Most people are very unlikely to face criminal charges for not filing a tax return. However, if you didn’t file in a deliberate attempt to defraud the US government or evade taxes, then, you may face criminal charges, and the punishments may include imprisonment.
Most people who don’t file or who file late will only incur penalties and related financial consequences. The IRS only recommends criminal charges in cases involving tax evasion or criminal tax fraud. In criminal cases, not filing is usually a misdemeanor, but it can become a felony in some cases.
So, can you go to jail for not filing tax returns? How long do you go to jail for tax evasion? The answers to these questions vary based on your situation, but this guide covers everything you need to know.
Learn the potential consequences of failing to file a tax return on time and what you can do to get out of this situation. If you feel you need additional guidance, reach out to our attorney at Damiens Law Firm, PLLC, for personalized assistance.
Key Takeaways:
- Misdemeanor for failure to file – Up to $25,000 in fines and up to one year in prison.
- Felony tax evasion – Up to $100,000 in fines and up to five years in prison.
- Willful actions – To be considered criminal, your actions must be willful.
- Tax assessment – If you don’t file, the IRS can assess tax against you.
- Substitute for return – SFR assessments lead to a higher-than-usual tax bill.
- Penalties – Not filing most commonly leads to penalties of up to 25% of the tax due.
- Loss of refund – You must file in three years to claim a tax refund.
- Tax attorneys – A pro can help you file old returns and deal with tax evasion charges if necessary.
When Do People Go to Jail for Not Filing Taxes?
Under Title 26 U.S. Code § 7203, you can face misdemeanor charges if you willfully fail to file a tax return. If convicted, you can face a fine of up to $25,000 and imprisonment for up to one year.
However, if the government believes your actions rise to the level of tax evasion, they may pursue felony evasion charges under 26 U.S.C. § 7201. If found guilty, you can face fines of up to $100,000 ($500,000 for corporations) and up to five years in prison.
Note the word “willful”–to be found guilty of a tax crime, you must have acted willfully. You must have deliberately filed fraudulent documents or not filed in an attempt to evade a tax. In addition to the statutes listed above, there are several other statutes related to tax fraud, and if you’re convicted on multiple counts, you can face much more than five years in prison.
Examples of Tax Evasion Prison Sentences
Here are three recent cases where people faced prison time for not filing a tax return.
- Steven Saris from Ohio did not file tax returns from 2016 to 2021. During that time, he earned more than $9 million running several illegal gambling businesses in Ohio, and he caused the IRS a tax loss of $2.8 million. He was sentenced to seven years in prison for tax evasion, money laundering, and operating an illegal gambling casino. The courts also ordered him to complete three years of supervised release and pay $2.8 million in restitution.
- Robert Powell did not file tax returns from 2010 to 2022, in spite of earning millions during those years. He was found guilty of tax evasion for calendar year 2016, and at the time of writing, he is awaiting his sentencing. He used nominee bank accounts, had his accountant file an extension that reported he earned $0 in 2016, and he lied to auditors about the situation in 2019.
- Dean Dawson faces charges for not filing personal tax returns from 2018 to 2023, and over the same time period, he did not remit payroll taxes withheld from his employees’ checks. At the time of writing, this case is still under investigation, but if found guilty, Dawson may face up to five years in prison for each of the 19 counts of failing to pay employment tax, and he may also face one year in prison for each of the six counts of failing to file a tax return.
As you can see these cases all involved additional crimes. They also involved willful acts to evade paying the tax.
Can You Go to Jail for Not Paying Your Taxes?
If you file but don’t pay your taxes, you will generally not face criminal charges or jail time. The IRS does not pursue criminal charges against people who cannot afford to pay their taxes. However, if you take steps to willfully evade the taxes or defraud the government, then, you may face jail time.
Here’s an example of when someone may face jail time for unpaid taxes. Imagine you owe the IRS $100,000 from several tax returns that you filed but didn’t pay. You apply for an offer in compromise to settle the tax for less than you owe, and you offer to pay $1,000. To increase your chances for approval, you transfer several assets into your mother’s name and you don’t note them on the offer in compromise application. You also fail to note other assets that are in your possession.
