Jail Time for Not Paying Taxes?

Lana Dolyna, EA, CTC
Lana Dolyna, EA, CTC

Senior Tax Advisor

The Internal Revenue Service (IRS) requires Americans to file yearly tax returns or quarterly estimated payments if the taxpayer is a high-income earner. While filing and paying taxes is required, some people either inadvertently or willfully will not file taxes annually or are unable to pay. The big question is: can you go to jail for not paying taxes? 

While receiving a jail sentence for not filing taxes is a possible consequence, penalties are usually imposed instead.  This article will discuss the consequences of not filing taxes; when the IRS can and can’t send you to jail including the expiration period for not filing taxes; how to get back on track after not filing taxes; and some frequently asked questions (FAQs).

Can You Go to Jail for Not Filing Taxes?

The question, can you go to jail for not filing taxes is complicated and multifaceted. The short answer is maybe. Although, it is very unlikely for an individual to receive a jail sentence for simply not filing taxes.

However, not filing taxes is considered a serious issue by the IRS and is punishable by a jail sentence in some very limited scenarios.

Not Paying Taxes: Intent Matters

The intent behind a person’s motive for not filing taxes or for failing to send tax payments are crucial factors with IRS penalties. Despite serious consequences, taxpayers have many reasons for not filing taxes or failing to remit tax payments.

Legal penalties vary from fines to jail sentences, depending on whether the tax crime was willfully committed or an honest mistake.  

Honest Mistake

Common reasons people fall behind on taxes are simple errors in tax calculations or not filing taxes in a timely manner. Other people genuinely overlook their tax deadlines. Making an honest mistake on a tax return is unlikely to result in a criminal charge or a jail sentence. If the mistake is not willfully made, the person may be subject to a penalty or interest by the IRS.

Can’t Pay

A basic reason taxpayers struggle with back taxes is they are simply not able to pay the tax amount owed. The IRS will work with taxpayers to establish a payment plan or negotiate a settlement based on a person’s ability to pay.

The IRS recommends taxpayers who are not able to remit the full amount of taxes owed to file a tax return on time and pay what they can afford. Not filing taxes causes additional penalties and interest to be assessed.

Intentional Tax Avoidance

The U.S. tax system was founded on the concept of voluntary compliance. Taxpayers are responsible for reporting all of their income to the IRS. According to the IRS, willfully failing to pay taxes or a deliberate underpayment of taxes is considered tax evasion.

Tax evasion involves an affirmative action to evade taxes such as underreporting income or claiming fictitious expenses or concealing assets. Tax evasion is illegal in the U.S. and is punishable by a fine and/or a jail sentence.

Intentional Tax Falsification

Tax fraud happens when a person willfully and intentionally falsified information on a tax return in order to lessen the amount of tax liability.

Tax fraud can include not filing taxes, willfully providing erroneous information on a tax return, underreporting income for several consecutive years, or concealing bank accounts. A tax fraud offense may result in both civil and criminal penalties.

Missing W-2 or 1099-R Forms

Since W-2 and 1099-R forms are essential to filing a correct tax return, if you are missing either or both of these forms, you should reach out to the IRS to determine next steps to ensure you receive these documents or compile the necessary information needed to determine your tax liability correctly before filing.

When the IRS Can’t Send You to Jail

IRS audits evoke fear of receiving financial penalties, facing consequences like a referral to remove a passport, and possibly facing a jail sentence. While the fear of a jail sentence is a bonafide concern for taxpayers, the IRS cannot impose a jail sentence in certain circumstances.

If a person does not remit tax payments or is filing late, the IRS will likely send a notice or issue a summons to require the taxpayer to follow through with tax obligations.

Failure to file taxes when due

If a person is negligent by not filing taxes by the due date, the IRS sends a notice called the Failure to File Penalty. The fines are calculated on how late the tax return is filed and the amount of unpaid taxes. If a person can demonstrate why they were not able to meet their tax obligations, the penalties can be reduced or removed.

Filing on time but not able to remit the total amount owed

If taxpayers file on time, however, do not remit the total owed, the IRS has payment plan options that can reduce penalties and interest. Another option is an Offer in Compromise, an agreement in which the IRS agrees to settle the tax debt and fines for less than owed.

Unable to remit any taxes

Even when a person is unable to pay any taxes, it is important that a tax return is filed when due. The IRS has installment agreements or monthly payment plans available. Not filing taxes is much more serious than not paying taxes.

Make an honest mistake

If an honest mistake is made on a tax return, the IRS will send a letter to the taxpayer and request the return be amended. If an error is not willfully made on a tax return, the IRS expects the taxpayer to resolve the error. Additional payments and fines could be assessed.

Failure to report specific information

If a taxpayer needs to correct a return to report additional income or change filing status or deductions, an amended return will need to be processed. While it is likely an amended return might require a person to remit additional money, it will not cause the person to receive a jail sentence.

Civil versus criminal

A more serious tax error might trigger an audit by the IRS. An audit might result in a civil judgment against the taxpayer so the IRS can collect the fines and back taxes. A civil judgment is not a criminal offense and will not result in a jail sentence.

