How Long Can You Go to Prison for Tax Evasion? 

If you deliberately hide income or lie to the IRS, could you be found guilty of tax evasion and go to jail? The short answer is yes. Tax evasion penalties can be severe and include not just large fines but also multiple years in prison. 

To better understand the punishments for tax evasion, we need to understand what tax evasion is. This article explains the basics of tax evasion and then it looks at the possible penalties you may face if found guilty. 

Note that most actions including filing or paying taxes late does not rise to the level of a tax crime. Whether you’re facing criminal charges or just worried about your tax situation, contact us at The W Tax Group for help today.

What Is Tax Evasion? 

Tax evasion is a crime that involves a taxpayer committing an intentional act to receive a tax benefit they’re not entitled to receive or to avoid paying a tax they’re legally required to pay. The terms tax fraud and tax evasion are often used interchangeably, but they’re not always the same thing.

Tax fraud is a broad term that includes civil tax fraud and tax evasion (sometimes known as criminal tax fraud). In other words, tax fraud can refer to a civil or criminal offense while tax evasion always refers to a criminal offense.

Tax evasion is also different from tax avoidance. Tax avoidance is legal because it refers to steps taxpayers can take to reduce their taxes. For example, validly taking a deduction for charitable donations is a form of tax avoidance (legal) while hiding taxable income from the IRS is a form of tax evasion (illegal). Common examples of tax evasion include:

• Keeping two sets of books for your business.
• Lying about your marital status and/or dependents.
• Deliberately underreporting your income.
• Claiming business deductions that you know are personal expenses.
• Not reporting assets (such as foreign bank accounts) that you know must be reported to the IRS.

One thing you’ll notice about these examples is that they require an act that the taxpayer knows is wrong, but does it anyways. This means if you honestly believe you’re legally allowed to do something concerning your taxes (even if that belief is unreasonable), you generally can’t be guilty of tax evasion.

However, you’ll still probably have to pay one or more penalties and interest to the IRS for that mistake. But these penalties won’t involve going to jail and any monetary penalties will be smaller than if you were guilty of tax evasion. 

Legal Consequences for Tax Evasion 

If a judge or jury finds you guilty of tax evasion, there are two main types of penalties you can face. The first is monetary penalties and the second is some sort of loss of freedom, such as supervised release, home confinement, jail (usually for shorter incarceration sentences), or prison (for sentences requiring a longer incarceration term).

The exact fraud penalties depend on the specific statute violated, the severity of the offense, and whether you’re an individual or a corporate taxpayer. Below are some of the more common tax evasion charges and what their potential penalties are:

• Title 26 USC § 7201, Attempt to Evade or Defeat Tax: Up to a $250,000 fine ($500,000 fine for corporate taxpayers) and up to five years in prison, or both.
• Title 26 USC § 7202, Willful Failure to Collect or Pay Over Tax: Up to a $10,000 fine and up to five years in prison, or both.
• Title 26 USC § 7203, Willful Failure to File Return, Supply Information, or Pay Tax: Up to a $25,000 fine ($100,000 fine for corporate taxpayers) and up to one year in prison, or both.
• Title 26 USC § 7206, Fraud and False Statements: Up to a $100,000 fine and up to three years in prison, or both.
• Title 18 USC § 371, Conspiracy to Commit Offense or to Defraud United States: Up to a $250,000 fine ($500,000 fine for corporate taxpayers) and up to five years in prison, or both.

The above gives a good idea of what the potential punishments are for tax evasion. However, you might be wondering, of the people charged with tax evasion, how many people actually go to jail for it, and for how long?

For the 2023 fiscal year, there were 64,124 cases reported to the U.S. Sentencing Commission. Of those cases, only 363 of them involved tax evasion. The average length of sentence was 16 months and 64% of the defendants sentenced went to prison. So a quick examination of those numbers indicates that being found guilty of tax evasion is more likely than not going to result in some sort of prison time or other form of incarceration. 

