Tax Fraud Jail Time

According to the United States Sentencing Commission (USSC), among the 57,287 cases reported in 2021, 370 involved tax fraud. Of these fraud cases, 11.6% involved more than $1.5 million in losses.

These figures represent significant losses to the government, which is why the IRS (Internal Revenue Service) has developed systems to detect and avoid such losses.

Can you go to jail for committing tax fraud? Who can go to jail for tax evasion, and what are the other penalties for evading taxes?

Can you challenge tax fraud penalties? What can you do if you’re investigated for such a crime? How long is jail time for tax evasion?

This article explains whether you can go to jail for tax fraud and discusses other penalties for tax evasion. It also discusses who will likely be jailed for tax evasion and what you can do if authorities investigate you for this crime.

Additionally, this article explains how long your jail sentence can be for tax evasion and whether you can challenge the penalties for tax fraud.

Tax fraud is the intentional and willful falsification of information on a tax return to limit one’s tax liability. This crime costs the U.S. federal government millions of dollars annually and is punishable by fines, interest, or jail time.

Understanding how tax fraud works and its associated penalties and jail time can help you prevent or minimize the chances of getting penalized for this crime.

If you have a loved one jailed for tax fraud or related crimes and want to know whether they’re imprisoned in California, Florida, North Carolina, Pennsylvania, Oklahoma, or other states, LookUpInmate.org provides a convenient online search tool to locate inmates and search their jail records.

Tax Fraud Jail Time: Can Tax Evasion Put You in Jail?

Committing tax fraud can lead to several consequences, like fines and jail time. When you try to cheat on your taxes, there’s a possibility that the IRS (Internal Revenue Service) will investigate you.

How Likely Are You to Go to Jail for Tax Fraud?

As long as you’re not deliberately underreporting your taxes to the IRS, your chances of going to jail for tax fraud should be almost nonexistent. Very few taxpayers get convicted of tax fraud.

In 2021, the USSC received only 370 cases of tax fraud, 63.3% of which led to prison time. The average jail time served by these tax fraud offenders was 14 months.

Tax Fraud Jail Time and Other Penalties

If you commit tax fraud and face criminal prosecution, your time in jail depends on how much tax loss the government incurs from the false statements you made or your failure to file a return.

A criminal conviction of tax fraud carries a jail sentence of up to three years and fines of up to $100,000.

Penalties for Civil Tax Fraud

Offenders convicted of tax fraud can face civil penalties consisting of fines equal to the tax due plus 75% of that amount.

If you owe $50,000 in added taxes due to fraud, you must pay a $37,500 penalty ($50,000 x 75% = $37,500) for a total of $87,500 ($50,000 + $37,500 = $87,500).

You must also pay the interest on the added tax and fraud penalty starting on the date you filed the return or the return’s due date, whichever is the latest.

Defending Against Alleged Tax Fraud

If you believe you shouldn’t be convicted of tax fraud, you can argue against such allegations. These defenses include:

• Honest mistake (tax return errors)
• Nontaxable income (tax-free wealth like gifts or inheritances)
• Cash hoard (such as cash in a safety deposit box)

If these defenses don’t convince the IRS, an experienced defense attorney can help you persuade the agency.

Caution

Whether you intentionally committed tax fraud or have a valid defense, never lie to the IRS. Lying to an IRS employee can convict you of a felony criminal offense punishable by a $100,000 fine and up to three years in prison.

How the IRS Proves Cases of Tax Fraud

IRS auditors look for the following badges of fraud when proving tax fraud cases:

• Specific items: Auditors look for items like checks that you cashed or deposited into your personal account.
• Bank deposits: The auditor adds up your bank account deposits. You can be suspected of tax fraud if the total exceeds your reported income.
• Living expenses: The auditor can suspect fraud if your living expenses exceed your reported income.

Tax Evasion Penalties Guide and Tax Fraud Jail Time Sentences

The United States Sentencing Commission (USSC) refers to a set of sentencing guidelines using a tax table specifying the offense level and tax loss amount.

For example, a tax loss of $2,500 or less has an offense level of 6. Meanwhile, a $550 million loss is a level 36 offense.

The USSC uses this table to determine the appropriate sentence against the offender.

Tax Evasion Punishment: How Long Can You Stay in Jail for Tax Evasion?

How long you stay in jail for tax evasion depends mainly on federal sentencing guidelines and the defendant’s criminal history.

What Is Tax Evasion’s Average Jail Time?

The sentence length for tax evasion usually depends on the criminal case’s details, like the amount of tax lost. On average, tax evasion has three to five years of jail time.

What Is the Longest Jail Sentence for Tax Evasion?

