There's an excellent chance that you know the basics of right and wrong when it comes to your taxes. What you might not be as familiar with is what misadventures can lead to more than just IRS penalties and interest. Some tax violations can end with time behind bars.
Simply ignoring IRS notices isn't enough to call for your arrest. Likewise with failure to pay a tax debt; while ill-advised and potentially costly, there is no debtor's prison here in the United States. There are, however, a few scenarios that will provoke the IRS to take harsh action. Some of the strictest consequences can include years in prison.
Failing to File
Many taxpayers, from time to time, miss a filing deadline. If you make it a habit, though, the IRS may begin to think that you're intentionally neglecting your responsibility. Put another way, you can be investigated for tax evasion. If prosecuted and convicted, you can face one year in prison for each year that you're missing a tax return.
Another form of tax evasion occurs when you engage in under-the-table work. For example, if your employer pays you without withholding taxes as a way for you to both sidestep IRS reporting, the consequences can be serious. And this concept applies to any side work or part-time endeavor. Remember, by law, you are required to report income earned from any activity. No matter how you earn your money, fail to report it at your own risk.
Unpaid Payroll Taxes
Alternatively, if you own your own business, you may be the one responsible for withholding and paying taxes for your employees. If so, you have to proceed cautiously, indeed. Failing to pay taxes from workers' wages can lead to stiff penalties. If you withhold taxes but don't pay them, you can face criminal charges. In fact, the IRS can prosecute you for stealing from your employees. In the event that you're just starting out with a new business or fear you've been making serious errors, don't waste any time in contacting a licensed tax professional.
There are a few offenses for which the IRS has zero tolerance. Fraud, in its many forms, is perhaps the best example of this. In recent years, a marked increase in tax scams has resulted in a crackdown by the IRS for participating offenders. Tax fraud cases are handled swiftly and harshly. Depending on the severity of the infraction, fraudsters can receive several years in prison and staggering fines.
Get a Second Opinion
There's a chance that you're unclear if something that you've done - or haven't done - warrants legitimate concern over the potential for incarceration. When in doubt, reach out to an experienced tax professional. At the very least, you will likely know where you stand in a matter of minutes, and the consultation will come at no cost to you. If you do have reason to worry, you'll be provided a suggested course of action to handle the problem. Either way, you can lay to rest your fears of jail time at the hands of the IRS.