When the IRS Can Send You to Jail

While the IRS prosecutes a minimal number of taxpayers each year, tax crimes can involve jail time and significant fines. Here are tax crimes where jail sentences can be imposed.

Filing a fraudulent tax return

The IRS explains that willfully committing criminal tax fraud by trying to deceive the IRS to evade taxes can result in fines and a jail sentence being imposed. Civil penalties may also be ordered including restitution.

Evasion of taxes and payment

In order to be prosecuted for tax evasion, the government has to prove the individual acted willfully and concealed financial information. Tax evasion schemes involve misrepresenting income, hiding money, or inflating deductions to the IRS.  Tax crimes involving evasion are subject to jail sentences and fines.

Not filing taxes

Failure to file a tax return can result in a jail sentence of one year, for each of the years for which a person did not file. While a jail sentence is a possible penalty, it is unlikely this will be the outcome for this tax crime if tax returns are filed for the years in arrears.

Assisting other taxpayers to avoid filing taxes

Helping other people evade paying taxes is considered a tax crime that is subject to a jail sentence.

Making false statements on a tax return

Misrepresenting or concealing financial information on tax returns is a tax crime punishable by jail sentences.

Willfully not disclosing offshore bank accounts

The government can impose a jail sentence of up to five years as well as substantial fines for not reporting bank accounts in foreign countries.

Not Paying Taxes: Consequences Expiration

The decision not to pay what is owed to the IRS has long-term financial and personal implications, such as property liens and decreased credit scores. What is the length of time the IRS can pursue delinquent tax payments? It depends on the statute of limitations.

10 Year Statute of Limitations

The IRS generally has 10 years from the initial tax assessment to try and collect a tax liability. The initial assessment date is sometimes not clear because it depends on when an amended tax return or other document is filed which can put the IRS tax assessment process on hold.

Once the 10-year limitation is satisfied, it terminates the government’s right to pursue a tax liability.

Required to stop collections

While there are exceptions to the statute, once the 10 years have expired, the IRS has to stop all efforts at collecting the debt.

Possible waivers on the statute

If a taxpayer enters an installment agreement with the IRS for back taxes, it is likely they will have to sign a form waiving the 10-year statute of limitations.

How to Get Back on Track After Not Filing Taxes

Worrying about unfiled tax returns and anticipating enforcement action from the IRS is anxiety-provoking. The IRS estimates over 7.5 million taxpayers do not file a tax return as required annually, so you are definitely not alone. Here are some strategies to help a person get back on track with the IRS.

Determine which year tax returns have not been filed

It’s important to review whatever tax documents are available to figure out if a return was required for a specific year. The IRS can help people figure out which years need to be filed.

File all tax returns due

The IRS recommends taxpayers file all the tax returns they have determined are due, even if a person is not able to remit payment in full. Delinquent tax returns should be sent to the same place where an on-time return is sent.

Find out payment options

Short-term and long-term payment options are available through the IRS if a person cannot afford to remit payment in full. Installment agreements or offer in compromises are options to help resolve tax debt.

Seek help from the IRS

The IRS offers help for individuals trying to come into compliance after not filing taxes. In addition to providing filing help by telephone, forms can be completed to get wage and income information or transcripts of prior tax returns.

File six years of back taxes

The Journal of Accountancy indicated the IRS has a policy, Delinquent Returns-Enforcement of Filing which asserts taxpayers must file six years of back tax returns to be in good standing with the IRS.

Verify account transcripts

Confirm tax payments were not credited to balances owed on unfiled tax returns.

Request penalty abatement

Ask the IRS for fines to be waived for failure to file or failure to pay penalties. If the IRS will not waive the fines in their entirety, ask for some relief from assessed fines.

Seek expert help

Professional tax services that help taxpayers resolve problems with the IRS like tax settlement services are provided by Tax Shark.

FAQs

Questions about possible jail time for not filing or paying taxes? We have the answers.

Technically, a person can go as long as they want not filing taxes. However, the IRS also has a long time to try and collect taxes from you. While there is generally a 10-year limit on collecting taxes, fines, and interest, the time frame does not start until a deficiency assessment is made by the IRS.

Remember though, if you don’t file within three years of a return’s due date, the IRS will keep any refunds.

The chances of going to jail for not filing taxes is definitely slim. However, there are still some very unlucky people that are criminally investigated by the IRS.

In 2020, approximately 593 people were sentenced for tax crimes in the U.S., and from 2017 to 2020, there were 5000 investigations of tax crimes.

Unless you are lucky enough to live in one of the nine states that do not collect income tax, a state government can send people to jail for not filing state taxes.

Although it is an unlikely outcome, state governments can impose similar consequences as the federal government.   

The amount a person owes to the IRS is much less a factor in a jail sentence than not filing taxes or filing fraudulent tax returns or willfully evading taxes. Owing back taxes is a very common occurrence.

According to Reuters, the U.S. government is losing about one trillion dollars in unpaid taxes annually, including taxes legally owed, and willfully crafted tax schemes to avoid taxation.