Failing to file a tax return can be classified as a federal crime punishable as a misdemeanor or a felony. Willful failure to file a tax return is a misdemeanor pursuant to IRC 7203. In cases where an overt act of evasion occurred, willful failure to file may be elevated to a felony under IRC 7201.
The law requires you to file every year that you have a filing requirement. The government can hit you with civil and even criminal penalties for failing to file your return.
And for good reason—failing to pay your taxes can lead to hefty fines and increased financial problems. But, failing to pay your taxes won't actually put you in jail. In fact, the IRS cannot send you to jail, or file criminal charges against you, for failing to pay your taxes.
If you fail to file your taxes on time, you'll likely encounter what's called a Failure to File Penalty. The penalty for failing to file represents 5% of your unpaid tax liability for each month your return is late, up to 25% of your total unpaid taxes. If you're due a refund, there's no penalty for failure to file.
Failure to File Your Taxes Can be Considered a Crime
However, not filing one's taxes is one of the worst things that a taxpayer can do if they owe back taxes. Failure to file your taxes is considered by the federal government to be a crime. Refusal to file your taxes can be considered a type of tax evasion.
Again, in cases where a federal income tax return was not filed, the law provides most taxpayers with a three-year window of opportunity to claim a tax refund. If they do not file a tax return within three years, the money becomes the property of the U.S. Treasury.
However, if you do not file taxes, the period of limitations on collections does not begin to run until the IRS makes a deficiency assessment. State tax agencies have their own rule and many have more time to collect. For example, California can collect state taxes up to 20 years after the assessment date.
If you don't file within three years of the return's due date, the IRS will keep your refund money forever. It's possible that the IRS could think you owe taxes for the year, especially if you are claiming many deductions. The IRS will receive your W-2 or 1099 from your employer(s).
If you haven't filed a tax return in a few years, the IRS will pull your tax documents from those years and use them to calculate your tax. They will then mail you a letter known as an assessment letter that details how much tax you owe.
Criminal Investigations can be initiated from information obtained from within the IRS when a revenue agent (auditor), revenue officer (collection) or investigative analyst detects possible fraud.
Fail to file their tax returns – Failing to file your tax returns can land you in jail for up to one year, for every year that you failed to file your taxes. Misrepresent their income and credits in their tax returns – Any action that you take to evade tax can land you in jail for a period of five years.
In general, no, you cannot go to jail for owing the IRS. Back taxes are a surprisingly common occurrence. In fact, according to 2018 data, 14 million Americans were behind on their taxes, with a combined value of $131 billion!
The IRS receives a copy of the W-2s and 1099s you receive. If there's no return to match it to, they'll know you failed to file. Once the IRS knows you're not filing taxes, they'll start sending computer-generated inquiries about your failure to file. If you ignore these IRS notices, the IRS will get more aggressive.
File electronically when you're ready. If you haven't filed your federal income tax return for this year or for previous years, you should file your return as soon as possible regardless of your reason for not filing the required return.
People fail to file tax returns for a variety of reasons -- personal or business problems; feelings of hopelessness or fear due to an extended period of nonfiling; anti-government sentiments; or beliefs that the penalty will not outweigh the expense and trouble of filing.
IRS criminal investigators may visit a taxpayer's home or business unannounced during an investigation. However, they will not demand any sort of payment.
When it suspects a taxpayer is failing to report a significant amount of income, it typically conducts a face-to-face examination, also called a field audit. IRS agents look at a taxpayer's specific situation to determine whether all income is being reported.
The Status of Your House
The IRS does not want to make taxpayers homeless; however, they do need to collect the debt. They might recommend you sell your home in order to pay off your debt, or they might end up seizing it if they feel it is the only way to get paid.
But here's the reality: Very few taxpayers go to jail for tax evasion. In 2015, the IRS indicted only 1,330 taxpayers out of 150 million for legal-source tax evasion (as opposed to illegal activity or narcotics). The IRS mainly targets people who understate what they owe.
Will the IRS tap my phone? It is highly unlikely. Unless you have been under investigation for over a year, and this is at least a $5 million case, the IRS will not go through the trouble to wire tap your phones. It is far too expensive and time consuming for them to listed to every one of your conversations.
How to Know if the Police have Tapped Your Phone. If you want to know whether someone is tapping your phone line, listen for unusual sounds during your conversations. If you hear odd background noise such as high-pitched humming, static, or something similar, the police may be listening to your conversations.
The main statute the FBI uses to listen in directly on phone calls is called Calea – the 1994 Communications Assistance for Law Enforcement Act. Calea was designed to make it easier for the FBI to listen in on calls as telecoms technology shifted from copper wires to digital.