One of the first questions that many people have after receiving a letter from the IRS is if they can go to jail for not paying taxes. Receiving a letter or notification from the Internal Revenue Service can be overwhelming and cause someone to think about the worst possible scenario.
Yes, any taxpayer can go to jail for not paying taxes, but it depends on the circumstances. The IRS differentiates between failure to pay taxes due to negligence or inability to pay, and willful tax evasion or fraud. That said, it’s important to understand the different tax offenses, their potential consequences, and how a tax lawyer can help you.
Struggling with how you can handle your back taxes to avoid potential issues with the IRS? Our expert tax attorneys at Victory Tax Lawyers can help you out. Schedule a free attorney consultation with us today; let’s discuss your tax issue and help you find the appropriate solution immediately.
In this article, we’ll cover whether you can go to jail for not paying taxes. We’ll break down the types of tax violations that may lead to criminal prosecution, explain how much tax debt becomes risky, and help you understand how to act to avoid being imprisoned for tax crimes.
Is It Possible To Go to Jail for Not Paying Taxes?
Yes, it is possible for the IRS to send you to jail for not paying taxes, though the consequences of not paying taxes vary under various conditions. If you intentionally evade taxes, hide unreported income, or falsify tax information, it could lead to criminal charges. Tax evasion is a serious crime, and, if convicted, you could face imprisonment, along with fines.
On the other hand, if you don’t file your back taxes on time, you could face penalties, but not typically jail time. However, repeated failure to file or failure to respond to IRS notices could result in more severe consequences, including criminal charges.
Meanwhile, if you can’t pay your taxes but file your return and communicate with the IRS, you’re more likely to face penalties and interest but not jail time. You can also be offered options like IRS payment plans or settlement agreements (offers in compromise).
One important aspect to consider here is civil offenses versus criminal offenses. Most tax liability cases are civil proceedings. Unintentionally or accidentally failing to pay taxes or reporting incorrect information is not a criminal charge. Instead, accidental errors and tax mistakes are referred to as tax negligence. These can only result in civil penalties, meaning no possibility of jail time for not paying taxes.
Jail time becomes a legitimate possibility when a taxpayer owes back taxes because of tax fraud or criminal tax evasion charges. The IRS considers such cases as criminal offenses done intentionally. Hence, not filing a tax return is far better than intentionally filing false tax returns.
How Much Do You Need to Owe Before Jail Becomes a Possibility?
There is no minimum amount that automatically sends you to jail for unpaid taxes. The IRS doesn’t necessarily take note of how much you owe. Rather, they consider what you did (or didn’t do) to avoid paying it.
The agency doesn’t throw people in prison basically because they’re in debt. In fact, bear it in mind that most tax cases are handled through civil enforcement including audits, penalties, liens, levies, and wage garnishment. However, criminal charges can be brought when there’s clear evidence of intentional wrongdoing, regardless of the amount.
Hence, a person who owes $10,000 but files a false return to hide it might be charged with criminal tax fraud. However, someone who owes $150,000 but is fully transparent and working to resolve it through a payment plan is unlikely to face criminal consequences.
That said, larger tax debts (especially over $100,000) do tend to draw greater scrutiny especially when paired with signs of evasion, like offshore accounts, shell companies, or repeated false filings. If you owe a large sum and haven’t filed your returns or have made false statements, the risk of prosecution increases significantly. However, even in serious cases, many taxpayers avoid jail by hiring a qualified tax attorney early enough and cooperating well with the IRS before charges are filed.
Tax Fraud vs Tax Evasion
Tax fraud is an umbrella term that covers a wide range of criminal activities that violate tax law. One key aspect related to tax fraud is that the acts of the person who committed the actions were intentional. As stated by the IRS, some examples of criminal tax activities include:
- Intentionally underreporting or omitting income
- Overreporting the number of deductions
- Claiming personal expenses as business expenses
- Claiming false deductions
- Hiding or transferring assets or income
- Keeping two or more sets of books
The Internal Revenue Code covers tax fraud in a few different sections, including:
- IRC § 7202 – Willful failure to collect or pay over tax;
- IRC § 7203 – Willful failure to file a return, supply information, or pay tax;
- IRC § 7204 – Fraudulent statement or failure to make a statement to employees;
- IRC § 7205 – Fraudulent withholding exemption certificate or failure to supply information; and
- IRC § 7206 – Fraud and false statements.
