What do Wesley Snipes, Mike “The Situation” Sorrentino, and Pete Rose have in common? They’ve all been convicted of tax evasion. Like most tax evaders, these celebrities misreported their income to avoid paying more taxes. If you conceal assets or try to hide income from the IRS, you could find yourself in jeopardy, as well.
What is Tax Evasion?
The U.S. income tax system is based on the idea of voluntary compliance. As a taxpayer, it’s your responsibility to report all income and pay your taxes on time. Deliberately avoiding either of these is illegal. Examples of tax evasion may include, but are not limited to:
- Hiding income. You may think it’s easy to hide cash payments or cryptocurrency sales from the IRS but they have ways of tracing it.
- Intentionally inflating deductions. Deliberately overreporting your expenses and donations to claim a bigger deduction can land you in hot water with the IRS.
- Claiming ineligible tax credits. If you know you don’t meet the eligibility requirements, don’t risk being audited or getting hit with a tax evasion charge – it’s not worth it.
- Concealing property and other assets. Hiding foreign bank accounts and other assets is risky business.
Most tax evasion cases are initiated after a tax audit. The IRS may also launch a criminal investigation if it receives a tip or has additional information that suggests you knowingly and willingly evaded your tax responsibilities. The IRS rarely pursues tax evasion cases for those who can’t pay their taxes. If you have the means to pay them but won’t, however, that’s a different story.
How is Tax Avoidance Different?
Unlike tax evasion, tax avoidance is legal. There are various ways you can legally avoid paying taxes, such as claiming eligible tax deductions and credits. For example, claiming the Earned Income Tax Credit (EITC) or Child Tax Credit, as long as you meet the eligibility requirements, is one way to reduce your tax liability. You can also avoid paying more taxes by contributing to a retirement account or donating to charity. If you claim deductions and credits that you know you are not eligible to take, however, you could potentially be charged with tax fraud or tax evasion.
Potential IRS Actions
There are several actions the IRS can take if it believes you are committing tax evasion. At the minimum, you could face certain penalties and fees, including:
- Failure-to-file penalties
- Failure-to-pay penalties
- Accuracy-related penalties
- Interest fees for unpaid taxes (including penalties)
If you owe more than $10,000, the IRS is also likely to place a lien on your property. Other collection actions, such as wage garnishment or levies, are a possibility, as well.
For more serious tax evasion cases, the IRS may also seek prison time. If convicted, you could face up to five (5) years in jail and/or a fine of up to $250,000 (individuals). The IRS can also bill you the cost of prosecuting you and you’ll have a felony on your record. This means you’ll lose your right to vote, to serve on a jury, and you won’t be able to own or use a firearm. Having a felony on your record can also impact your ability to gain employment or obtain certain professional licenses.
Although tax evasion cases are rare, don’t think that you can outsmart the IRS. Always file accurately and pay on time to avoid any problems. If you’re unsure about your eligibility for certain deductions or credits, or if you need additional time to pay your taxes, speak with a tax professional. A tax pro can ensure you are claiming all eligible deductions and credits. They can also help you get into a payment plan or see if you qualify for other tax relief. For a free consultation, call Tax Defense Network at 855-476-6920 today!