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Income Tax Evasion

What is income tax evasion? This phrase describes the purposeful action of defrauding the government (underpayment) or not paying the appropriate amount of tax (nonpayment). Both of these actions (tax fraud and tax evasion) are crimes that are prosecutable and typically involve large fines and penalties. Prosecution and the accompanying sentences may also lead to incarceration and/or foreclosures on real estate properties.

Activities considered as tax evasion by the government include:

  • Refusal to file a tax return
  • Failure to report all of your income (including tips, interest, and cash)
  • Lying on your tax return in any way
  • Claiming extra exemptions for which you do not qualify
  • Using false accounting records
  • Deducting more than you actually spent
  • Claiming credits that you aren’t entitled to claim
  • Claiming personal expenses as business expenses
  • Claiming losses that did not occur (theft and damage)
  • Claiming losses that were reimbursed by your insurance company
  • Claiming expenses that were reimbursed
  • Using the wrong Social Security Number
  • Placing some or all of your assets in another individual’s name to avoid paying taxes
  • Failure to report foreign income or offshore bank accounts

Severe penalties are in store for those individuals who knowingly commit fraud and tax evasion if the IRS can prove that your intention was to avoid paying all or some of your taxes.

What Can Happen if You Commit Income Tax Evasion?

Anyone who is found guilty of income tax evasion is subject to the repayment of what they owe in taxes along with the likelihood of interest fees and hefty penalties. Additionally, income tax evaders may even be sent to prison.

Prison terms and penalties vary, depending on the specifics of the tax evasion or fraud. For example, if you fail to file your income tax return willfully and purposefully, then you can expect to pay a hefty fine up to as much as $100,000. You can also expect to go to prison for as long as a full year. If you make false statements on your tax return or hinder a representative from the IRS from investigating, you can expect to receive a prison term up to three years along with as much as $250,000 in fines.

Tax evasion is a felony. Therefore, in addition to the fines and the possibility of a prison term, your credit report and score may be affected in a negative manner. The effect may be long reaching, influencing your ability to obtain credit or employment for many years. The best strategy is to complete an honest tax return and retain documentation that can back up all of your claims, credits, deductions, and income.