Tax evasion is a more serious extension of tax fraud with more severe punishment. The Cornell Law School Legal Information Institute defines tax evasion as using illegal means to avoid paying taxes, often by misrepresenting income to the IRS. Common forms of misrepresentation include:
- Underreporting income
- Hiding money in offshore accounts
- Inflating deductions
The IRS addresses tax evasion in Section 7201 of the Internal Revenue Code, which states the following:
”Any person who willfully attempts in any manner 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, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution”.
For tax fraud charges, the common standard for conviction is “clear and convincing evidence.” For tax evasion charges, on the other hand, the government must prove “beyond reasonable doubt” to convict the defendant. This is the highest standard or burden of proof.
The IRS initiates criminal investigations when an IRS revenue agent (or auditor), revenue officer, or investigative analyst detects possible fraud. Investigations can also be initiated when information is passed to the IRS from investigations by other law enforcement agencies or by one of the numerous United States Attorney’s offices located throughout the country.
IRS Criminal Investigations (CI)
Criminal investigations begin with a preliminary analysis of evidence by an IRS special agent. Their superiors then review to determine if there is the necessary amount of evidence to initiate a criminal investigation. Once a full investigation is initiated, the special agent obtains evidence. They do this by reviewing financial data, executing surveillance and search warrants, interviewing key witnesses, and even subpoenaing bank records. Once all the information is gathered and analyzed, the IRS determines whether or not it substantiates criminal activity. In the case that it does, prosecution recommendations are reviewed by the Department of Justice Tax Division or the United States Attorney. Upon approval of recommendations, prosecutors prepare for trial, with the goal of obtaining a conviction.
Fortunately, IRS criminal investigations are quite rare. According to the most recent data outlined in the 2023 IRS Criminal Investigations Annual Report, the IRS initiated 1,409 investigations in Fiscal Year 2023. Of these investigations, prosecution was recommended for 665 of the investigations, and ultimately, 655 taxpayers were convicted and sentenced.
Misdemeanor Vs. Felony Tax Charge
In a case where a criminal investigation is carried out and after extensive findings, the IRS decides to initiate a criminal case, they will then determine whether the extent of your crime qualifies for a misdemeanor or felony tax charge under federal tax law.
A misdemeanor tax charge generally kicks off from relatively minor cases, including failure to file a tax return, not providing required documentation during an audit, or making errors on tax forms. These offenses are usually considered negligent and not intentional. While they are still criminal tax fraud, they carry lighter penalties. This implies that a person who qualifies for this tax charge may face up to three years in jail, as well as fines of up to $25,000.
When it comes to felony tax charges, they are basically reserved for deliberate and large-scale violations of tax laws. Tax evasion, for instance, is considered a felony and one of the most penalized offenses investigated by the IRS Criminal Investigation (CI) division. It involves intentional acts such as underreporting income, falsifying deductions, or hiding assets to avoid paying taxes owed. A felony conviction can result in up to five years in federal prison, fines of up to $100,000 for individuals or $500,000 for corporations, and in worse cases, a permanent criminal record.
What Are Back Taxes?
Back taxes are the tax amount you owe to the IRS after the filing deadline has passed. Usually, this deadline is April 15th of the following year. For example, a 2021 Tax Return for Individuals (Form 1040) was due by April 15, 2022, for the Tax Return and payment.
Owing back taxes can be the result of failing to file a tax return, filing a return but not paying the tax amount you owe, not reporting all income for a specific tax year, or, in some cases, a deliberate attempt to evade taxes. Not only do you need to pay the full amount that is due, but in addition, interest and other civil tax penalties that accrue on the back taxes until your balance is zero.
Back taxes are a big issue for the IRS. Recent data from the agency shows that Americans owed over $130 billion in back taxes, interest, and penalties in 2021.
What to Do If You Owe Back Taxes
Although you will not go to jail for not paying taxes, neglecting back taxes can still have serious consequences. For example, the IRS can garnish your wages or seize your assets. If you receive a letter or notice from the IRS, we recommend you deal with it promptly. It will not just go away by itself. What you should do if you owe back taxes is to deal with them before the IRS starts their collections and seizures. There are different government forgiveness programs for people who owe back taxes to the IRS, such as:
- Installment agreements (also known as payment plans) that give taxpayers the ability to pay back taxes over a designated amount of time through monthly installments;
- Request a short-term extension that provides a taxpayer with additional time (up to 180 days) to pay their full balance;
- Offer in compromise, which gives taxpayers with financial hardship the option to settle their tax debt for less than what they owe; and
- Currently-not-collectible status, which does not eliminate back taxes, but it stops the IRS from garnishing wages or seizing assets because of a well-evidenced dire financial situation.
