When you’re required to pay taxes to the Internal Revenue Service, it’s best to have a plan in place for doing so as accurately as possible. Yes, you may make mistakes every now and again, but the right strategy will help you avoid this.
The one thing you never want to do is attempt to evade paying the taxes you rightfully owe. Doing so can result in severe penalties, including prison time, that will affect your personal life and finances well into the future.
Generally speaking, tax evasion comes into play if you fail to pay your taxes or deliberately underpay.
There are two basic forms of tax evasion:
- Evasion of assessment: This is when you take some type of action to evade the assessment of a tax. The most common example is an attempt to evade taxes through the under-reporting of income.
- Evasion of payment: This takes on many forms, all of which involve the concealment of money or assets that could help pay taxes owed. For example, hiding assets in a foreign bank account or a loved one’s bank account.
As noted above, basic errors or unpaid taxes is not the same as tax evasion. Yes, these things are serious, and they could lead to penalties. However, you won’t find yourself facing criminal charges.
These are the types of actions that are often considered tax evasion:
- Knowingly overstating deductions
- Destruction of records
- Hiding income sources, such as cash payments
- Keeping two sets of books
- Filing a false tax return
- Creating false invoices and/or receipts to hide income or inflate the value of deductions
A conviction is serious
If you’re charged with tax evasion, it doesn’t necessarily mean your case will end up in a conviction. You have the legal right to defend yourself in court, with the goal of proving that you didn’t break the law.
Penalties for tax evasion range from fines starting at $100,000 to five years in prison. For example, if you file a fraudulent tax return with the IRS, the penalty can be as stiff as a $100,000 fine and three years in prison.
Tax evasion is nothing to take lightly. If you’re charged, collect the information needed to protect yourself and then implement a defense strategy.