Most people who have tax problems didn’t start out trying to break the law. Usually, tax issues begin when you forget to file your return one year or you don’t enough have money to pay off your balance. One year of tax problems can suddenly turn into several years and before you know it you owe tens of thousands of dollars you cannot afford to pay back. You may now be wondering if you can be arrested for not paying taxes.
While there is no easy explanation to this question, the short answer is maybe. While you could get prison time for lying on your tax return, you cannot be imprisoned for not having the funds to pay your taxes. Read below to learn more about possible consequences if you fail to pay your taxes.
Understanding Criminal and Civil Charges
Most tax proceedings are civil matters and not criminal. It is important to understand the difference between criminal and civil proceedings. Criminal cases involve an action that is considered harmful to society as a whole and are considered offenses against a specific jurisdiction. If convicted in a criminal court, you can be sentenced to prison time. Civil matters, on the other hand, involve private disputes between organizations or individuals. You cannot typically be sent to prison over a civil matter.
If you are audited by the IRS and they determine that you owe money, they may place a civil judgment against you to collect the past due tax balance. Generally, the only crimes that are prosecuted in a criminal court are tax fraud and tax evasion. You may be subject to a prison sentence if the IRS files criminal charges and you are sentenced in a criminal proceeding.
Tax Crimes That Come With Prison Time
Audit rates have reached an all-time low. According to the Tax Policy Center, the IRS audits less than 1% of returns annually. However, this does not mean you are in the clear and are free to become complacent on your tax returns.
The IRS is much more likely to work with individuals who can’t pay their taxes but still file their returns as opposed to people who don’t pay and don’t file a return. However, if you file a return and something triggers a red flag, an investigation may be opened and you could be subject to a criminal proceeding if criminal conduct is suspected.
While being arrested for tax issues is not the norm, it does happen. Here are a few actions that could land you in a prison:
- Tax evasion: Tax evasion occurs when you deliberately avoid taxes by lying about your earnings or reporting too many deductions. A tax evasion conviction comes with a prison sentence of up to five years.
- Tax fraud: Fraud occurs when you deliberately attempt to deceive the IRS. Fraud is different than a mistake or omission because of the deliberate nature of the act. Reporting more children than you actually have is a common type of tax fraud. Like tax evasion, tax fraud can come with a five-year prison sentence.
- Failure to file: Failing to file a return can also come with a prison sentence of one year for each year you didn’t file. If you didn’t file for five years, you could get up to five years in prison.
- Helping someone evade taxes: If you help someone evade the IRS, you could be sentenced to up to 5 years in prison, depending on the specific acts committed.
Statute of Limitations for Criminal Charges
There is a statute of limitations for tax crimes such as fraud and evasion. The IRS has three years after you a tax return to audit you. However, if you fail to report 25% of your income, the statute of limitations is six years.
If the IRS decides to pursue a criminal case, they must file charges within three to six years of the violation, depending on the nature of the alleged offense. It is important to note that the statute of limitations clock does not start until you actually file your return. For example, if you file a fraudulent return seven years ago but never paid the taxes owed, the IRS cannot pursue charges against you.
Options When You Cannot Pay
If you owe more in taxes than you can pay, you have options. Read below for more information:
- Installment agreement: If you owe less than $50,000 in taxes, you may be eligible to pay down your balance over a specific amount of time by making monthly payments. Arrangements are also available for people who have higher balances, but the paperwork is more extensive.
- Offer in compromise: You can get an offer in compromise if the IRS agrees to settle your account for less than you owe. This is generally only an option if the IRS does not think they will be able to recoup all of their money. You generally have to pay 20% upfront and then make monthly payments to pay off the balance.
Avoid Mistakes Beforehand
To avoid any potential tax issues down the road, it is important to always file your returns on time and to file for an extension if you need extra time to pay. It’s also a good idea to work with a certified accountant when filing your taxes to avoid any mistakes.
Even if you do not have the money to pay off the entire balance, be upfront with the IRS. They will be more willing to work with people who are upfront than those who evade communication. If you have a complicated tax situation and you think that you need advice, consult with a tax professional. They can help advise you to avoid more problems down the line.
Call Resolve Tax Today for Assistance
If you have a problem with IRS tax debt, wages garnishments, or unfiled tax returns, contact Resolve Tax today for more information. Call today to speak with a certified counselor who can help you sort through your options and come up with the best course of action.