In this case, you have willfully filed fraudulent documents (aka committed tax fraud), and you have willfully attempted to evade the tax. If the IRS discovers your actions, they are very likely to refer your case to the Criminal Investigation division.
What Is Tax Evasion?
So, what is tax evasion? Tax evasion involves willfully avoiding paying your taxes. It can take many different forms including filing false returns or not filing at all. Tax evasion is a type of tax fraud, but not all tax fraud is considered to be tax evasion. Tax evasion can also lead to significant penalties.
Tax Evasion Vs. Tax Avoidance
According to the IRS, tax avoidance is when a taxpayer takes an action “to lessen tax liability and maximize after-tax income,” and tax evasion is “the failure to pay or a deliberate underpayment of taxes.”
Tax avoidance, regardless of how it sounds, is actually legal. It involves you claiming credits and deductions you qualify for to lower your tax bill, for instance. It includes using advanced tax planning strategies to legally keep your tax liability as low as possible.
Tax evasion is illegal and can lead to fines up to $100,000 for individuals and $500,000 for corporations, and up to five years of jail time.
What Are the Penalties for Unfiled Tax Returns?
Most people face penalties, not jail time for failure to file. If you fail to file your tax return on time, the IRS can impose a failure-to-file penalty equivalent to 5% of your unpaid tax bill for each month, or part of a month, that your return is late.
However, this penalty won’t exceed 25% of your unpaid taxes. Regardless of how much you owe, you will, however, incur a minimum penalty of $485 if your return is more than 60 days overdue.
You can also incur the IRS’s failure-to-pay penalty, which is calculated as 0.5% to 1% of your unpaid balance each month, also up to 25% of your unpaid tax bill. Additionally, on top of your unpaid balance, failure-to-file, and failure-to-pay penalties, you will incur interest on your debt.
Federal Tax Liens and Levies
If you don’t pay or file taxes, you may eventually face federal tax liens and levies. A federal tax lien is a warning that the U.S. government intends to seize your property – both real and personal – as payment for unpaid taxes. A lien is a public record, so it is also visible to your other creditors. The actual seizure of your property for payment is known as a tax levy.
Once the IRS places a levy against your home, vehicles, or other property, there are a few ways to remove it:
- Pay your tax balance: The first way to remove a levy is to pay off your remaining tax balance in full.
- Request a payment plan: You can also request an installment agreement to pay off your balance over time. Work with an attorney to ensure the terms of your payment plan require the levy to be removed.
- Prove the levy is causing hardship: If you can demonstrate that the levy is making it impossible to cover necessary living expenses, the IRS may remove it.
- Show that the levy was issued incorrectly: If the IRS didn’t follow the right protocol or if they levied exempt assets, they must remove the levy.
- Request tax relief: If you’re unable to pay your balance, you can request an offer in compromise, currently not collectible status, or a partial payment installment agreement (PPIA) with the IRS, which can help you settle your balance if you have a financial hardship.
However, these options usually require you to submit any past-due tax returns. Make sure you stay current on your returns if you are working with the IRS on relief options.
What Is an IRS Substitute for Return?
A substitute for return (SFR) is a tax return the IRS prepares for you in your unfiled return’s absence. It’s generally best to avoid getting an SFR from the IRS because it probably won’t reflect all of the credits and exemptions applicable to you, and thus, will show a larger tax bill than you really owe.
For example, if you qualify for the Child Tax Credit or home office expense deductions, the SFR will not include these tax breaks, and the amount you owe will be more.
If the IRS does decide to initiate an SFR on your behalf, the agency will send you a 90-day letter (CP3219N, Notice of Deficiency), which outlines the proposed tax assessment. If you don’t file your return within those 90 days or file a petition, the IRS will move forward with the assessed amount.
To avoid an SFR, file your tax return with the IRS by the deadline. Even if the IRS files an SFR, filing your own tax return can give you the chance to claim tax credits or exemptions the IRS didn’t take into account.
Can You Go to Jail for Not Filing Taxes for 3 Years?
