Tax Penalties

Can You Really Go to Jail for Not Paying or Filing Taxes?

It depends. If you haven’t paid, jail time is rare unless the IRS finds that you committed willful evasion or fraud. Otherwise, you’ll only have to contend with IRS civil penalties and collections.

If you haven’t filed, jail time would probably only happen if you continue to refuse to file after the IRS repeatedly tries to get you to file. If you’ve just gotten behind on filing, you can usually catch up and get back into compliance without worrying about criminal charges.

Regardless of what you’re going through, the tax attorneys at The W Tax Group can help you navigate the tax code. If you’re having trouble with the IRS, contact us today.

Key Takeaways

• Jail time for unpaid taxes is possible but rare.
• Jail time is possible in cases of criminal tax fraud/evasion. 
• Criminal tax fraud or evasion requires willful acts. 
• The IRS has six years from the last affirmative act to initiate criminal tax fraud charges.
• Civil fraud penalties are much more common than criminal charges.
• If you don’t pay or file taxes, you may face collection actions such as wage garnishments or bank account levies.
• The IRS uses data matching systems and random audits to find non-filers and unreported income.

Not Paying vs Not Filing

Jail time is rare for either case, but here’s when it could apply:

• If you didn’t pay: The IRS may escalate a case if it finds that you willfully concealed information, filed false tax returns, or evaded paying taxes. If you just made a mistake or missed a deadline, you will usually only face civil penalties.
• If you didn’t file: The IRS will try to get you to file your tax return once it notices you didn’t file. You’ll typically only have to file the last six to get back into compliance. Unfiled returns will only become a criminal risk if you continue to refuse to file after many enforcement attempts or the IRS finds that you willfully evaded taxes.

Will You Go to Jail If You Fail an Audit?

Yes, if the audit reveals criminal tax evasion, you may face jail time. However, this is rare. In most cases, when people fail an audit, the auditor assesses the additional tax liability and then adds penalties, which can be severe if neglect or gross understatement of income was involved.

However, even if the auditor thinks fraud was involved, they’ll usually pursue civil fraud penalties, rather than criminal charges. But if a crime was committed, the IRS will pursue it. 

How Long Can You Go to Jail for Unpaid Taxes?

You can face up to five years in prison for each count of criminal tax fraud and evasion – the average sentence tends to be 16 months to just over two years. Criminal failure to file can lead to up to one year in jail for each year of unfiled returns. 

But again, most people face civil penalties and collections, not criminal penalties. 

How Long Can the IRS Bring Criminal Charges Against You?

The IRS only has six years from the last affirmative act to bring criminal charges against you. However, the agency has an unlimited amount of time to bring civil fraud penalties against you.

Will Three Years of Unfiled Returns Lead to Jail Time?

Usually, not. But you risk criminal charges if the IRS finds a pattern of unfiled returns, a willful intent to evade taxes, or a willful underreporting of income. 

Even in these cases, jail time is rare. The IRS will pursue collections enforcement through penalties, notices, liens, and levies. You could be audited. Or, the IRS could file a substitute for return (SFR) on your behalf, which leaves out tax breaks you qualify for.

What Happens If You Don’t File a Tax Return?

If you don’t file a tax return, you can face a penalty of 5% of the tax owed, every month up to 25%. You may not be able to get loans or file for bankruptcy. The IRS may send you a substitution for return (SFR), which is essentially a return where the IRS assumes your income but doesn’t give you any deductions, exemptions, or credits.

The IRS can pursue collection action (liens, levies, seizures, etc) in pursuit of the unpaid tax, but you may also face misdemeanor charges and a penalty of up to one year in jail and up to a $25,000 fine for each unfiled return. For best results, reach out to the IRS first whenever possible. The agency is more lenient when you file your unfiled returns on your own.

What If You File a False Return? Will You Go to Jail?

If you made a mistake, you can usually work it out with the IRS. If you willfully filed a false return, you may face criminal consequences, including fines up to $100,000 and up to 5 years in prison. 

False returns often include additional dependents, overstated business deductions, unreported income, or fake charitable contributions.

Types of Tax Crimes

The most common tax crimes are fraud and evasion. Fraud is when you deliberately lie or deceive the IRS. Evasion is a type of tax fraud, specifically devoted to evading the payment or assessment of taxes. 

There are several different types of tax fraud, including:

• Failure to collect or pay tax.
• Failure to file a return or supply requested information.
• Fraudulent withholding exemption certificate or failure to supply information.
• Fraudulent and false statements.

Taxpayers may commit criminal tax evasion in the following ways:

• Not filing a return in a willful attempt to avoid paying taxes
• Falsifying financial records
• Underreporting income
• Falsely assigning income – for example, putting income you earned on your dependent’s tax return to get a lower tax rate.
• Not reporting foreign income or assets.

