Punishment for Tax Non-Compliance

When the IRS categorizes a taxpayer "non-compliant," they include unfiled taxpayers, tax fraudsters, and tax evaders. Every non-compliance leads to punishment in the form of penalty and/or imprisonment. Tax evasion and tax fraud are serious crimes where convictions can result in imprisonment of up to five years and/or a fine of up to $100,000.

Even intentional falsification of information in a tax return where evidence proves that the taxpayer intended to evade taxes can lead to up to three years in prison and/or a fine of up to $100,000.

When a taxpayer is unfiled for several years, the punishment can include one year of imprisonment and/or a fine of up to $25,000 for each year unfiled.

Under-reporting of income is the most common kind of tax fraud. A government study shows that the self-employed, including clothing store owners, restaurateurs, telemarketers, car dealers, accountants, doctors, and salespeople commonly under-report their income.

Fraudulent tax returns or inaccuracies in a tax return, if detected by an auditor, can also lead to a criminal investigation. The IRS’ Criminal Investigation (CI) division undertakes the job.

Many times taxpayers make errors on their return unintentionally. Careless mistakes on a tax return can attract a penalty of 20 percent of the tax bill. The IRS will determine whether an error in tax reporting is intentional or not. In case of intentional inaccuracies that lead to an underpayment of taxes, the civil penalty can go up to as much as 75 percent. The IRS also considers how much taxes a taxpayer owes. If the tax amount is negligible, taxpayers can get away with light penalties.

Tax fraud is a crime that can get taxpayers into trouble once it is discovered. Still, for many the temptation of easy money is just too much until they receive punishment and realize that it is not worth it.

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