Factors that Affect Tax Evasion Penalties 

There are federal guidelines that provide a starting point for judges to hand down punishments for tax evasion although judges have discretion to deviate from these guidelines. As a result, criminal sentencing is a bit of an inexact science. That being said, there are several factors that judges will consider when deciding what sort of punishment someone guilty of tax evasion should receive:

• Prior criminal history: Having little to no prior criminal convictions or problems with the law means a greater chance of a lighter sentence.
• Cooperation with authorities: Judges will often consider how much help the taxpayer provided the IRS and other authorities after they got caught. Greater cooperation implies greater remorse, which judges will take into account when deciding what punishment to provide.
• Severity of the crime: The more money a taxpayer keeps from the IRS, the more severe the punishment. On a related note, the bigger the benefit the taxpayer receives from their tax crime, the more significant the sanction. 

In theory, this means someone who fails to pay $100,000 in taxes to the IRS and uses that money to fund lavish vacations will get a bigger punishment than someone who has the same size tax loss, but uses that money to pay off a friend’s medical bills.

How likely is it that a judge will issue a less severe sentence than what’s called for by the federal sentencing guidelines? According to the U.S. Sentencing Commission, it happens the majority of the time.

For example, roughly 30% of tax evasion defendants were sentenced pursuant to the federal guidelines, and of that 30%, about 46% received a sentence that was lower than what the guidelines called for. The average sentence reduction was at least 64%.

Of the roughly 70% of defendants that weren’t sentenced pursuant to the federal guidelines, more than 97% received a sentence that fell below the guidelines. The average sentence reduction was 65%.

These sentence reductions don’t usually happen automatically and instead require an experienced attorney to present persuasive arguments to the judge. Put another way, if you’re charged with tax evasion, hiring a good defense attorney is one of the best ways to reduce your chances of going to jail or reducing the amount of time you spend in jail. 

What to Do If You’re Being Investigated for Tax Evasion 

One thing that often occurs before the IRS investigates you for criminal tax fraud is a tax audit. During the audit, various red flags could signal that the IRS suspects you of tax evasion or that tax evasion charges are coming:

• The IRS revenue agent (auditor) chooses not to complete the audit.
• The auditor unexpectedly can’t be contacted, especially after canceling a previously scheduled interview or meeting.
• During an audit interview, the auditor seems to ask a lot of questions and/or spend a lot of time focusing on your intent for a particular financial or tax decision.
• The auditor records your audit interview, either by recording it (audio or video) or having a stenographer present.
• Your auditor conducts a net worth analysis, which compares your reported income to your lifestyle spending.
• Your audit interview includes not just your auditor, but also the auditor’s boss, a stenographer, a second auditor, and/or general counsel for the IRS.
• The IRS uses a court order to force you to appear for an interview.
• Your auditor contacts third parties without telling you. An auditor contacting third parties like your bank or employer is common, but your auditor will usually tell you when they’re doing it during a typical audit.
• The IRS and/or law enforcement is monitoring you, whether by conducting surveillance, subpoenaing financial records, and/or executing search warrants.

If any of the above happens during your audit, or you have a gut feeling that the IRS thinks you’ve committed criminal tax fraud, stop communicating with the IRS and contact a tax attorney. It’s important to talk to a lawyer because if you’re under investigation for tax evasion, everything you do (or don’t do) can potentially serve as evidence against you should you be criminally charged.

One thing to remember about tax evasion is that the IRS usually doesn’t want to refer your case to the U.S. Department of Justice for criminal prosecution. What the IRS wants is for you to pay any unpaid taxes (including penalties and interest) and submit any unfiled returns. Therefore, it’s possible that your attorney could potentially negotiate some sort of settlement with the IRS that avoids criminal prosecution or minimizes any criminal penalties, like jail time. But the earlier you take proactive steps to come clean, the better chance you have of avoiding prison. A great example of this is the Voluntary Disclosure Practice program. 

What Is Voluntary Disclosure Practice? 