If you haven’t filed your tax return for three years, you will likely have building penalties and interest, but you won’t necessarily be charged with a crime or go to jail. Again, there must be a willful attempt to evade tax or commit fraud for criminal charges to come into play.
If you are owed a tax refund, note that you have three years from that year’s tax return due date to claim it through filing your return.
How to Avoid IRS Penalties for Unfiled Returns
There are several things you can do to avoid potential legal trouble with unfiled tax returns. Here are steps to take right away:
- File your missing tax return as soon as possible.
- Contact the IRS for missing income documents or have a tax attorney help you.
- Request a tax filing extension for the current year if necessary.
- Pay off your tax balance when you file.
- If you can’t pay in full, set up an installment agreement (monthly payment plan)
- Request relief such as an offer in compromise, which allows you to settle your debt.
- Request tax penalty relief.
- Pay attention to tax deadlines.
Contact a tax attorney for guidance on late tax return filing. A tax professional will get to know your situation and advise you on the best way forward to avoid additional penalties or potential jail time.
How Do I Request Penalty Abatement?
If you have a history of good tax compliance, you can request first-time penalty abatement either by submitting Form 843 or by contacting the IRS using the details on your late-filing penalty notice. For specific guidance on penalty abatement, always consult with a professional tax attorney.
Form 843 is a request for abatement of penalties, interest, fees, and even certain taxes. Line 5a of Form 843 allows filers to select one of three reasons for abatement:
- Interest was assessed as a result of IRS errors or delays.
- A penalty or addition to tax was the result of erroneous written advice from the IRS.
- Reasonable cause or other reason allowed under the law (other than erroneous written advice) can be shown for not assessing a penalty or addition to tax.
In most situations where penalties and fees associated with a late filing can be abated, the third option would most likely apply.
Contact Damiens Law Firm, PLLC for help
So, will you go to jail for not filing taxes? Chances are, your situation will never reach this point, but if you’re worried about criminal charges, you should contact an attorney immediately. However, even if you don’t think you have committed a crime, it’s important to take steps right away to file your tax return and get in good standing with the IRS to avoid penalties and collection actions.
If you expect to file a late tax return or plan to file a return that’s already overdue, get professional guidance from Damiens Law Firm, PLLC. Our tax attorney has many years of experience assisting clients with a variety of personal and business-related tax problems. No matter what you’re up against, we can help.
FAQs about Not Filing a Tax Return
Can You Go to Prison for Not Filing Taxes?
If you are found guilty of felony tax evasion or misdemeanor failure to file, you can go to prison for not filing taxes. You can face up to one year in jail for not filing a tax return.
However, most taxpayers will not go to jail for failing to file or pay their taxes. They will just face penalties and interest, and if the IRS assesses tax against them and they still don’t pay, they may face wage garnishment, asset seizure, and other collection actions.
Will I Get Arrested for Not Filing Taxes?
The IRS will not come to arrest you if you don’t file your tax return or you have several outstanding returns. The agency will start by sending you notices in the mail about your outstanding balance and failure to file penalty charges. Never ignore these IRS notices.
If the IRS believes a crime has occured, they can recommend you for criminal investigation, and once you’re under investigation, you may be arrested.
How Far Back Can the IRS Go for Unfiled Returns?
The IRS can go back an unlimited amount of time to assess taxes on an unfiled return. However, the statute of limitations for most tax crimes is six years. In other words, the IRS can only bring forward criminal charges on acts that have been committed in the last six years.
When Do You Go to Jail for Not Paying Taxes?
Taxpayers may face criminal penalties and even prison time if they are charged with tax fraud or tax evasion. In most cases of missed tax return deadlines, these charges will not apply.
Can You Be Jailed for Tax Evasion?
If the IRS finds that you willfully avoided paying taxes or engaged in tax fraud, you could face years of jail time and up to hundreds of thousands in tax penalties.
Can You Go to Jail for Filing Taxes Wrong?
If you make mistakes on your tax return, the IRS will usually not send you to jail. You can submit an amended return to rectify the misreported information or contact the IRS if the agency’s information is incorrect. The IRS only pursues criminal charges in instances of tax evasion and tax fraud where taxpayers willfully evade their tax obligations or defraud the IRS.
