Can You Go to Jail for Unfiled or Unpaid Taxes?

Tax time is one of the most dreaded times of the year. Even though it’s relatively easy to file your taxes with the help of accountants and online tools, many people put off filing until the last possible moment. In extreme cases, people may choose not to file at all.    If this is the situation you find yourself in, know that you’re not alone. Millions of Americans have delayed filing, only to have one year of unfiled taxes turn into two, three, or more years. However, there are consequences for failing to file or pay taxes, and in criminal cases, you can face jail time for unfiled or unpaid taxes.    To protect yourself, you should know what’s at stake. Many people find it helpful to work with a tax attorney who can help them navigate their current issues. To get help today, contact us at The Timothy S. Hart Law Group, P.C. Otherwise, keep reading to learn when you may face jail time for tax problems. 

Tax Crimes That May Lead to Jail Time

While not all tax crimes lead to jail, those who are tried for tax fraud are likely to go to prison. The United States Sentencing Commission reports that almost two-thirds of those convicted of tax fraud were sentenced to prison time. Some tax crimes that can lead to incarceration include:

• Tax evasion
• Tax fraud
• Fraudulent withholding exemptions
• Attempts to interfere with the administration of IRS laws
• Conspiracy to defraud the government

  Note that legally, the government does have the right to imprison those who are convicted of more minor tax crimes. While it’s unlikely, it is always a possibility—that’s why it’s important to work with a tax attorney if you are behind on your tax returns or payments.   There are many different criminal charges that fall under the umbrella term of “tax crimes,” and several of these crimes can lead to imprisonment. However, it’s very important to note that imprisonment is generally reserved for cases where people intentionally attempt to defraud the government and withhold taxes.    The average person who got behind on filing or paying taxes while going through a rough financial period isn’t likely to end up incarcerated, although they may face civil penalties. 

Tax Fraud in the News: Celebrities Who Have Gone to Jail for Tax Crimes in the United States

No one is safe from the IRS—even the famous. A quick look back into recent history uncovers a long list of celebrities who have gone to prison for tax fraud or tax evasion.   Mike “The Situation” Sorrentino of Jersey Shore fame found himself in quite a “situation” when he failed to pay taxes on $9 million of his earnings from 2010 to 2012. As a result, he spent eight months in jail.   Teresa and Joe Giudice from Real Housewives of New Jersey faced a staggering 39 counts of fraud and tax charges. Joe did not file taxes between 2014 and 2018. When all was said and done, Teresa was sentenced to 15 months in prison, and Joe was sentenced to 41 months.   Rapper Ja Rule was hit with massive fines and a 28-month prison sentence for tax fraud. This occurred when he failed to file his taxes for four years.   Finally, no list of famous people who have been brought down by tax fraud is complete without Al Capone. Investigators could not pin down the crime boss despite his criminal dealings being widely known. They finally got him behind bars for 11 years when he was convicted of tax evasion.

Pleading Guilty to Tax Fraud Doesn’t Always Lead to Jail Time

Now, let’s look at someone who didn’t go to jail for tax fraud. Stephen Baldwin pled guilty to non-payment of state taxes for 2008, 2009, and 2010. However, he claimed that he did not intentionally evade taxes, putting the blame on poor guidance from lawyers and accountants.  Although individuals are responsible for the forms they file, he avoided jail time and paid his debts off within a year. This highlights the fact that the IRS wants to recover its money, not seek vengeance against those who make careless mistakes.

Most Incarcerations Relate to Big Tax Liabilities

The same mistakes that trip up normal everyday people can also cause issues for famous people. However, you’ll note something these examples all have in common—they all involve significant sums of money.    Remember that the IRS is not in the business of putting people behind bars just for fun. They simply want to collect the money owed to the U.S. government. It costs the IRS a significant amount of money to take someone to court and get them convicted, so they’re not going to go right to criminal action for every case of unfiled taxes. They want your money, so you’re much more likely to end up with civil penalties and fees in lieu of prison time.

Jail Time for Tax Fraud Doesn’t Just Affect the Rich and Famous

How does tax fraud play out in real life? Let’s take a look at a February 2023 conviction. Two individuals from North Carolina and Maryland filed estate and trust tax returns for fraudulent trusts they owned. They sought to claim refunds that they were not owed. On top of that, they filed fraudulent personal tax returns.    Had their plan been successful, they would have stolen $2.2 million from the government. In addition to each paying nearly $1 million in restitution, both were sentenced to 30 months in prison and three years of supervised release. Their charges were aiding in the preparation of false tax returns, stealing government funds, and conspiring to defraud the United States.

How Different Actions Can Lead to Jail Time

Understanding how different crimes may result in jail time can help you understand the importance of tax compliance. In most cases, a simple mistake will generally lead to a fine or maybe a slap on the wrist, depending on the situation. But in cases of criminal action, the following issues can land you behind bars. 

Not Filing a Tax Return

What happens if you don’t file taxes? Technically, the IRS can seek jail time for unfiled tax returns. You can legally be sentenced to one year in jail for each year that you fail to file on time. In reality, though, this rarely happens—the IRS generally just wants you to catch up on your returns and pay what you owe. Not filing a tax return only leads to imprisonment if criminal intent to evade taxes was involved.

