Your Guide to California and Federal Tax Evasion Penalties

The law imposes significant tax evasion penalties to deter activities that could lead to a conviction for evasion or fraud. In addition to financial penalties, a tax fraud conviction can result in several years of jail time, depriving you of your liberty.

While these penalties may seem harsh, the IRS is committed to seeking custody for those who intentionally break tax laws. Penalties vary based on the nature of the offense, but the law clearly outlines the maximum fines and jail terms.

Is Tax Evasion a Federal Crime?

In an ideal world, you’d never find yourself searching for the answer to the question: is tax evasion a federal crime? Unfortunately, tax evasion is indeed a serious federal offense with significant repercussions if convicted.

The justice system imposes harsh penalties for tax crimes, and felony convictions can have long-lasting impacts on your ability to seek employment or run a business. Tax evasion, as defined by Section 7201 of the US Internal Revenue Code, includes two primary offenses that constitute a federal crime.

Willful Evasion of Tax Assessment

A willful attempt to evade or defeat the assessment of a tax is considered a federal crime. For instance, if an individual hides assets under another person’s name or transfers assets to obscure their actual tax liability from the IRS, it is deemed willful evasion.

Willful Evasion of Tax Payment

Similarly, a willful attempt to evade or defeat the payment of a tax liability is also a federal crime. This occurs when a person intentionally tries to avoid paying taxes that are due.

Proving Willful Intent

The term “willful” is crucial in these cases. To secure a conviction, the prosecution must prove beyond a reasonable doubt that the accused performed an intentional act to evade or defeat the assessment or payment of a tax. Additionally, they must demonstrate that the accused owes additional tax.

Tax evasion carries severe penalties, including substantial fines and lengthy jail terms, underscoring the importance of complying with tax laws and addressing any discrepancies proactively.

Tax Fraud Jail Time: Can You Go to Jail for Tax Evasion?

The consequences of tax fraud are severe, including substantial fines and the possibility of jail time. If you’re convicted, you can indeed go to jail for tax evasion. While the legal process can be lengthy as it moves through the court system, incarceration is a very real outcome for those found guilty of evading taxes.

You might wonder, “Why do I have to pay Uncle Sam my hard-earned cash?” or “Why do I owe state taxes?” But if you intentionally avoid paying them, you risk ending up behind bars.

The Path to Criminal Prosecution

Before the IRS initiates a case for criminal prosecution, a series of events typically occur. It often begins with an audit of a filed tax return. The IRS examines the return for patterns indicating willful evasion over several years, often involving significant amounts of money.

Most criminal prosecutions arise from unreported income. Taxpayers might habitually omit large transactions or entire income sources to reduce their tax liabilities intentionally. Deliberately hiding records or making false statements during an audit signals to IRS auditors that the case may warrant criminal prosecution.

Factors Influencing Jail Time

The length of tax evasion jail time varies based on several factors, including the amount of money involved and whether the defendant is a repeat offender. Sentencing guidelines establish minimum terms, influencing how long a convicted individual will be incarcerated.

Mitigating the Consequences

While the consequences for intentional tax evasion are harsh, most taxpayers facing an audit will only incur penalties if the evidence shows they didn’t intentionally break the law. Having skilled tax audit representation can work in your favor. Experienced tax audit attorneys can help demonstrate to the IRS that any discrepancies were unintentional, potentially saving you from a long and difficult trial.

In summary, while jail time for tax evasion is a severe penalty, proper representation and transparent communication with the IRS can mitigate the worst outcomes. Compliance with tax laws and prompt addressing of any issues is crucial to avoid these severe consequences.

Tax Evasion Sentencing Guidelines: Who Goes to Jail for Tax Evasion?

Understanding the reasons behind tax evasion penalties can clarify why a prison sentence may be imposed if you’re convicted. The federal sentencing guidelines outline the baseline prison terms for tax evasion, with additional penalties including substantial fines.

The Severity of Criminal Tax Evasion

Tax evasion is a serious offense. The law is strict on those who consciously attempt to evade their tax liabilities, and leniency is rarely an option. Prosecutors typically seek the maximum possible jail time for such crimes.

If you’re worried about whether you’ll go to jail for not filing your tax return on time, there’s some relief. Simply failing to file a timely return isn’t enough for a tax evasion conviction. Criminal prosecution occurs only when there is a deliberate attempt to evade filing returns or filing false returns. Mistakes or forgetfulness won’t result in criminal charges, but it’s still wise to consult a tax attorney if facing charges to develop a robust defense strategy.

Acts That Can Lead to Jail Time for Tax Evasion

Here are a few deliberate acts that can result in a jail sentence for tax evasion:

1. Hiding Income from a Side Hustle

Side hustles are common in today’s economy, from driving for rideshare services to making deliveries. It’s crucial to report income from these activities. Failing to declare this income over several years is considered willful tax evasion by the IRS.

