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Tax evasion: consequences and actions

On Behalf of | Mar 3, 2021 | Tax Evasion

Payment of taxes is an important civic duty of every citizen who has a source of income. The obligation to collect taxes vests in the revered hands of Internal Revenue Services (IRS). Failure to remit all the taxes that are due to IRS can be considered as tax evasion, which has dire consequences. 

So what is tax evasion? Simply put, it is the deliberate act of not fully disclosing all the income one has made or claiming deductions that one reasonably knows they are not entitled to.

Did you know that you can be jailed for a tax evasion offense?

Sounds surreal, but yes, one can be imprisoned for not paying their taxes. The IRS has been empowered to collect taxes and also to carry out tax audits when they reasonably suspect that a person is holding back from making truthful declarations on their tax returns.

 If there is sufficient evidence to prove the allegations of tax evasion by the IRS, then upon conviction, one would be sentenced to a prison term. The incarceration period can be as long as five years. The court might also slap such a convict with a hefty fine not exceeding $100,000 as an individual or $500,000 or a company. In some instances, a fine and a prison term can be jointly imposed as applicable punishment.

One mode that the IRS uses to detect tax evasion is by checking the way an individual spends or deposits cash. The Banking Secrecy Act enables banks to share information with IRS if deposit thresholds of $10,000 are met. The IRS would then contrast the deposits with the taxes paid and if they don’t tally an audit would be commenced. 

What should one do to avoid being adjudged as a tax evader?

Tax law is quite a complex arena that is why the area has so many professionals like tax attorneys, tax accountants, IRS officers, etc. Therefore, it is unreasonable to expect the citizens to know every task procedure concerning tax declaration. Institutions that do not have digitized systems, pizza parlors, restaurants, and similar establishments are prone to tax evasion as payment is done in cash. 

If an organization lacks tax accountants to make proper filings or is overwhelmed by clients, they might innocuously make a mistake and be charged with tax evasion. On the other hand, an employee may not report all of their makings thus make the institution liable. 

Therefore, it is of utmost importance to businesses to ensure they exercise an abundance of caution while filing returns. Such reasonable care is critical as it would show there was no willful intent to underreport taxes.

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