Lying on your taxes is never a good idea. If you get caught, you'll have to pay your taxes anyway, plus additional fines. You may even end up with a criminal record. If you are worried about your ability to pay your taxes, you have options for working with the IRS that don't involve tax evasion.
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When you file your taxes, the IRS auditors can pick up irregularities. This can result in a full-blown audit of your financial and tax situation. If the IRS has reason to believe that you've wilfully committed tax fraud, there is no restriction on how far back their audit can go. If you aren't suspected of outright fraud, the statute of limitations on audits ranges from three to six years, depending on the percentage of income the IRS believes that you've concealed.
If your income tax errors are the result of a simple mistake, you may be required to pay what you owe plus a 20 per cent penalty. IRS auditors understand that taxpayers make mistakes on their returns and generally don't "go after" people who make honest mistakes, providing that they are willing to work with the IRS to get the taxes paid. But if the IRS believes you deliberately lied on your return, the penalties become much more severe.
Civil and Criminal Penalties
If the IRS believes that you intended to evade paying income tax, you can end up having to pay a civil penalty of as much as 75 per cent of what you owe. Even worse, this penalty cannot be discharged in bankruptcy: No matter how deeply in debt you might be, you'll still owe a civil tax penalty. If the IRS decides to criminally prosecute your case, you may have to pay large criminal fines and may even do time in prison.
Preventing Tax Problems
If you realise that you can't afford to pay your tax bill, don't just skip filing your return or fudge the numbers. The IRS will work with you to set up a payment plan or settlement. Be aware that tax "shelters" that sound too good to be true usually are: Talk to an accountant or tax attorney before taking large deductions or making investments designed to significantly cut your tax liability.
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