The Internal Revenue Service (IRS) doesn’t consider every failure to pay the correct taxes an act of fraud. Plenty of people make mistakes on their tax returns simply because they don’t fully understand them. Others are simply poor bookkeepers. Some rely heavily on the person they hire to prepare their returns for them and never have a clue that the taxes aren’t being properly paid until the IRS comes calling.
So, what exactly is tax evasion?
Tax evasion is a type of fraud, usually accomplished through various means of deception. It’s not only illegal, but it’s also a federal crime that can leave a felony on your record, send you to prison for up to five years and net you up to $250,000 in fines and other costs.
Tax evasion can include acts like:
- Paying your help under the table. Maybe you have an employee or two who is working “off the books.” While that can be convenient for everyone involved, that’s actually cheating the IRS out of taxes. So is paying your nanny or your day maid in cash and not reporting it.
- Failing to pay capital gains on your bitcoin or other e-currency. A lot of people thought that cryptocurrency couldn’t be taxed — but the IRS is very clear that it must be included when you file. Trying to hide it will get you into trouble for certain.
- Hiding income from illegal activities. If something makes you income, it’s considered taxable. It doesn’t matter to the IRS if the source of that income is something like prostitution or drug deals — it still needs to be reported.
- Hiding cash transactions. If you have a business that sees a lot of cash transactions, it may be tempting to keep that money hidden — but that could spell disaster if the IRS starts looking closely at your books.
Tax evasion is a serious offense that can result in prison time. It’s smart to get legal help the moment that the specter of a tax investigation has been raised.