What is considered “Tax Evasion”

What is considered “Tax Evasion”

Tax evasion in a simple form means illegally avoiding paying taxes, reporting inaccurately, or failing to report (failing to report cash income is the most common one among them all). The government (especially in the U.S) imposes strict and severe penalties for tax evasion. All U.S. citizens and companies that operate in the country are required to pay income tax and report their annual income based on their earnings.

The Internal Revenue Service (IRS) is in charge of regulating taxes, prosecuting any person or entity that avoids payment of taxes due, and can assess penalties as well. The IRS has many special agents trained to gather the information needed for detecting tax evasion. They have access to tax returns, right to seize or freeze accounts, the power to issue a summons, and the right to collect all necessary financial information.

The IRS audits some taxpayers each year randomly or when they see unusual activity. If a person with significant assets declares a very small amount of income or someone claims a lot of deductions in proportion to their income, then the IRS might contact them regarding an audit. The IRS can also seize assets, freeze money in check and savings accounts, levy tax liens, and garnish when taxes have been intentionally evaded. The IRS can go as far as seizing and selling any and all properties held by the individual taxpayer at auction if they fail to repay the tax liability.

Everyone that is determined to be involved in evasion of tax liability has the right to meet with the IRS and be heard. Should you find yourself in this situation, it would be wise to engage an experienced CPA or tax attorney.

Tax Evasion Penalties

Some criminal penalties and civil penalties include the following:

Civil penalties:

• You will be charged half of 1% of your tax not paid each month or a fraction thereof as a penalty.
• You will be charged 5% of the unpaid taxes every month or a fraction thereof when you fail to file.
• Information reporting penalties: It might range from $15 to $50 depending on how late the information return is filed.
• Accuracy-related penalty: Due to disregard of rules, or negligence you will be charged 20% for understatement of income tax, or underpayment.
• If you file a return that has an erroneous figure or not categorized as correct tax your penalty for frivolous return is $500.
Criminal penalties:
• Intentionally evading taxes
• Fraudulent and false statements
• Preparing and filing a fraudulent return
• Willful failure to file a return
• Falsely supplying information


To avoid being charged with the serious criminal offense of tax avoidance, it is strongly recommended to file your taxes and pay them on time. If you are not familiar with filing requirements and the process, call us today for a free consultation.

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