Section 7201 of the IRS tax crimes handbook states that tax evasion’s maximum prison sentence is five years.

Tax Evasion Sentencing Guidelines: Who Gets Jailed for Tax Evasion?

The willful failure to pay taxes is a federal offense based on the IRS tax code. Any person or entity that intentionally avoids paying their actual tax liability can be convicted of tax evasion and possibly go to jail.

At What Point Will IRS Put You in Jail?

When the IRS criminally charges you, you’ll go through a court process to determine your appropriate punishment. You’ll only go to jail once the judge sentences you to imprisonment.

What to Do if You’re Under Investigation for Tax Fraud or Facing Tax Fraud Jail Time

Suppose the IRS investigates you and special agents from the CID (criminal investigation division) approach you. You have the constitutional right to remain silent and request a lawyer.

Options When the IRS Finds Fraud

An IRS auditor who suspects you of cheating on your taxes has the following options:

• Ignore the cheating
• Impose civil penalties
• Open a criminal investigation

The following examples demonstrate how the IRS discovers fraud:

Example 1

Suppose the police arrest a drug trafficker and find $200,000 stashed in the criminal’s home. The police can inform the IRS of the discovery, and the CID can look up the drug trafficker’s latest tax returns.

The CID can open an investigation if the files show a reported annual income significantly lower than the discovered cash.

Example 2

A laundry shop owner gets featured in a newspaper article with a picture of the shop owner standing in front of their beachfront home and luxury vehicle.

The CID sees the article, checks the shop owner’s tax returns for the past few years, and determines that the reported income is too low to support such a wealthy lifestyle. The CID can indict the shop owner for tax evasion.

Understanding the Numbers

One survey involving 2,000 Americans showed that 6% have knowingly cheated on their taxes. This figure suggests that most U.S. citizens prefer to value honesty when paying taxes.

What Is Tax Evasion?

Tax evasion is the illegal underpayment or non-payment of actual tax liabilities due. The IRS can file criminal charges and impose penalties and fines against a person or business that illegally avoids paying taxes.

Who Goes to Prison for Tax Evasion?

Most cases of income underreporting were done by self-employed restaurateurs, car dealers, and clothing store owners. Other individuals who often commit tax evasion include salespeople, lawyers, doctors, and accountants.

How People Cheat on Their Taxes

Individuals who cheat on taxes underreport their income deliberately. Business owners who also cheat on their taxes usually do so by over-deducting their business expenses.

Common Issues Involving Tax Evasion

People have different circumstances and reasons for evading taxes. When these individuals start having the urge to do so, they may have the following issues regarding tax evasion:

• Whether the IRS goes after the offender or not
• Whether the offender goes to prison, pays fines, or both
• How long the accused stays in jail
• Whether the offender loses their house

IRC § 7201 – Attempt to Evade or Defeat Tax

Under Title 26, Section 7201 of the Internal Revenue Code (IRC), attempting to evade or defeat tax carries a punishment of up to $250,000 for individuals ($500,000 for corporations), imprisonment of not more than five years, or both.

Examples of Tax Fraud and Tax Evasion

Several scenarios may alert the IRS of tax evasion and prompt an investigation.

A Side Job Generates Extra Cash

If a full-time worker has a side job but doesn’t report the income earned from that job, that omission can be a fraud indicator.

The Audit Letter Arrives

Suppose a worker receives an IRS audit letter, and the auditor asks for copies of the worker’s bank accounts. However, the worker gives only one, although there are more. The concealment of other bank accounts can be indicative of fraud.

What the IRS Knows

The IRS can receive tax reports from the worker’s employer or bank without the worker’s knowledge. So if the auditor asks for the worker’s unreported bank account statements, but the worker denies or makes several excuses to stall the requested statements, those actions can become fraud indicators.

The Ensuing Disaster

With all these fraud indicators, the worker may find it challenging to defend their case even with the help of tax attorneys. Should the offender plead guilty to the crime, they must pay their back taxes plus the 75% penalty on the corrected tax. The offender can also face jail time and possibly lose their job.

If You Are Caught Cheating

If an auditor catches you cheating during an IRS audit, they can charge you a penalty or refer your case to the CID.

Expected Tax Evasion Prison Sentence and Income Tax Evasion Penalties

If you’re facing tax evasion charges, the following criminal penalties can apply:

Fraud and Tax Evasion Penalties

You don’t necessarily have to pay the maximum penalty when the IRS proves the fraud and tax evasion charges against you. Depending on your case’s circumstances, the court can fine you with a lower amount or nothing at all.

False Tax Return Penalty

A person who willfully creates false statements on their tax returns is guilty of a felony and can get fined up to $100,000, imprisoned for up to three years, or both.