While you may want to resolve your back taxes using these options, you should also make sure to file all unfiled tax returns. The IRS treats failure to file far more seriously than failure to pay, often applying harsher penalties. Filing demonstrates good faith and keeps additional fines and interest from piling up.
Meanwhile, the good news is you don’t have to go through this process alone. Trying to handle tax problems on your own can lead to mistakes that could make your situation worse. Allow a skilled tax attorney to step in and help you explore the best IRS-approved resolution options for your situation.
Back Taxes: IRS Statute of Limitations, Period of Suspension, and Extensions
The general rule is that the IRS can collect back taxes for 10 years—in other words, the Collection Statute Expiration Date (CSED) for back taxes is 10 years. The ten-year period begins on the date that the IRS assesses the unpaid taxes. Although there are exceptions, in most cases, the IRS must stop all collection efforts once the 10 years are up. One exception is during periods of suspension when the IRS can not sanction collection action against a taxpayer.
For example, if a person files for bankruptcy, collections must cease for the length of the case, plus an additional six months. Collections are also suspended during the IRS review of an offer-in-compromise. However, being on an installment agreement, penalty abatement, or a Currently Non-Collectible (CNC) status does NOT toll the statutes.
Beyond suspensions, the ten years could also be lengthened if a person agrees to voluntarily extend the limitations. For example, if a person agrees to a partial payment for back taxes, one common condition of the agreement is an extension to the ten-year limit. One important thing to note is that the IRS cannot extend for more than an additional 6 years.
7 Common Tax Negligence Penalties
Common tax negligence penalties are imposed when a taxpayer makes mistakes or fails to comply with tax laws without the intent to evade tax bills or commit tax fraud. Here are some typical penalties associated with tax negligence:
- Failure-to-File Penalty – If you don’t file your tax return by the deadline, the IRS imposes a penalty of 5% of the unpaid taxes for each month (or part of a month) that the return is late, up to a maximum of 25% of your unpaid taxes.
- Failure-to-Pay Penalty – If you file your tax return but don’t pay the full tax bill, the IRS imposes a penalty of 0.5% of the unpaid taxes for each month (or part of a month) the taxes remain unpaid, up to a maximum of 25% of your unpaid taxes.
- Accuracy-Related Penalty – This penalty applies if the IRS determines that there was a substantial underpayment of taxes due to negligence or disregard of IRS rules. The penalty is typically 20% of the underpaid tax.
- Failure to Deposit Employment Taxes – For businesses that fail to pay employment taxes (like payroll taxes), the IRS may impose penalties ranging from 2% to 15% of the unpaid tax, depending on how late the payment is.
- Underpayment of Estimated Tax Penalty – If you don’t pay enough taxes through withholding or estimated tax payments, you may owe a penalty, which is generally based on the interest rate for underpayments (currently about 3-4%).
- Dishonored Check Penalty – If a check you send to the IRS for tax payment bounces, the IRS may impose a penalty of 2% of the amount of the check, or a flat $25, whichever is less.
- Fraud-Related Penalty – If negligence rises to the level of fraud, the penalty can be much higher, up to 75% of the underpayment due to fraud.
How to Avoid Common Tax Negligence Penalties
The IRS usually notifies a taxpayer of a penalty by sending them an IRS notice or letter in the mail. This letter will most likely specify the penalty, as well as the next steps to take. As a general rule, the IRS charges interest on penalties beginning on the due date of the amount you owe.
Additionally, the interest increases until the taxpayer pays the balance in full. Interest rates that the IRS charges vary and often change quarterly. If you are successful in removing the penalties, the interest on the penalties will also be removed. However, interest on the tax cannot be removed.
To avoid these penalties, you have to file your returns on time. Even if you miss filing taxes but want to avoid jail, you can file back taxes for up to six years, which is the period the IRS usually requires for you to be considered in good standing. However, no matter how long you have to file back taxes, it’s always recommended to file any missing returns, even older ones, to avoid further complications. In certain cases, you may also be eligible for refunds if you file within three years of the return due date.
Additionally, pay your taxes, and consult with a tax attorney if you’re not sure about how to comply with tax laws. If you’re facing an IRS audit and you need legal representation or guidance, you can consult with an audit representation lawyer to help you.
