle by dealing in cash
“Usually, tax evasion cases on legal-source income start with an audit of the filed tax return. In the audit, the IRS finds errors that the taxpayer knowingly and willingly committed. The error amounts are usually large and occur for several years – showing a pattern of willful evasion,” according to H&R Block. The IRS also looks for unreported income and false statements during an audit.
If you’re facing federal tax evasion charges and you’re convicted, you could be facing harsh penalties. You could be forced to repay the taxes, levied an expensive penalty, and possibly face up to five years in prison. To fight your criminal tax evasion charges, contact Zendeh Del Law Firm, PLLC.