Failure to File Penalty

The penalty for failure to file is 5% of your unpaid taxes for each month or part of the month that your tax return is late. However, the penalty should be less than 25% of your unpaid taxes.

Filing a Fraudulent Return Penalty or Charge

This charge is more common and less severe than tax evasion. Filing a fraudulent return carries up to three years of jail time and up to $100k in fines.

Failure to Keep Records or Pay Estimated Taxes

Suppose you don’t have receipts, bank statements, or other documentation to validate the tax exemptions or deductions on your return during a tax audit. You can receive a civil tax penalty amounting to a $25,000 fine.

Willfully Concealing Offshore Bank Accounts

If you willingly conceal an offshore bank account, the IRS can penalize you with a fine of up to $500,000 and jail time of up to 10 years.

International Tax Evasion

The IRS can also pursue tax evaders using offshore accounts to underreport income and perform other tax violations. The agency can pursue such violations through the following methods:

IRS Alternatives to Criminal Investigation

The IRS can claim your taxes without opening a criminal investigation by pursuing other civil tax charges like tax fraud and FATCA (Foreign Account Tax Compliance Act) or FBAR (Report of Foreign Bank and Financial Accounts) noncompliance.

FBAR Civil Willful Enforcement

The IRS can impose a civil penalty valued at 100% of the offender’s account’s maximum balance for knowingly or intentionally failing to report their foreign accounts. The agency only needs to prove the FBAR violation by the predominance of evidence, not the standard “beyond a reasonable doubt.”

Tax Fraud

Tax fraud is a civil violation form of tax evasion. The IRS can pursue civil fines or penalties without a criminal investigation depending on the circumstances and facts of a taxpayer’s violations.

The Auditor Suspects You of Fraud

Auditors don’t routinely suspect fraud, especially when they know the tax law has many complexities and expect to find honest mistakes in the returns. However, auditors can identify tax fraud signs, such as keeping two sets of financial books, using a fake Social Security number, or having a spouse as a dependent when you’re single.

Fraud or Negligence?

The difference between fraud and negligence isn’t always straightforward. However, auditors suspecting criminal tax fraud usually make a few criminal referrals to the CID because such referrals often involve too much paperwork.

Indirect Methods of Proving Fraud

When the IRS determines income underreporting, the agency usually doesn’t find direct proof of fraud like phony or overstated deductions and exemptions. Instead, the agency relies mainly on indirect methods like the following to prove fraud:

• Checks cashed or deposited to a personal account
• Bank accounts
• Expenditures

Tip

Auditors can also look into your net worth to determine fraud by adding your assets and deducting your liabilities within the tax year. An increase in net worth without an increase in income from the previous tax year can indicate fraud.

IRS Criminal Investigations

Although CID agents don’t carry badges or guns, they are the IRS’ police force highly trained by the agency and FBI. If someone introduces themself as an IRS special agent, you or someone you know is likely under investigation.

Will You Know if You’re Being Investigated?

You might not know if the IRS is investigating you until it formally charges you. However, anyone contacted by the IRS, like your friend, colleague, tax preparer, accountant, or lawyer, can inform you since the agency can’t legally swear them to secrecy.

How Special Agents Conduct Investigations

Criminal investigations typically start with a special agent interviewing your friends, advisers, business associates, and anyone else who may have relevant information. Afterward, the special agents can invite you for a meeting.

Contacting Everyone Around the Target

The special agent investigating you can contact your family, neighbors, coworkers, bankers, and even insurance agents. The agent can also acquire copies of your phone and credit card bills or obtain a court order authorizing a phone tap.

Attorney-Client Privilege

Your lawyer is the only person the IRS can’t force to speak about you because the attorney-client privilege provides such protection under the law. Your lawyer can’t disclose to the IRS anything you tell them regarding the criminal tax matter.

When IRS Special Agents Contact Your Friends and Associates

If IRS special agents ask you about another person, don’t answer questions immediately if you’re connected to that individual. Instead, call a tax attorney or criminal defense lawyer and let them talk to the agents.

If the CID Contacts You

If CID agents contact you, tell them you’ll contact an attorney who will get back to them later. Unless the special agents threaten you with immediate arrest or a similar warning, wait until they leave and you’ve calmed down before you call your attorney to get legal advice.

Caution

CID agents can ask soft background questions, like whether you gamble or keep plenty of cash on hand. These questions can make you reveal information the agents can use against you. In some cases, the agents already know the answers and only want to see if you’ll lie or confess.

IRS Considerations in Deciding Whether to Recommend Prosecution

The IRS’ primary consideration when deciding whether to prosecute is how strong its case is against you. Confessing or being caught red-handed can increase the possibility of prosecution.

Crimes With Which You Can Be Charged

If the IRS decides to prosecute, it’ll hand over its evidence to the Justice Department to determine the charges. The agency typically charges offenders with one or more of the following crimes:

• Tax evasion or fraud
• Filing a false return
• Not filing a tax return

If You’re Convicted of a Tax Crime

If the IRS convicts you of a tax crime, the court decides how long your sentence will be based on the federal sentencing guidelines. The judge can sentence you to jail or, if you reach a plea bargain without a trial, require you to:

• Pay fines
• Be placed on probation
• Undergo home confinement
• Be sent to a halfway house (an institute helping criminals reintegrate into society) instead of a jail

If You Are Prosecuted

If you’re formally charged, the court can order your arrest, require you to plead guilty or not guilty before a federal judge, or allow you to post bail.

Should You Plead Not Guilty?

You should initially plead not guilty unless you made a plea bargain before your first court appearance. The IRS usually recommends the prosecution of offenders who seem certain to be convicted.

What Must the Government Prove in a Tax Case?

If you don’t plead guilty, the IRS and the Justice Department must prove that you’re guilty of the charges by showing that you acted intentionally and that you’re guilty beyond a reasonable doubt.

Your Chance of Getting Convicted of a Tax Crime

Not everyone accused of a tax crime is found guilty. The following example shows one such case:

Example

A doctor in a city clinic received most of his income from Medicare and reported $240,000 in annual income in their tax return. When the IRS checked with Medicare, the agency discovered a $280,000 income from Medicare alone. The IRS indicted the doctor for tax evasion.

The doctor testified that he wasn’t a businessman and relied on his bookkeeper and accountant, only signing whatever they placed before him.

The prosecuting attorney told the jury that everyone should be responsible for the accuracy of their tax returns. However, the jury sympathized with the doctor and found him not guilty.

Challenging Tax Fraud Penalties

If you’re facing tax fraud charges, there are ways to defend yourself and challenge those penalties, especially if you make an honest mistake when filing your return and you have no intent to defraud. Without such intent, a taxpayer shouldn’t face fraud penalties.

FAQs

1. Is tax evasion a white-collar crime?

Tax evasion is one of the most common white-collar crimes committed by people working in industries that don’t include physical labor. Tax evasion involves some of the toughest IRS audit penalties.

2. Who investigates tax evasion and fraud cases?

The CID agents of the IRS conduct investigations of tax fraud and evasion using information from the public or within the IRS.

3. Is tax evasion a felony or misdemeanor?

According to Section 7201 of the Internal Revenue Code, anyone who willfully attempts to defeat or evade taxes shall be guilty of a felony.

4. Can I get jailed for not filing taxes?

You can go to prison if you fail to file your taxes. If you’re guilty of tax evasion, you can face jail time of not more than five years.

5. Can I get jailed for filing taxes wrong?

You can go to jail if you intentionally file your taxes wrong. However, if you make an honest mistake while filing taxes, the IRS can give you a chance to correct your tax problems, and you won’t go to jail.

6. Is tax evasion a federal crime?

Tax evasion is a federal crime because willfully attempting to defeat or evade a tax assessment or payment constitutes a federal tax crime.

7. How serious is tax fraud?

A felony is the most serious type of offense. Since tax fraud or evasion is a felony, you can consider tax fraud a serious crime.

8. What’s the difference between civil tax penalties and criminal tax penalties?

For the IRS to impose a criminal tax penalty, the agency must prove tax fraud beyond a reasonable doubt. For civil tax fraud penalties, the IRS must prove the fraud through clear and convincing evidence.

References

1. Quick Facts — Tax Fraud Offenses
https://www.ussc.gov/sites/default/files/pdf/research-and-publications/quick-facts/Tax_Fraud_FY21.pdf
2. Guidelines Manual 2021: CHAPTER TWO: Offense Conduct
https://guidelines.ussc.gov/gl/%C2%A72T4.1
3. TAX CRIMES HANDBOOK
https://www.irs.gov/pub/irs-utl/tax_crimes_handbook.pdf
4. Tax Evasion: Meaning, Definition, and Penalties
https://www.investopedia.com/terms/t/taxevasion.asp
5. Part 9. Criminal Investigation, Chapter 1. Criminal Investigation Mission and Strategies, Section 3. Criminal Statutory Provisions and Common Law
https://www.irs.gov/irm/part9/irm_09-001-003
6. 26 U.S. Code § 7206 – Fraud and false statements
https://www.law.cornell.edu/uscode/text/26/7206
7. Failure to File Penalty
https://www.irs.gov/payments/failure-to-file-penalty