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Is Tax Evasion A Felony

Is Tax Evasion a Felony? A Breakdown of the Laws and Penalties

Tax evasion – intentionally avoiding paying taxes that are legally owed – is a very serious crime that can result in felony charges, fines, and imprisonment. With tax season underway, many taxpayers wonder: exactly what constitutes tax evasion, and what are the potential criminal penalties? Let’s break it down.

Defining Tax Evasion

The legal definition of criminal tax evasion is willfully attempting to evade or defeat paying taxes that are owed to the government. This is more than just making a mistake on your tax return or owing back taxes – it requires an intentional act of fraud or concealment.
Some examples of tax evasion include:

  • Lying on your tax return about income, deductions, credits, etc. to illegally reduce how much tax you owe
  • Hiding money in offshore bank accounts without reporting it
  • Conducting business transactions in cash to avoid creating a tax paper trail
  • Keeping two sets of books to misrepresent profits or expenses
  • Claiming personal expenses as business deductions

As you can see, criminal tax evasion requires willfully falsifying, concealing, or misrepresenting information to the IRS. Simply owing taxes or making errors doesn’t qualify. There must be intent to break tax laws.

Is Tax Evasion a Felony?

Yes, under federal law, tax evasion is charged as a felony. Specifically, tax evasion falls under 26 U.S. Code § 7201 for federal tax evasion. This law states:
“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
The key phrase is “willfully attempts to evade or defeat any tax.” Thus, intentionally breaking tax laws – not just accidentally failing to pay taxes – is a federal felony.
This applies to personal federal income taxes as well as various business taxes. State laws also prohibit tax evasion, often as a felony.

Penalties for Tax Evasion

The penalties for a federal tax evasion felony conviction under 26 U.S. Code § 7201 can include:

  • Up to 5 years in federal prison
  • Fines up to $100,000
  • Paying back taxes plus interest and penalties
  • Loss of certain civil rights and privileges

In addition to the criminal penalties, those convicted of tax evasion face heavy civil fines from the IRS totaling up to 75% of the unpaid tax owed. The IRS will also charge interest on unpaid back taxes and assess failure-to-file, failure-to-pay, and accuracy penalties.
Furthermore, those convicted may be disqualified from holding certain professional licenses, serving on boards, working for financial institutions, government contracting, and other business activities. Tax evaders often face financial ruin from fines, back taxes, legal fees and damage to their reputations.

Defenses Against Tax Evasion Charges

What if you face tax evasion charges but believe you did not intentionally break tax laws? In that case, possible defenses to fight the charges include:

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  • Lack of intent – Arguing that incorrect tax returns or unpaid taxes resulted from honest mistakes or misunderstandings, not willful tax fraud.
  • Reliance on a tax professional – Demonstrating you fully disclosed information to an accountant or tax preparer and relied on their expert advice about deductions, credits, etc.
  • Unrealistic timeline – Explaining that the IRS imposed an unrealistic deadline to file accurate returns or pay taxes owed, preventing compliance.

An experienced white collar crimes tax attorney can evaluate the evidence against you and build a defense to fight the charges if they believe the government lacks proof you intentionally evaded taxes.

Avoiding Tax Evasion Charges

While tax evasion may seem tempting to some taxpayers struggling with debts, it is incredibly risky and can ruin lives. Instead, those falling behind on taxes should:

  • File for an automatic IRS tax filing extension if more time is needed.
  • Consider making payments via an IRS installment agreement or offer in compromise.
  • Consult a tax relief firm about options for innocent spouse relief or penalty abatement if a spouse’s actions led to tax troubles.
  • Read IRS information carefully about required tax records, allowable deductions, how to report income and assets, etc. Ignorance of tax laws is no excuse for tax evasion.

The bottom line? Intentionally evading legally owed taxes is a serious federal felony. Those charged should immediately contact a criminal tax defense lawyer to protect their rights. Through an open dialogue with the IRS and proper legal counsel, non-criminal solutions may exist for those struggling with tax debts.

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