When an individual, corporate entity, institution or a trust tries to avoid paying the full amount of taxed owned by adopting illegal means, it is considered to be tax evasion. Tax evasion can be done though reporting of false income, misrepresenting the deductions, not filing on time and offshore tax evasion. In such cases, the government imposes severe tax evasion penalties, which can include a heavy fine or prison term or both.
The US government believes that approximately 3 percent of the total taxpayers do not pay taxes to the IRS. Although tax evasion penalties can range from lenient to very serious, it usually depends on the amount of tax owed to the government. For instance, If an individual doesn’t come into the minimum tax bracket, and if he doesn’t file tax, the penalties are minimum. However, if an individual owns a large sum, and tries to evade paying the entire amount, it is a serious crime. Tax evasion penalties can be a fine of up to $100,000 or/and imprison of up to five years.
Although imprisonment is a rare punishment, IRS has the authority to do so. Hence, paying taxes on time is one of the best methods to evade tax evasion penalties. If you don’t have enough funds to pay to IRS, yet you need to at least file the return with special plea. IRS will work out a payment plan for you and recover the money in part payments.
If a company, individual or a trust pays tax late, IRS can levy a penalty of up to 5 percent of the total payable amount on every late month. However, IRS avoids filing criminal cases against people who pay their taxes late. IRS is sympathetic with people who are willing to pay taxes but are unable to pay or are going to pay late due to lack of sufficient funds, and they are not charged tax fraud penalties.
If you fail to file your taxes or understate your income, IRS doesn’t file a criminal case directly. It sends three warnings. First, a requesting phone call is done. Second, an agent visits personally or a phone call with a deadline. Third, the agent tries to work out a payment plan and explain the harmful effects of not paying taxes. If it doesn’t get any reply, it finally sends you a notification mentioning that a case has been filed against you.