It’s a law that you must pay your taxes every single year. However, sometimes people innocently forget to pay their taxes and let one year turn into several. Now, they don’t have the money to pay what they owe and are wondering if they’ll go to jail — unfortunately, they might. 

People who fail to file their tax returns or lie on their tax returns can go to jail. However, you cannot go to jail for not having enough money to pay your taxes. If you are worried about going to jail for not paying your taxes, it’s best to call a Los Angeles federal criminal defense attorney. Let’s take an in-depth look at when you risk jail time when it comes to filing your taxes. 

Criminal and Civil Proceedings 

Making an honest mistake on your yearly tax return typically does not warrant prison time. Most tax liability is civil or criminal. If you are audited and it turns out that you owe more money, a civil judgment is placed against you to collect it. 

In order for you to go to jail, you’ll have to have criminal charges filed against you. You will then be prosecuted and sentenced. There are two common tax crimes: tax fraud and tax evasion.  

Tax evasion is when you use illegal methods to avoid taxes, such as claiming children that you don’t have or claiming more than you have. Tax fraud involves intentionally attempting to deceive or lie to the IRS. This is different than simply being confused and placing numbers in the wrong line. The IRS must prove that you had the intent to be dishonest. 

When You Can Go to Prison For Tax Evasion

The IRS is more forgiving with people who can’t pay their taxes as opposed to those who don’t file so they won’t have to pay. For example, if you file late, you can expect higher penalties than when you file your tax returns but have to pay late. You will not receive jail time for not being able to pay your taxes as long as you file your return.  However, the following actions can have prison sentence consequences. 

Tax Evasion

Any action used to evade the assessment of taxes, such as filing a fraudulent return. This can land you in prison for five years. 

Failure to File a Return

Not filing a return can land you in jail for one year for each you that you didn’t file. For example, if you chose not to file for three years, you can expect up to three years in prison. 

Helping Someone Evade Taxes

Even if you are not the one doing it, helping someone evade taxes can carry a three- to a five-year prison sentence, depending on what you allegedly did to help them. 

Statute of Limitations

In order to end up in prison for tax evasion, the government must first file criminal charges against you for not paying your taxes. Depending on the exact nature of the wrongdoing, criminal charges must be brought within three to six years of the violation. 

It’s important to note that the clock doesn’t start ticking until you file your return. If you owe the IRS on a 10-year past due return that you never filed, you can still be charged with tax evasion. If you happened to file a return ten years ago but never paid the taxes, you cannot be criminally charged. This means that in order to avoid conviction, you must have at least filed a return. 

Who Goes to Prison for Tax Evasion?

Lots of business owners and individuals are fearful of tax audits because they are afraid of going to jail if they’ve made a major mistake. The IRS mainly targets people who underestimate what they owe. Tax evasion cases mostly start with taxpayers who:

  • Misreport income or deductions
  • Don’t file a tax return

The IRS doesn’t typically pursue tax evasion cases for those who can’t pay their taxes. However, concealing assets and income that you should use to pay back your taxes can result in criminal proceedings. 

Let’s take a look at a quick example so that you can see what the IRS will send you to jail for. 

Your Side Job

Fraud Indicator: Omission of an entire source of income. 

Let’s say that you have a side job that generates extra cash and a full-time job. During your off hours, you may also work as an independent contractor and deposit your side income into a special savings account. When you go to do your taxes, you must mention your side business and its income to your accountant. However, let’s say that one year you don’t and get a refund for $1,000. 

Fraud Indicators:

  • The omission of an entire source of income 
  • Concealment of bank account

The Audit 

  • False statements

The next year you get an audit letter for the previous year’s return. During the audit, the IRS auditor will ask for any other income you had, including business income. If you only tell the auditor about your full-time job, this is the omission of an entire source of income. 

The auditor will also ask for copies of your bank records for all of your accounts that you had in the previous year. If you only give them one primary account and say there’s none else, even when there is, you are concealing a bank account, which is a fraud indicator to the IRS. 

The auditor might also ask you what you do on your days off to make sure you don’t acquire any other money during these days. If you lie and say that you do something other than working a side job, you are making false statements. 

You Vs. the IRS

Fraud indicators:

  • Delay tactics
  • False statements

What you may not know is that the IRS received information from the clients of you side job, since they reported their taxes that year. They will also receive any information on the interest income from a savings account you have at the bank. 

The auditor will find sneaky ways to get you to stumble on your own words so that you will either tell them the truth or lie. If you drag your feet on getting the auditor the appropriate information or continue to lie to them, they will expand the audit and begin searching into your income history for the past couple of years. If they find even more discrepancies, they will refer the case to the IRS Criminal Investigation Division to investigate you for tax fraud. 

What To Do When You Can’t Pay Taxes

If you filed your taxes and realized that you owe more than you can afford to pay, you have better options than not paying. Likewise, if you know that you will have to pay taxes that you can’t afford, simply not filing is the wrong way to go about it. If you can’t afford your taxes, consider a payment plan. 

Always make sure to file your taxes, but also make sure you can afford them. If you know you can’t afford your taxes before filing, start figuring out payment solutions.

Individual Installment Agreement

You can set up a plan that you pay down over time with monthly installments if you owe less than $50,000 in tax, interest, and penalties combined.  If you owe more than the designated amount, you can still get this agreement, but you will have to provide a lot more information. 

Offer In Compromise

This agreement between you and the IRS will help you settle your tax liability, and for less than the full amount owed. It’s typically not an option when the IRS believes that you will be able to pay down your debt via a payment plan. 

Get Help From a Los Angeles Federal Criminal Defense Lawyer

Failing to comply with the IRS or state tax laws can result in serious civil and criminal penalties. The longer your taxes go unpaid, the more serious the situation becomes. If you are overwhelmed by tax season and think you may need help, contact the best federal criminal attorneys Los Angeles has available. A qualified tax attorney will help you navigate your federal and state tax issues. 

While the IRS does not pursue criminal cases for many people, the penalty for those who are caught is harsh. Taxes must be repaid with an expensive penalty and can face jail time up to five years. If this happens to you, your only defense option is to be proactive and hire a Los Angeles federal criminal attorney who can help you understand your rights and the potential consequences, while trying to reduce your sentence for a more favorable outcome. 

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