You can't be sent to jail for simply failing to pay your taxes, although the IRS might auction your property. If you're convicted of tax evasion, however, you might receive a prison sentence. You're guilty of tax evasion only if you intentionally use deceptive or evasive means to either avoid the assessment of tax or conceal your assets from the IRS.
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Avoidance vs. Evasion
Tax avoidance and tax evasion are two separate activities; it's important to know the difference. Tax avoidance includes completely legitimate behaviour, such as donating to charity to kick yourself into a lower tax bracket or paying a lawyer to find loopholes for you. It also includes making plausible legal arguments that the IRS might not accept, although this may subject you to civil penalties. You cross the line into tax evasion when you rely on deception.
Misrepresentation and Concealment
Tax evasion has two aspects: misrepresentation and concealment. An example of misrepresentation would be writing off expenses for a vacation by falsely claiming that you were attending a business convention. An example of concealment would be responding to an IRS notice of intent to levy your property for unpaid taxes by opening a Swiss bank account and transferring all your money into it without notifying the IRS. Either activity can result in prosecution for tax evasion.
Elements of the Crime
To be convicted of tax evasion, you must have an unpaid tax debt and intentionally misrepresent your tax liability or the basis for it, or try to hide your assets from the IRS. You can be prosecuted for evading your own taxes or for knowingly helping a corporation evade its taxes. Negligence, no matter how severe, doesn't subject you to criminal punishment.
The maximum penalty for each count of tax evasion is five years in prison and a £65,000 fine, or £325,000 for corporations. You may be sentenced to a fine without prison time, or to a prison term of fewer than five years. Even if you're not imprisoned, because tax evasion is classified as a felony, you lose civil rights such as the right to vote. You can also be assessed back taxes, penalties and the cost of prosecuting you.
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