Can I Go to Jail for Unfiled Tax Returns?
If you’ve recently received a notice from the IRS, it can be a frightening and confusing experience. You may have heard that the IRS can arrest individuals and even impose jail time for certain tax offenses. While that is true, it’s less common than you might think. The key factor that determines whether jail time is a possibility lies in intentionality. Read on to learn more about the penalties for civil and criminal tax offenses related to unfiled tax returns.
Civil IRS Offenses
The IRS is unlikely to imprison individuals for civil offenses associated with unfiled tax returns. They understand that not everyone is able to pay their debts in full and that honest mistakes can occur while navigating tax laws. However, civil offenses do carry significant costs, with hefty penalties designed to incentivize prompt payment of debts.
Fortunately, the IRS will not typically imprison individuals who cannot pay what they owe right away. They recognize that some taxpayers may be in financial distress and unable to pay their tax debts on time. One of the most common civil offenses is failing to pay or underpaying tax debts. This occurs when taxes are filed, but money is still owed to the IRS.
The IRS aims to receive the funds it is owed quickly, leading to steep penalties for outstanding debts. If you receive a penalty notice for failing to pay or underpayment, expect a penalty that accrues at a rate of 0.5% of the total unpaid amount monthly, maxing out at 25% after 50 months. Anyone owing more than $1,000 in estimated taxes may face fines up to 4% of the amount owed. If tax debts remain unpaid, the IRS could enforce additional penalties, including wage garnishment, property seizures, and tax liens, all of which will remain in effect until the debt is settled.
Failing to file taxes may be considered a civil offense if deliberate evasion cannot be proven. However, the penalties are more severe than those for individuals who have filed but are unable to pay their debts. Once you receive a Failure to File notice, you’ll incur a penalty of 5% of the unpaid tax amount each month, capping out at 25% until the taxes are filed and the debt is resolved.
Criminal IRS Offenses
While the IRS does not typically impose jail time for civil offenses, they may consider it for more intentional acts. The most common criminal IRS offenses include tax fraud and tax evasion.
- Tax Fraud involves the deliberate falsification of information to reduce tax liability. Examples include misrepresenting personal expenses as business expenses or under-reporting income.
- Tax Evasion is a form of tax fraud where illegal methods are employed to avoid paying taxes, including the intentional failure to file a tax return.
In these cases, the IRS must prove that the fraud was intentional and not simply the result of misunderstanding tax laws or forgetting to file. If the IRS can demonstrate that deliberate actions were taken to defraud the government, they may impose jail time of up to five years for each offense. Additionally, individuals who assist others in evading taxes may also face three to five years in prison.
The IRS typically has three to six years to bring criminal charges for tax fraud or evasion. The statute of limitations for tax evasion can extend up to six years but does not begin until the missing returns are filed.
Getting Professional Help
Navigating tax laws and requirements can be confusing, especially when faced with an IRS notice. If you have unpaid tax debts or unfiled returns, it may be wise to engage a tax professional experienced in handling tax laws and penalties. Enrolled Agents are certified tax advisors who can represent you before the IRS and assist in negotiating installment plans and Offers in Compromise, helping individuals and business owners get back on track.
No one wants to face jail time due to tax offenses. Most civil offenses, including failure to pay, do not result in imprisonment; however, they do come with substantial penalties from the IRS, which could lead to wage garnishment and property seizure. Tax fraud and evasion, on the other hand, are treated as criminal offenses by the IRS, and if intent to defraud can be proven, jail time may be a possibility.
It can be challenging to navigate IRS issues alone. Whether you’re dealing with years of unfiled tax returns or need assistance negotiating a payment plan with the IRS, LA-Twins is here to help. Contact us today to learn more about your options and next steps. Visit LA-Twins or email us at contact@la-twins.com for a confidential consultation.