2. Helping Someone Else Evade Taxes

Even if you’re not personally concealing income or filing false returns, you can still be convicted of tax evasion if you help someone else evade taxes. Section 7201 of the US Internal Revenue Code states that aiding another in evading their tax liability is a prosecutable offense.

3. Failure to Disclose Offshore Bank Accounts

Americans must pay taxes on foreign income. Hiding foreign income in offshore bank accounts can lead to severe penalties. If the IRS proves that you willfully failed to disclose these accounts, you could face heavy fines and imprisonment.

Tax Evasion Punishment: How Long Do You Go to Jail for Tax Evasion?

Understanding the punishment for tax evasion involves knowing how sentences are calculated under federal guidelines. The length of jail time for tax evasion is primarily determined by the federal sentencing guidelines, which use a numeric system to assess the seriousness of the offense and the defendant’s criminal history.

Federal Sentencing Guidelines Overview

The guidelines consist of 43 levels representing the severity of offenses. Generally, the more serious the crime, the higher the base offense level. Specific characteristics of the offense can adjust this base level. For example, a guilty plea might reduce the offense level.

Criminal History Consideration:

A defendant’s criminal history significantly impacts sentencing. Repeat offenders face harsher sentences, in line with the guidelines’ policy of penalizing recidivism more severely. However, it’s important to note that these guidelines are advisory. Judges have the discretion to impose sentences above or below the suggested range.

Key Factors in Determining Sentence Length

Tax Loss to the Government:

• The primary factor in determining the offense level for tax evasion is the tax loss to the government.
• Tax loss is defined as the total amount of loss intended by the offense, assuming it was successfully completed.
• In cases where the tax loss is not agreed upon, it is presumed to be 28% of the gross income plus 100% of any false credits claimed.

Base Offense Level:

• The base offense level is determined from the federal sentencing guidelines’ tax table after calculating the tax loss.
• The levels for tax crimes range from 6 to 36.
• Specific facts of each case can lead to adjustments. For example, more elaborate schemes or the use of money laundering to evade taxes might increase the base level.

Examples of Offense Level Adjustments

Increased Offense Level:

• Use of sophisticated means to commit the tax evasion, such as offshore accounts or false identities, can result in a higher offense level.
• Engagement in additional criminal activities like money laundering also leads to an increase.

Reduced Offense Level:

• A defendant who cooperates with authorities or pleads guilty may see a reduction in their offense level.

Practical Application of the Guidelines

The exact jail time depends on the offense level and the defendant’s criminal history. Here’s a simplified outline:

Low-Level Offenses (Level 6-8):

Minor tax evasion cases with small tax losses may result in shorter sentences, typically ranging from probation to a few months in prison.

Mid-Level Offenses (Level 9-16):

More significant tax losses and moderate criminal history can lead to sentences of several months to a few years.

High-Level Offenses (Level 17-36):

Major tax evasion cases involving substantial tax losses and/or extensive criminal activity can result in long prison terms, often several years or more.

Average and Maximum Jail Time for Tax Evasion

Average Jail Time for Tax Evasion

The average jail time for tax evasion typically ranges between 3 to 5 years. The exact duration of the sentence depends on the specifics of each case, including factors like the amount of tax evaded, the defendant’s criminal history, and the complexity of the evasion scheme. Generally, defendants convicted of tax evasion can expect to serve a sentence within this range.

Longest Sentence for Tax Evasion

The longest sentence for tax evasion is set by Section 7201 of the US Internal Revenue Code, which prescribes a maximum sentence of five years. In addition to imprisonment, those convicted of tax evasion may also be required to pay substantial financial penalties. These penalties aim to recover the evaded taxes and serve as a deterrent against future tax evasion attempts.

Potential Penalties for Tax Evasion in California

When individuals or entities are convicted of tax evasion in California, they can face substantial penalties, including:

Imprisonment

• Misdemeanor Tax Evasion: Conviction can result in imprisonment for up to one year in county jail.
• Felony Tax Evasion: Conviction can lead to imprisonment for up to three years in state prison.

Fines

• Individuals: A fine of up to $20,000.
• Corporations: A fine of up to $100,000.

Restitution

The court may order the defendant to pay restitution to cover the tax liability owed, ensuring that the state recovers the evaded taxes.

Collateral Consequences

There are also severe collateral consequences that come along with a conviction of tax evasion, including revocation or suspension of professional licenses of people who are lawyers, doctors, or accountants, and a severe damage to the defendant’s personal and professional reputation.

Any Questions? 

At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.

Interested in learning more? Read on to learn how to respond to an IRS audit.