Filing a False Tax Return

This is clearly a different situation than simply not filing a return. A false tax return includes fraudulent information that allows an individual or business entity to limit the amount of money they owe or increase the amount they receive as a refund. Fines may be as high as $100,000, and prison sentences may be as long as three years.

Evading Taxes

Tax evasion is one of the most serious types of tax crimes. It occurs when someone intentionally fails to report their income in full or in part. This allows them to pay lower taxes on their income. The penalties for tax evasion are stiff, resulting in fines as high as $100,000 for individuals and incarceration for up to five years.

Not Reporting Illegal Income

The idea of reporting income earned from drug dealing, prostitution, bribes, stolen property, or running illegal gambling rings may seem laughable. However, the IRS always wants its share—even when the income was earned in a less-than-scrupulous manner. Illegally earned income must be reported on your income tax return.    If you don’t report the income, you can go to jail for tax evasion. However, reporting the income is not an admission of committing a crime. 

FAQs About Jail Time for Tax Crimes

The penalties for not filing and/or paying taxes can be complicated. Again, most people generally don’t have to worry about imprisonment, but if you’re convicted of a tax crime, your risk of going to prison is fairly high. Take a look at the answers to these common questions to learn more. 

Does an Audit Mean I’m Going to Jail?

If you have been notified of an audit, you may be unable to get rid of that sinking feeling in your stomach. Don’t let your imagination run away from you—an audit rarely leads to jail time.    An audit is an in-depth examination of an individual’s financial records and tax filings in an effort to ensure their return was filed correctly. In most cases, an audit finds basic mistakes or missed income sources. This generally results in the individual being forced to pay civil penalties and back taxes.   However, in some cases, an audit may discover criminal tax fraud or evasion, and if that happens, the auditor will refer the issue to an investigator who may decide to pursue criminal charges. 

What’s the Difference Between Civil Vs. Criminal Tax Penalties?

Most tax issues lead to civil penalties. For example, if you file late, you’ll incur a civil penalty. If an auditor discovers that you understated income on your tax return, you’ll also face a civil penalty. Civil penalties require the guilty party to pay reparations and other penalties as a result of their actions.    Criminal penalties apply when someone has been charged with and convicted of a crime. Criminal tax penalties can include monetary penalties and/or imprisonment. 

What Is the Statute of Limitations for Tax Crimes?

There is no statute of limitation for civil fraud penalties. The IRS can enforce civil fraud penalties at any time. If you are referred for criminal tax fraud charges or you are charged with tax evasion, there is a six-year statute of limitations. However, the timeline generally doesn’t start running until you file your return. There’s no statute of limitations for unfiled returns.

What if I Don’t File a Tax Return?

You will incur penalties if you don’t file, and if you’re due a refund, you can’t claim it after three years have passed. Not filing generally does not lead to criminal charges. However, if the IRS believes that you didn’t file in a deliberate attempt to avoid paying taxes, you can face criminal charges. 

What if I Don’t Pay My Taxes?

Generally, if you don’t pay your taxes, you will incur penalties, and the IRs can enforce collection action against you. Again, not paying taxes usually only turns into a crime in severe cases of tax fraud or evasion. 

What if I Report Illegal Income?

By law, you should report illegal income, such as stolen property or bribes, but you don’t have to reveal its source. Reporting illegal income should not incriminate you. However, if you don’t report illegal income, you can face jail time for tax evasion—after all, that’s how they caught Capone. 

Can the IRS put you in jail?

IRS special agents have the legal right to arrest people. However, to be imprisoned for a tax crime, you must be convicted and sentenced by the courts. 

Next Steps If You Believe You May Have Committed a Tax Crime

If you’ve been reading this with a gradual sinking feeling building in your chest, you may be worried that you have engaged in tax fraud or evasion. Even if your situation turns out to be nothing, it’s important to take action and take steps to right your wrongs.    When hiring someone to help you, ensure that you work with a tax attorney who has handled tax crime charges, as this situation is quite different from cases only involving civil penalties.   To protect yourself, do not get in touch with the IRS on your own. Honesty is the best policy, but your honesty should only be communicated by your attorney. Your lawyer can provide guidance on how to come clean, make reparations, and avoid more serious consequences.    The IRS has a voluntary disclosure program for those who take steps to make things right before they are the target of an investigation. You should always consult with an attorney before taking advantage of this program.

Unfiled or Unpaid Taxes Aren’t Necessarily a Crime—But They Do Need to be Addressed

Hopefully, you now realize that the IRS isn’t just waiting for regular people to make small mistakes so they can throw them in jail. In fact, many people wonder if the IRS can put you in jail. They don’t—they only recommend criminal investigations to the appropriate agencies, and they only do so when it’s likely that an individual or company has intentionally attempted to defraud the government.    This does not mean, though, that you don’t have to take action on your unfiled returns or unpaid taxes. At some point, the IRS will catch up with you—and at that point, your penalties will likely be far worse than they would be if you had addressed the matter earlier.   Choosing the right tax attorney for your current tax issues can bring you peace of mind while putting you on the path to compliance. Let’s talk about your options and work together to develop a plan—schedule your free consultation now by contacting us today.