Voluntary Disclosure Practice (VDP) is an IRS program where taxpayers can potentially avoid criminal prosecution (or receive lighter punishments) by voluntarily coming forward to admit willful tax noncompliance. In addition to making this admission, taxpayers must also set up a plan to pay any unpaid taxes, file any unfiled returns, and pay any applicable penalties and interest. To apply for acceptance into the VDP program, you must:

• Submit all required documentation, including IRS Form 2848, Power of Attorney and Declaration of Representative and Part 1 from IRS Form 14457, Voluntary Disclosure Practice Preclearance Request and Application;
• Fully cooperate with the IRS when calculating your tax liability; and
• Make arrangements to pay your entire tax liability, either in a lump sum or over time with an installment agreement.

Another important condition of entering the VDP program is that you must make your disclosures to the IRS before any of the following takes place:

• The IRS starts any audit or criminal investigation.
• The IRS receives information from a third party about your tax evasion.
• The IRS receives information that’s the result of a criminal enforcement action, such as a search warrant.

The key condition about VDP is that you must request acceptance into the program before the IRS starts investigating you for noncompliance with your taxes. This means that if you’re already in an audit, you’re likely not eligible for the VDP program. Another thing to keep in mind is that the IRS’ agreement not to criminally prosecute you only applies to tax evasion involving legal sources of income.

The last major condition about VDP is that it only applies to intentional noncompliance. If you have a tax error that’s the result of a mistake or negligence, the bad news is that you can’t be accepted into the VDP program and you’re still on the hook for the unpaid taxes, penalties, and interest. The good news is that because you didn’t act intentionally, you aren’t subject to criminal charges concerning your taxes. 

Notable Tax Evasion Cases 

Most tax evasion cases involve taxpayers that you’ve probably never heard of or schemes that aren’t that notable. Although over the years, there have been plenty of high-profile tax cheats that have gone to prison or tax evasion cases that defrauded the U.S. government of a significant amount of money. Here are some of these notable cases:

• A group of five individuals engaged in a tax fraud scheme to steal more than $511 million in refundable renewable fuel tax credits. This group was sentenced to a combined 83 years in prison.
• Amir Burno Elmaani (aka: “Bruno Block”) received a four-year prison sentence after pleading guilty to not paying income tax on his cryptocurrency profits and causing the U.S. government to suffer a tax loss of more than $5.5 million.
• Walter C. Anderson was sentenced to nine years in prison and ordered to pay more than $22 million in restitution in one of the largest tax evasion cases in IRS history. According to court records, from 1995 to 1999, Mr. Anderson paid little to no taxes on more than $450 million in income.
• Al Capone was sentenced to 11 years in prison for tax evasion. He served about 7.5 years of that sentence in Atlanta and at Alcatraz.
• Wesley Snipes was sentenced to three years in prison for failing to file income tax returns.
• Pete Rose went to prison for five months after pleading guilty to tax evasion charges. After his release, he had to complete 1,000 hours of community service, spend three months at a halfway house, and complete nine months of probation. 

How to Avoid Tax Evasion Charges 

The easiest way to avoid getting charged with tax evasion is to comply with tax laws. Yet in rare cases, you could still be suspected of being a tax cheat even if you never intended to deceive the IRS. This is why it’s important to always be honest and keep good financial records relating to your taxes. 

At the same time, you don’t want to be bogged down with oppressive record-keeping requirements or overshare your financial information with the IRS. To help strike the right balance between compliance and calling unnecessary attention to yourself, it’s a good idea to talk to a tax pro about your tax concerns the moment they come to your attention. 

Do You Believe Tax Evasion Charges Are Coming? 

The moment you realize that you could be charged with tax evasion, contact the W Tax Group to speak to a tax attorney. We can help whether you just have a hunch something is wrong or have already been served with a subpoena in a criminal investigation. You can set up a free consultation online and our experienced tax lawyers will examine your case and help you choose a course of action to achieve the best outcome for your situation.