There is a reason no one considers tax season to be one of the four seasons – no one is thrilled by the possibility of owing more money in taxes. You may want to pay less in taxes, but not taking your taxes seriously can lead to future problems, including jail time. There are legal options to pay less in taxes, but skirting the legal options and not paying your taxes can lead to potential criminal charges. Understanding what the IRS considers to be a tax crime as well will help you avoid meeting criminal charges and legal consequences.

As an aside, be aware that the IRS will never call you to discuss your taxes. It is their policy not to do so. If you receive a phone call from someone claiming to be from the IRS, they are most likely trying to scam you. However, you can call the IRS and speak with someone over the phone.

What are the two types of Federal Tax Crimes?

There are two categories of tax crimes according to the IRS – tax evasion and tax fraud. Although they are similar, they are considered to have different definitions.

Tax evasion requires a person to knowingly and willfully try to avoid paying the full amount of taxes they owe to the IRS. They will change numbers and leave out information to get a lower tax rate. This goes beyond an honest error; tax evasion is the purposeful misrepresentation of the facts. Examples of tax evasion include not filing a tax return, falsely assigning income to someone else in order to derive a tax benefit, and not reporting income.

Tax fraud requires a person to submit false information on their tax return. The goal is to act in an unlawful manner. Examples of tax fraud include using someone else’s social security number, claiming personal expenses as business expenses, and claiming dependents when there are none.

Could I receive jail time for failing to file a tax return?

Tax evasion and tax fraud are both considered to be felonies, however, they carry different sentences. If a person intentionally doesn’t file a tax return, it is considered to be tax fraud. Therefore, the individual can be sent to jail for up to one year and fined up to $100,000.00. For making false/fraudulent statements on their tax return (tax fraud), a person can receive a sentence of up to three years in prison and a $250,000.00 fine. An individual who is convicted of tax evasion can receive a sentence of up to five years in prison and a $250,000.00 fine.

Note: A person is not in the clear if they don’t hear from the IRS within a few years. There is no Statute of Limitation (a time limit) for tax fraud and tax evasion charges. In addition to federal tax crimes, there are also state tax crimes for failing to truthfully represent oneself on their state tax return. Each state has its own laws and penalties for these crimes.

What if I don’t pay the taxes because I don’t have the money?

It is important to pay taxes on time so as to not get sued by the IRS. However, if an individual is unable to pay the taxes, the IRS will not bring the individual to a criminal court since the individual was not intentionally paying their owed taxes. However, the IRS can bring the individual to civil court because every citizen is required to pay taxes. They have the right to collect on their bill and can pursue legal remedies. There is a Statute of Limitation of six years in which the IRS can file a suit against an individual.

What if I made a mistake on my taxes?

An individual is charged with tax fraud and tax evasion if they intentionally act to deceive the IRS. However, the IRS also knows that people make mistakes. You forget that you have an account with a bank you rarely use or mistype a number when preparing your return. You will not go to jail over a mistake if you take the correct course of action to rectify it. If someone makes an honest mistake on their tax return, they can work with their CPA to file an amended tax return which shows the correct amount of taxes owed.

Conclusion

We all may grumble about paying taxes, but it is a legal requirement with legal ramifications. Avoiding or defrauding the system will not lead to a happy ending. It is best to file your tax return on time, whether on your own or with a certified public accountant who can walk you through the process. Before the end of this year, learn the legal options of how you can pay less in taxes. It may help reduce the stress of the upcoming tax season.