Moreover, the IRS is often willing to work with taxpayers to set up payment plans if needed. Hence, even if you don’t have enough money to clear your tax liability, you can reach out to an experienced tax attorney to help you set up an IRS installment agreement so you can pay in monthly installments.
Can IRS Penalties for Tax Crimes Be Stacked?
Yes, IRS penalties for tax crimes can be stacked, and this is one of the serious realities faced by taxpayers when criminal tax charges are involved. The IRS doesn’t simply issue one penalty per tax crime. Instead, multiple penalties may be applied simultaneously or in succession, depending on the nature and extent of the offenses. This implies that in a case where you’re under investigation for tax-related misconduct, you could be facing cumulative consequences that grow significantly worse over time.
For example, if a taxpayer is found to have willfully failed to file a return, underreported income, and attempted to conceal assets, the IRS may apply separate penalties for each violation. These might include Failure to File Penalty, Failure to Pay Penalty, Accuracy-Related Penalties, and even the Civil Fraud Penalty, which can reach up to 75% of the underpaid tax due to fraud.
Additionally, for cases that involve criminal prosecution, felony charges like tax evasion, false statements, or obstruction of the tax laws can also stack with these civil penalties. This eventually leads to massive financial burdens and also the possibility of prison time.
Stacked penalties are extreme and should be avoided because they can quickly compound what may have kicked off as a manageable issue into a serious legal crisis. In some cases, the IRS may also pursue interest on those penalties. So, this means the longer the debt goes unresolved, the more expensive it becomes.
Resolve Your Tax Issues Now With Trusted Legal Experts!
The truth remains that most people won’t go to jail just for owing unpaid taxes. Making an accidental mistake, forgetting to pay taxes, or unintentionally making an error on taxes will carry penalties, but will not be punishable with jail or prison time. However, that changes the moment fraud, evasion, or willful neglect of back taxes comes into the picture. The IRS has full legal authority to investigate, prosecute, and convict individuals who cross that line, and the consequences can be life-altering.
Worried about the potential of a jail term as a result of your back taxes? Don’t wait for the IRS to make that next move. Schedule your free consultation and let Victory Tax Lawyers help you tackle your tax problems. You’ll receive clear answers, honest legal advice, and a team fully committed to resolving your case swiftly and effectively.
FAQs
Understanding the legal line between simple tax negligence and criminal tax evasion is critical. While most Americans will never face jail time for unpaid taxes, the risk becomes very real when the IRS believes you’ve acted willfully or deceitfully. Below are answers to some of the most frequently asked questions to help you navigate this complex issue with confidence.
What Is the Difference Between Tax Evasion and Tax Avoidance?
Tax avoidance is the legal use of strategies to minimize your tax liability, such as claiming deductions or credits. Tax evasion, on the other hand, is the illegal act of deliberately misrepresenting or concealing information to reduce taxes owed, which can lead to serious penalties or jail time.
Can the IRS Put Me in Jail for Accidentally Missing a Tax Payment?
No, the IRS does not jail people for honest mistakes or accidentally missing a payment. Jail time only becomes a risk when there is willful tax evasion, fraud, or deliberate non-compliance.
How Long Can the IRS Pursue Criminal Charges?
Generally, the IRS has a six-year statute of limitations for most criminal tax offenses, starting from the date the tax return was due or filed. However, in cases involving fraud, there may be no time limit for prosecution.
At What Point Do I Go to Jail for Taxes?
You may face jail time if the IRS proves that you willfully committed tax crimes such as evasion, filing false returns, or failing to file altogether. Simply owing money is not enough to warrant incarceration.
Do IRS Audits Commonly Result in Jail Time?
No, most IRS audits do not commonly lead to criminal charges. Instead, they often result in civil tax penalties. Jail is only a possibility if the audit uncovers evidence of fraud, intentional deception, or other criminal behavior.
Are There Voluntary Disclosure Programs for People Who Haven’t Filed Taxes?
Yes, the IRS has voluntary disclosure programs that allow taxpayers to come forward before they are contacted by the IRS. These programs can reduce penalties and help avoid criminal prosecution.
Will I Go to Jail for Reporting Illegal Income?
No, reporting illegal income to the IRS will not land you in jail. In fact, it may protect you from prosecution for tax evasion. The IRS requires all income, legal or illegal, to be reported on your tax return. Failing to report that income is what can trigger criminal charges. While reporting doesn’t grant immunity from other legal consequences related to the illegal activity itself, it helps you avoid tax-related prosecution.
