The Serious Consequences of an IRS Audit
An IRS audit can lead to outcomes far more severe than just owing back taxes. Two of the most serious potential consequences are tax evasion charges and substantial penalties.
Understanding what constitutes tax evasion, the associated penalties, and why prompt legal assistance is critical can help you protect your rights and finances if faced with an audit.
What Constitutes Tax Evasion
- Hiding Income – Not reporting income from any source, whether legal or illegal, is considered tax evasion. This includes underreporting self-employment, gig economy, or cash income.
- False Deductions – Claiming deductions you are not entitled to, such as personal expenses as business deductions.
- Fake Losses – Fabricating losses to offset actual income and reduce tax liability.
- Lying on Tax Returns – Providing false information about income, deductions, credits, dependents, etc.
- Not Filing – Willfully failing to file a mandatory tax return is considered an attempt to evade taxes.
Tax Evasion vs. Tax Avoidance
There is often a fine line between illegal tax evasion and legal tax avoidance. Tax evasion involves intentionally using illegal methods to avoid paying one’s true tax liability, such as hiding income, fabricating losses, or not filing at all.
In contrast, tax avoidance utilizes legal strategies and loopholes to minimize taxes owed. For instance, increasing charitable giving or using a legal tax-deferred account to delay capital gains taxes would be considered tax avoidance. Simply not reporting capital gains or other income at all would constitute illegal tax evasion.
The key difference is that tax avoidance employs legitimate tactics to reduce taxes, while tax evasion knowingly violates tax laws and regulations.
Penalties for Criminal Tax Evasion
Willfully failing to pay taxes is a federal offense that can lead to substantial criminal penalties as well as steep fines.
- Jail Time – Up to 5 years in prison for each count of tax evasion.
- Fines – Up to $100,000 in fines per count for individuals, $500,000 for corporations.
- Probation – Up to 3 years supervised release after serving prison time.
- Restitution – Having to repay back taxes plus interest and penalties.
In addition to criminal penalties, tax evasion can lead to:
- Liens on property
- Levies on wages and bank accounts
- Loss of licenses or certifications
- Damage to credit and reputation
Take Prompt Action to Avoid Tax Evasion Charges
Early intervention is the key to avoiding tax evasion charges and other implications stemming from an IRS audit.
Having an experienced tax attorney preparing for your criminal tax defense or negotiating with the IRS on your behalf can make all the difference in the outcome for you, your family, and your business.
You have no time to waste if you want to protect your rights, your finances, your reputation, and your future. Contact Silver Tax Group and put a real tax attorney on your side.