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Tax Evasion: What You Need to Know

If you’re an independent contractor or business owner, you may fear an IRS audit – maybe you’re afraid of making a mistake and being sent to federal prison. The idea of an IRS audit strikes fear in the hearts of millions of Americans every year, especially those who are not W2 employees, and those who file their own tax returns without the help of a professional CPA or tax preparer.

In reality, only a very small percentage of taxpayers are prosecuted and imprisoned for tax evasion. So, who does the IRS target? Who do they go after? The IRS typically goes after taxpayers who understate how much they owe. The IRS mainly targets taxpayers who:

  • Intentionally and knowingly misreport income.
  • Intentionally and knowingly misreport deductions.
  • Intentionally and knowingly misreport credits on tax returns.
  • Fail to file their annual tax returns.

The IRS is well-aware that some people simply can’t afford to pay their taxes. Understanding this, the IRS does not actively pursue the majority of cases where people don’t have the resources to pay their taxes. However, if people intentionally conceal assets and income from the IRS in an effort to NOT pay their taxes, that’s a whole other story.

When the IRS Launches a Criminal Prosecution

Usually, a tax evasion case will begin after the IRS has decided to audit a tax return. If during the audit the IRS finds errors and/or omissions intentionally made by the taxpayer, and the error amounts are not only large, but occurred over a period of several years – the IRS will detect a pattern of willful tax evasion on behalf of the taxpayer.

The IRS looks for two main things: Unreported income and evasive behavior during an audit. The first, unreported income is by far the biggest red flag that leads to criminal investigations, especially as it relates to a side business. This issue has gotten a lot of freelancers and gig economy workers into trouble, especially when they fail to report income from their passion project, their side hustle.

Under Title 26 USC § 7201 it states: “Any person who willfully attempts to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony” and face the following penalties:

  • Up to five years in prison,
  • A fine up to $250, 000 for individuals, or
  • A fine and imprisonment, plus the costs of prosecution.

Are you facing federal charges for tax evasion? If so, contact our Plano criminal defense firm at once to schedule a consultation. We proudly handle both state and federal criminal defense, including IRS prosecutions.