What is federal tax evasion?

| by Max Soni

Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek – with over 40 years of combined experience handling criminal defense cases that others won’t touch. You’ve probably seen our work on Netflix. Todd represented Anna Delvey in the case that became “Inventing Anna,” and we’ve handled everything from the Ghislaine Maxwell juror misconduct matter to defending clients in cases involving allegations like stalking Alec Baldwin. If you’re researching federal tax evasion, you’re likely facing serious exposure – and you need to understand exactly what the government must prove to convict you.

Federal tax evasion isn’t just owing money to the IRS. It’s a felony. The distinction matters because plenty of people owe back taxes without committing a crime. What separates a tax debt from a federal prosecution is intent – specifically, whether you took affirmative steps to cheat the government out of money you knew you owed. Under 26 U.S.C. § 7201, tax evasion is “willfully attempting in any manner to evade or defeat any tax.” That language is deceptively simple. Prosecutors use it to charge everyone from small business owners who skim cash to executives hiding millions offshore.

The penalties are severe. Up to five years in federal prison. Fines reaching $100,000 for individuals, $500,000 for corporations. And that’s before restitution – you’ll pay back every dollar you evaded, plus the cost of prosecuting you. IRS Criminal Investigation maintains a 90% conviction rate, which means if they’re charging you, they believe they can win.

Tax evasion prosecutions aren’t random. In fiscal year 2024, IRS-CI initiated over 2,667 criminal investigations and secured 1,571 convictions. They identified more than $9.1 billion in fraud and obtained $1.7 billion in restitution orders. Those numbers tell you something important – the IRS Criminal Investigation division is selective. They don’t prosecute every case of underreported income. They target cases where the evidence is strong, the dollar amounts matter, and the conduct is egregious enough to justify criminal charges rather than civil penalties.

What does tax evasion actually look like? Three elements must exist for a conviction. First, there has to be a tax deficiency – you owe money you didn’t pay. Second, you took an affirmative act to evade that tax. Third, you acted willfully. All three elements. The government must prove each one beyond a reasonable doubt.

The affirmative act requirement trips people up. Simply failing to file a return or failing to pay what you owe – that’s not enough for a tax evasion charge under Section 7201. The statute requires some overt step demonstrating an attempt to evade. Filing a false return qualifies, obviously. So does hiding income in offshore accounts, maintaining two sets of books, dealing primarily in cash to avoid creating records, backdating documents, or transferring assets to conceal them from the IRS. Most prosecutions involve false returns because that’s the clearest evidence of intent – you signed a document under penalty of perjury knowing it contained lies.

Willfulness is the element that separates criminal conduct from negligence or mistake. The legal standard is “the voluntary, intentional violation of a known legal duty.” You have to know you owed the tax and deliberately chose not to pay it. Errors don’t count. If your accountant made a mistake, that’s not willful. If you relied on bad tax advice in good faith, that’s a defense. But “I didn’t know I had to report that income” won’t save you if the government proves you concealed the income deliberately.

Common examples we see – underreporting business income by skimming cash receipts. Claiming personal expenses as business deductions. Hiding assets in offshore accounts and not reporting the income those accounts generate. Paying employees under the table to avoid payroll taxes. Using shell companies or nominees to hold assets. Destroying records when an audit starts. Each of these involves an affirmative step to hide taxable income or evade payment.

Offshore accounts deserve special attention because the penalties stack. If you willfully fail to file an FBAR (Report of Foreign Bank and Financial Accounts), the civil penalty alone is the greater of $156,107 or 50% of the account balance. Many taxpayers with foreign accounts face both FBAR penalties and criminal tax evasion charges if they actively hid the income those accounts generated. The IRS knows wealthy individuals and corporations hide billions offshore using complex schemes involving foreign trusts and shell companies – and they’re actively investigating these arrangements in 2025.

The distinction between tax evasion and civil tax fraud matters for your exposure. Civil fraud triggers a 75% penalty on the underpayment but doesn’t put you in prison. Tax evasion is a federal felony. The government chooses which path to pursue based on how egregious your conduct was, how much money is involved, and whether prosecution serves their deterrence goals. They prosecute roughly 3,000 tax crimes annually – a small fraction of all tax fraud – because the threat of criminal charges keeps most taxpayers compliant.

Recent cases show what triggers prosecution. In January 2025, a paving contractor was sentenced for concealing over $1.1 million in income. In August 2025, a roofing business owner got a year and a day in prison for hiding $1.6 million from the IRS. These aren’t billionaires. They’re small business owners who thought cash transactions would fly under the radar. They were wrong.

If you’re under investigation, your window to fix this is closing. The moment IRS Criminal Investigation gets involved, you’re beyond the stage where you can just pay the back taxes and move on. Once special agents are building a criminal case, they’re looking at prison time, not payment plans. That’s why early intervention matters – we’ve seen cases where proactive disclosure and cooperation, handled correctly through counsel, kept situations in the civil realm instead of becoming criminal prosecutions.

At Spodek Law Group – we handle federal tax cases because we understand how prosecutors think. We have former federal prosecutors on staff who know exactly how the government builds these cases, what evidence they need, and where the weaknesses are. Unlike other law firms focused on maintaining relationships with prosecutors and judges, our loyalty is to you – the client facing years in federal prison if this goes wrong.

Federal tax evasion is one of the few white-collar crimes where the conviction rate approaches 90%. That doesn’t mean these cases are unwinnable. It means you need a defense strategy built on challenging the government’s evidence for each element. Did they prove willfulness beyond a reasonable doubt, or could your conduct be explained by reliance on professional advice? Can they establish the affirmative act requirement, or did you simply fail to file without taking steps to conceal? Is their calculation of the tax deficiency even accurate? These are the questions that determine whether you walk away or spend years in federal prison.

The stakes are different when federal prosecutors are involved versus civil IRS proceedings. Federal sentencing guidelines calculate your offense level based on the tax loss amount – and the numbers escalate quickly. A tax loss over $550,000 can push your guideline range into years of custody before any adjustments. Acceptance of responsibility – admitting guilt and taking accountability – can reduce your sentence, but only if handled correctly at the right time with the right strategy.

We’re not going to tell you this is simple or that you shouldn’t be worried. Tax evasion charges are serious. The government has nearly unlimited resources, experienced prosecutors, and a conviction rate that speaks for itself. What we can tell you is that every case has defenses, every prosecutor’s theory has weaknesses, and the difference between a guilty verdict and a favorable resolution often comes down to how early you get serious representation involved and how aggressively your attorneys challenge the government’s case at every stage.

If you’re reading this because you received a target letter, because IRS-CI agents contacted you, or because you know your tax situation has criminal exposure – you need to talk to a federal criminal defense attorney immediately. Not a tax preparer. Not a CPA. A criminal defense lawyer who handles federal prosecutions and understands both tax law and criminal procedure. The decisions you make in the next few days will determine the rest of your life.