What happens if you don’t report cash income?

| by Max Soni

Thanks for visiting Spodek Law Group. This is a second-generation law firm managed by Todd Spodek – a seasoned criminal defense attorney with many, many, years of experience. Our team has over 40 years of combined experience successfully handling hundreds of federal criminal cases. We’ve handled cases that captivated national attention – Anna Delvey conning NYC’s elite (turned Netflix series), juror misconduct in the Ghislaine Maxwell trial, and complex federal fraud prosecutions across the country. If you’re reading this, it’s likely because cash income has become a problem, or you’re worried the IRS already knows.

This article explains what actually happens when you don’t report cash income – the civil penalties that pile up fast, when unreported income becomes criminal tax evasion, and how the IRS finds cash you thought was invisible. We focus on what federal prosecutors look for in 2025, because understanding the government’s perspective matters when your freedom is at risk.

The first thing that hits you is civil penalties. The IRS accuracy-related penalty is 20% of the underpayment caused by unreported income – on top of the taxes you owe. If you didn’t file a return at all, the failure-to-file penalty is 5% per month up to 25% of what you owe, with a minimum penalty of $510 for 2025 if you’re more than 60 days late. The failure-to-pay penalty adds another 0.5% per month, also capping at 25%.

Interest compounds daily from the due date until you pay – federal short-term rate plus 3%. The IRS cannot waive interest by law, even if they waive penalties. A $20,000 cash payment you didn’t report in 2022 becomes $30,000+ by 2025 once penalties and compounding interest are added.

Criminal prosecution is where cash income becomes a federal case. The line between civil penalties and criminal charges is intent – did you willfully evade taxes? Federal prosecutors don’t go after honest mistakes. They go after patterns of deliberate concealment. Taking cash payments and not depositing them, keeping two sets of books, structuring deposits to avoid reporting requirements, claiming personal expenses as business deductions to offset unreported cash income. Those behaviors signal willful evasion.

Under 26 U.S.C. § 7201, tax evasion carries up to 5 years in federal prison and a $100,000 fine. IRS Criminal Investigation maintains a 90% federal conviction rate – if they refer your case for prosecution, they’ve already built it carefully. In 2025, the IRS continues prosecuting cases involving unreported income, particularly when the tax loss exceeds $30,000. At that threshold, federal sentencing guidelines typically require prison time.

Once an IRS special agent shows up – not an auditor, an armed criminal investigator – your case has moved beyond civil penalties. At that point you need a federal criminal defense attorney immediately, before saying anything. IRS-CI agents are building a prosecution, not offering you a chance to fix mistakes.

How does the IRS find unreported cash income? Businesses receiving more than $10,000 in cash must file Form 8300 within 15 days. Banks report cash deposits over $10,000. Structuring deposits to stay under $10,000 is itself a federal crime – the IRS watches for that specifically. Former business partners, ex-spouses, and disgruntled employees tip off the IRS regularly.

Lifestyle audits are common in cash-heavy businesses. The IRS compares your reported income to your spending – mortgage payments, car purchases, tuition, vacations. When spending significantly exceeds reported income year after year, that’s a red flag. They subpoena bank records, credit card statements, loan applications. Cash income you thought was invisible becomes obvious when your lifestyle doesn’t match your tax returns.

Your customers might deduct payments to you as business expenses, giving the IRS a record of income you should have reported. Payment processors like Venmo, PayPal, and Square report transactions to the IRS. Even cash businesses leave paper trails – invoices, contracts, emails discussing payments.

The statute of limitations matters. The IRS normally has 3 years from your filing date to audit you. However, if you underreport income by more than 25%, that extends to 6 years. And if you filed a fraudulent return or didn’t file at all – there’s no statute of limitations. The IRS can come after you 10, 15, 20 years later. Not filing means no protection at all. You’re exposed indefinitely.

What should you do if you’ve already failed to report cash income? The worst move is doing nothing and hoping the IRS doesn’t notice. They notice. They always notice – it just takes time. If you realize you underreported before the IRS contacts you, voluntary disclosure might be an option. That means filing amended returns, paying the taxes, penalties, and interest before the IRS opens an investigation. Voluntary disclosure usually prevents criminal prosecution if done correctly.

Once the IRS contacts you – through a notice, an audit letter, or especially a criminal investigation – your options narrow dramatically. Everything you say can be used against you in federal court. This is when having a federal criminal defense attorney who understands both tax law and criminal procedure becomes critical. The difference between someone who talks to the IRS alone versus someone who has counsel from day one is often the difference between prison and a payment plan.

At Spodek Law Group, we’ve handled federal cases involving allegations of tax evasion, unreported income, and IRS criminal investigations. Many of the cases we’re famous for handling – are cases others said were unwinnable. We understand how federal prosecutors build tax cases and how to position clients for the best possible outcome – whether that’s negotiating a resolution before charges are filed, or defending against federal tax prosecution in court.

Todd Spodek – the managing partner of our firm – is a second-generation criminal defense lawyer who has handled hundreds of federal cases. His father was an attorney, and Todd worked in his father’s law firm as a child, which sparked his interest in criminal defense. Former federal prosecutors on our team reinforce that understanding. We know what prosecutors need to prove willful evasion versus negligence.

Unreported cash income is not a problem that fixes itself. The longer it goes unaddressed, the worse it gets – penalties compound, interest compounds, and the risk of criminal prosecution increases. Some people think bankruptcy wipes out tax debt, but taxes from fraudulent returns or unfiled returns aren’t dischargeable. The debt follows you.

Regardless of how complicated your situation is, or how many years of unreported income are involved – we can help you assess your options and determine the best path forward. That might be voluntary disclosure, challenging the IRS’s calculations, or defending against criminal charges. Every case is different, but the worst strategy is doing nothing.

If we’re choosing to work with you, it’s because we think we can make a positive impact on your situation. Unlike other law firms who are more focused on their relationships with prosecutors and judges, Spodek Law Group owes loyalty only to you. We’re available 24/7 because federal investigations don’t happen on a 9-to-5 schedule. This is not the time to handle the IRS alone – federal tax investigations are serious, the penalties are severe, and the consequences last for years. Contact us before the situation becomes a prosecution.