Tax evasion is a scary term catapulted to the top of the national spotlight every March or April. It’s understandable why you would be frightened of it.

As Jerry Seinfeld once said, “They’re the IRS, they can take anything they want!”

While that’s something of an exaggeration — no agency is above the law — it does capture the intimidating specter of this government agency for many Americans.

That said, there are misconceptions about tax evasion and the extent of its repercussions. In the following post, we’ll attempt to bring some clarity.

Failure to Pay Is Not a Crime

Yes, it’s true. The IRS cannot send you to jail for simply failing to pay your taxes. However, they can work out settlements or put you on payment plans that require payment each month until the debt is satisfied.

During this time, you will need to keep current tax obligations satisfied as well. While the IRS sets terms of repayment, they are open to negotiation. Keep up your payments, and you have nothing to worry about.

When to Worry

Failure to pay and tax evasion are two different things. Your financial situation may prevent you from paying the tax penalty in a timely manner. Tax evasion requires certain behaviors.

Tax evasion statutes and penalties are governed mostly by Title 26 of the United States Code as well as Title 18. The big things the IRS looks for in establishing tax evasion are as follows:

  • You “willfully” attempt to “evade or defeat” the tax.
  • You “willfully” fail to collect or pay the tax.
  • You “willfully” fail to file a return, supply information, or pay the tax.
  • You “willfully” produce a return or documentation that attempts to defraud or provide false statements.
  • You “willfully” attempt to interfere with the administration of IRS laws and administration.
  • You “willfully” conspire to defraud the United States.

By their definitions, which you can find here, each of these factors will either land you in jail, with a hefty fine, or both. The IRS also will charge you for the costs of prosecution.

You’ll notice each of the above criteria share a keyword as well: “willfully.”

How Does the IRS Establish ‘Willful’ Behavior? 

The IRS will check income and income allocations, individual conduct, concealment practices, expenses, and deductions in an attempt to establish willful behavior. Of particular interest:

  • Overstated deductions
  • Income that goes unreported, particularly with consistency
  • Failure to report cash payments, especially in significant amounts
  • Payments to fictitious entities or partnerships
  • False statements

In short, the IRS will be looking for cheating or trickery of some kind provable by law. The results can be anywhere from 1-5 years in prison as well as $250,000 fines for individuals, $500,000 for corporations.

Under the IRS Tax Evasion Microscope?

If the IRS has you in their sights, it’s David and Goliath 2.0 — intimidating, but winnable. However, you cannot make the mistake of going it alone. Even if you did nothing willfully that could be construed as tax evasion, the law might not see it that way.

You need an experienced legal team to argue on your behalf. John Teakell and the team at Teakell Law have provided that assistance to clients for more than three decades. Contact him about this or any other tax issue today.