Tax Issues That Could Land You in Jail

In most cases of individuals not paying their taxes, the IRS pursues them civilly, not criminally. This means they can come after your bank accounts and other assets, but it is not likely they will take you to court. However, there are some circumstances that have the potential to result in criminal penalties. Among the issues which might result in the IRS pursuing criminal charges are the following.

• Failure to pay payroll taxes – When businesses collect their employees’ share of payroll taxes from their paychecks, they are expected to hold those funds “in trust” until it’s time to pay the IRS. In tight economic times, when many businesses are experiencing cash flow issues, it may be tempting to not pay the IRS these payroll taxes on time, using the money to pay off other creditors and keep the business afloat. Do not succumb to that temptation. Anyone who could be found responsible for not paying these taxes, from corporate officers to the bookkeeper, could be held civilly and criminally responsible. Being incorporated does not protect employees in this instance — anyone in a company who has the authority to sign on the company bank account can be found liable. The IRS can choose to only impose a recovery penalty, which is a fee, or they can choose to prosecute as “willful failure to collect or pay over tax,” which carries a felony charge.
• Filing false tax returns – When you file your taxes, you sign on the bottom of the return that it is accurate to the best of your knowledge. Lying on your taxes generally results in audit with subsequent penalties and interest. That can lead to asset seizure and wage garnishment, but in some circumstances, if there is a pattern of lying on your tax returns or the IRS suspects fraud, they can hold you criminally responsible and you can spend time in jail. This generally happens when people are purposely sheltering a large sum of income from the IRS so that they don’t have to pay taxes. Remember, the IRS can do an analysis of your bank accounts, credit cards and lifestyle and determine what it takes to maintain that lifestyle. It is up to you to prove where the money came from if it isn’t reported on your tax return.
• Willfully failing to file taxes – Do not fall for scams that try to tell you that you don’t have to file taxes. If you have enough income to meet the minimum filing requirements, you have to file. Don’t blow it off! It is this type of activity that may cause you legal problems. It is unlikely that you would go to jail for just failing to file taxes, but you might find yourself in the position where IRS has created a substitute return and assessed what they believe you owe. Remember, IRS only focuses on the income side, so they give you a standard deduction, rather than reducing your income with itemized deductions. You should always file your taxes on time, but especially if you know you’re going to owe a large sum to the IRS. Willfully failing to file taxes repeatedly can be considered tax evasion.

If you receive notice from the IRS, work to resolve it right away. Nobody needs the stress of potential civil or criminal action! Fix it now to save a major headache down the road. If you need help solving your IRS problems, reach out for professional help. If you have concerns about your taxes or correspondence you have received from the IRS, you can contact Myerson & Myerson, CPA’s.