These crimes can lead to a prison sentence of up to five years and fines of up to $250,000 for individuals and $500,000 for corporations. To be convicted of these crimes, your behavior must be willful. Fraud and evasion are intentional. They are not the same as making a mistake on your return.

Civil Versus Criminal Penalties

In most cases, the IRS uses civil penalties to hold taxpayers accountable, and if you’re only facing civil penalties, then you don’t have to worry about jail time. 

• Civil fraud penalty – 75% of the tax owed or the tax that was unreported. 
• Criminal fraud penalties – up to $250,000 in criminal penalties ($500,000 for corporations), up to five years in prison for each count, plus back taxes, interest, and civil penalties. 

Is Tax Avoidance a Crime?

No, tax avoidance is a legal strategy to reduce your tax bill. You can legally avoid tax by legitimate means, and ideally, you should use tax planning strategies to reduce your tax bill as much as legally possible.

People Who Have Gone to Jail for Tax Fraud

When willful fraud or evasion is involved, the IRS will not hesitate to pursue criminal charges. Many famous people have gone to jail for tax evasion, including Wesley Snipes, Ja Rule, and Lauryn Hill. 

Example of a Tax Crime

To help you get a sense of how the IRS detects tax fraud and other tax crimes, here’s a story about tax evasion.

Joe works full-time at an office, and every year, he reports the earnings from his job on his tax return. On the weekends, Joe does junk removal, and it’s turned into a lucrative side business. Now, his annual income from junk removal is about $25,000. He’s been saving the cash in a savings account but hasn’t reported any of that income on his tax return.

The IRS sends Joe an audit notice because it has reason to believe he’s evading taxes. During the audit, the auditor asks about other income sources, but Joe doesn’t disclose his side business or his savings account.

Last year, ABC Property Management Company paid Joe $3,000 to remove junk from some of their properties, and they issued a 1099-NEC to Joe. Although Joe didn’t receive the 1099-NEC because he moved, the IRS received it and knows about that income.

During the next audit meeting, the auditor asks Joe about his savings account. Joe lies and says that he forgot about that account because he never uses it. The auditor pulls out records that he has summoned from the bank and pokes a big hole in Joe’s story.

Because Joe has been earning but not reporting extra income for years, the IRS charges him with tax evasion. He must pay the taxes owed, plus penalties for criminal tax evasion, and he may face a prison sentence.

Penalties aren’t just for taxpayers. There are also consequences for tax preparers who commit tax fraud. If you’re in a situation like this, you need a tax attorney. Do not represent yourself.

FAQs

How much do you have to owe to go to jail?

There is no specific dollar amount or threshold that will lead to jail time. When it comes to unpaid taxes or unfiled returns, the IRS must find willful conduct to issue criminal charges. It’s more about those actions than the amount owed.

Will you get caught if you file a false return?

It’s very possible. To detect false information on returns, the IRS uses a matching system. If a financial institution, an employer, a client, or another third party reports information to the IRS and your return doesn’t have the matching info, the IRS will flag your return for a manual review. 

The IRS also randomly audits returns. If you’ve lied on your return, an audit can be the first step toward a criminal case against you.

Who gets randomly audited?

The IRS only audits about 0.5% of taxpayers every year. That’s just one of every 200. People with incomes ranging from $0 to $25,000 are audited at high rates because the IRS often double-checks the earned income tax credit (EITC). 

If your income is over $10 million, your audit rate jumps to five times the average. 

How many people go to prison for tax crimes every year?

The number varies, but it’s typically 350 to 400 people. In 2024, the median IRS loss for each convicted tax fraud case was just under $500,000. 

Can You Go to Jail for Reporting Illegal Income on Your Tax Return?

Consult with an attorney about your specific situation. Generally, the rule is that you must report illegal income, but you don’t have to incriminate yourself by revealing its source.

For instance, if you earn income from selling drugs or if you embezzle from your employer, you are legally required to report the income. You are also supposed to report the fair market value of anything you steal — if you steal a car worth $10,000, you should report the $10,000 as income and pay tax on it.

Can You Go to Jail for Not Reporting Illegal Income?

You can face jail time for tax evasion if you don’t report income from illegal sources. The most infamous case of this was Al Capone.

The FBI had been trying to capture him for years. Although he was briefly arrested for other crimes, he received an 11-year prison sentence for failing to report illegal income and thus failing to pay income tax, but he was released early due to health problems.

Get Help with Tax Crimes and Fraud

Has the IRS accused you of fraud when you just made a simple mistake on your return? Are you worried about unfiled returns or unreported income? Dealing with tax fraud or evasion? Then, you need legal help.

The tax attorneys at The W Tax Group have extensive experience helping clients deal with the IRS. To learn more, contact us today.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg