Tax Evasion Penalties: What You Need to Know

penalties for tax evasion

The year has flown by, and tax season is approaching again. As you gather documents, a nervous pit forms in your stomach. You fudged some figures on last year’s tax return, hoping to boost your refund. No one will notice…right?

You may be tempted to bend the truth on your taxes. But before taking that risk, understand what’s at stake. Tax evasion carries hefty civil fines and even criminal prosecution. As tax evasion lawyers with over 30 years of experience, we’ve seen smart people make unfortunate missteps due to a lack of knowledge.

Our goal is to bring clarity to the legal line between proper tax avoidance and illegal tax evasion. Let’s explore common pitfalls, penalties involved, and proactive steps you can take. With insight into the potential consequences, you can avoid the landmines and sleep better as tax time approaches.

Tax Evasion vs. Tax Avoidance

First, it’s essential to distinguish tax evasion from tax avoidance. Tax avoidance involves structuring finances legally to minimize the taxes owed under the Internal Revenue Code. 

Tax evasion, on the other hand, means illegally paying less tax than you truly owe based on income. This could look like failing to file a required return or report all income or claiming false deductions or exemptions you don’t qualify for.

These intentional efforts to deceive the IRS constitute tax evasion – a risky crime under both federal and Texas law.

Tax Reporting Errors That Raise Red Flags

Even inadvertent tax return mistakes can sometimes lead to IRS scrutiny for potential evasion. 

Here are a few common errors that tend to get extra attention:

  • Claiming credits incorrectly – Improperly claiming credits like the Earned Income Tax Credit or child tax credits can lead to audits and penalties.
  • Math miscalculations – Simple math errors on forms can make the IRS suspect intentional underpayment. Always double-check return calculations.
  • Unreported income – Forgetting to include even small amounts of freelance, side gig, or investment income raises suspicions.
  • Excessive deductions – Claiming unusually high business, charitable, or miscellaneous deductions without proper documentation draws scrutiny.
  • Unfiled returns – Failure to file a return at all is a red flag, even if no tax was due. Electronically file or submit paper copies.
  • Inconsistent reporting – Drastic income discrepancies between tax years can prompt investigators to verify sources.

While these mistakes are often innocent, the IRS still flags them for review. To avoid tax evasion charges, fully document every number on your return and work with a tax pro to identify potential problem areas. 

And if you do come under investigation, retain legal counsel immediately to protect your rights. With the complex tax code, anyone can make errors that appear suspicious.

Criminal Tax Evasion Charges and Penalties

If the IRS uncovers significant, intentional evasion, they may pursue federal criminal charges for tax fraud.

Under Section 7201 of the Internal Revenue Code, tax evasion carries:

  • Up to 5 years in prison 
  • Fines up to $100,000 per instance
  • Restitution for all taxes owed

These harsh penalties apply to both individuals and businesses convicted of tax evasion. Aggravating factors like hiding offshore assets or obstructing the IRS audit make conviction more likely and can lengthen the prison sentence.

Civil Fines and Penalties for Tax Evasion

If caught evading taxes, the IRS will assess monetary civil penalties in addition to the back taxes and interest owed. 

Common fines include:

  • Accuracy penalties of 20% of underpaid tax
  • Civil fraud penalties up to 75% of unpaid tax
  • Failure to file penalties of 5% per month of late taxes
  • Penalties for “frivolous” returns containing false info

The IRS files liens against property and levies bank accounts to collect on these penalties. And unpaid tax debts can torpedo your credit score for years.

While civil fines sting, they pale compared to criminal prosecution. Let’s look at those repercussions next.

Are You Facing Criminal Tax Prosecution?

If you are worried that any aspect of your tax reporting or preparation process could be viewed as attempted evasion, it is critical to seek qualified legal counsel before proceeding. An experienced tax fraud attorney can advise you on the best course of action in your specific situation.

Some general tips:

  • Consult an attorney before disclosing any sensitive information to tax authorities that could be self-incriminating.
  • If contacted for an audit or investigation, retain legal counsel immediately. Politely decline to answer substantive questions until your attorney is present.
  • If errors or omissions are identified in your taxes, your attorney can help determine the appropriate response while protecting your rights.
  • Maintain comprehensive tax records and documentation as a matter of routine practice. But provide these only at your legal counsel’s direction.
  • If you have unreported foreign assets or income, consult with an attorney to discuss IRS reporting programs before taking any action.

The key takeaway is that you should never attempt to handle a potential tax evasion case on your own. The risks are too high. Retaining experienced legal counsel is the only way to ensure your rights are protected at each step of the process.

Don’t Go It Alone When Your Freedom is at Stake

Being greedy with taxes can lead smart people down an unfortunate path fraught with legal landmines. Maybe you made an honest mistake. Or let finances blur the line between avoidance and evasion.

Whatever the case, you don’t need to navigate the system alone. Our team knows how to intervene before an audit spirals into criminal prosecution. We help clients proactively disclose and cooperate to reduce penalties and safeguard their future.

If you have been charged with tax evasion, don’t wait until it’s too late. We can still help make things right. Let our attorneys stand by you to avoid prosecution so you find firmer footing this tax season. Contact us now for a confidential consultation.

Author Bio

James P. Whalen

James P. Whalen is the managing attorney and founder of Whalen Law Office, a Texas criminal defense firm offering personalized legal representation for various federal criminal charges. With a commitment to providing comfort and guidance during challenging times, Mr. Whalen serves as both an attorney and counselor to his clients, helping them navigate their cases while striving to restore normalcy to their lives.

In an inherently unbalanced criminal justice system, Mr. Whalen takes on cases with unwavering dedication. With decades of legal experience, he offers representation across various criminal charges, including white-collar crimes, violent crimes, drug charges, and more. Mr. Whalen’s numerous accolades, including Super Lawyer recognition and board certification in Criminal Appellate Law and Criminal Law, reflect his unwavering commitment to ethical and high-quality legal representation.

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