There are more than two million people in the United States who are currently behind bars, and their crimes range from non-violent marijuana possession to mass murder.
I’ve talked before about how the United States has approximately five percent of the world’s population, but a whopping 25 percent of the world’s prison population. The data indicates that this is mostly due to the drug war of the last fifty years, which has led to skyrocketing incarceration numbers.
With numbers in the millions, it’s clear that we don’t just send people to prison for drugs or murder. You can also be sentenced to prison for things like assault, DUI, kidnapping, unpaid child support, and identity theft.
But what about paying your taxes? As one of the two certainties in life, taxes are something we deal with on a daily basis. Most states have taxes on everything bought, sold, earned, used, or made, with the biggest percentages going to income taxes.
If you get behind on paying your taxes, don’t file when you are required, or lie in your submitted paperwork, what are the consequences? Can you go to prison for not paying taxes?
In today’s blog post, I will cover the following topics:
- Making a major mistake on your taxes won’t put you in prison
- Committing fraud will most likely put you behind bars
- The penalties are harsh
- Examples of tax cases that ended with prison sentences
- Can you go to prison for not paying council tax?
Making a major mistake on your taxes won’t put you in prison
According to H&R Block, a lot of people are afraid of IRS audits. Apparently, people believe that if they make a major mistake on their taxes, they will end up behind bars. The tax company says that fear of an audit is one of the main reasons that people file accurate tax returns in a timely manner every year.
The reality is, though, that very few taxpayers actually end up in prison for tax evasion. In 2015, the IRS indicted 1,330 taxpayers out of 150 million for legal-source tax evasion (as opposed to narcotics or illegal activity).
The main target of the IRS is people who under-report – or understate – the amount of taxes they owe. Tax evasion cases usually begin with taxpayers who don’t file a required tax return, or those who misreport income, credits, and/or tax deductions.
When it comes to people who can’t pay their taxes, the IRS doesn’t usually go after them. However, if you conceal assets and income that you should use to pay your tax bill, you can find yourself in some serious trouble.
Committing fraud will most likely put you behind bars
So, if making a mistake on your taxes doesn’t lead to prison, what exactly gets taxpayers into criminal prosecution with the IRS? As a rule, tax evasion cases on legal-source income begin with an audit on the tax return that a person has filed.
If the IRS finds errors during the audit that a taxpayer committed on purpose, that can lead to prosecution. The error amounts are usually large and have occurred for several years, which shows a pattern of willful tax evasion.
The biggest issue that puts taxpayers under criminal investigation is unreported income. Basically, that’s tax fraud. If you leave out specific transactions – like the sale of a business or the income you get from a side hustle – you will most likely find yourself facing charges.
Dodgy behavior during an audit can also be a red flag for an IRS investigator. If you make a false statement or purposely hide bank account records, these are considered “badges of fraud” and the IRS says these usually indicate tax evasion.
Another way to find yourself in prison for not paying taxes is to not file a tax return at all. If you are making money that you are not paying taxes on, the government will find out. Just because you aren’t filing a tax return, that doesn’t mean the person who is paying you isn’t.
When you are a gig worker who receives a 1099-misc, the person paying you is reporting this info to the IRS. The same thing goes for W2’s or any other required tax filing when money is paid out.
The penalties are harsh
The IRS doesn’t go after many people for tax evasion, but when they do, the penalties are harsh if they are convicted. Not only does the court order the person to pay the money owed, plus penalties, fees, and interest, they are also looking at a prison sentence of up to five years.
Examples of tax cases that ended with prison sentences
There have been some famous tax fraud cases over the years. One recent case included Jersey Shore star Mike “The Situation” Sorrentino. In 2018, Sorrentino pleaded guilty in a New Jersey federal court to tax evasion.
“What the defendants admitted to today, quite simply, is tantamount to stealing money from their fellow taxpayers,” U.S. Attorney Carpenito said in a press release. “All of us are required by law to pay our fair share of taxes. Celebrity status does not provide a free pass from this obligation.”
Sorrentino and his brother, Marc, were indicted in 2014 for tax offenses and conspiring to defraud the United States after they allegedly failed to properly pay taxes on $8.9 million of income between 2010 and 2012.
The reality star allegedly made multiple deposits under $10,000 to different banks on the same day to stay under the government’s radar. He also claimed luxury items as business expenses.
After spending eight months in federal prison in Otisville, New York, Sorrentino was released. In addition to his eight-month prison sentence, Sorrentino also received two years of supervised release, 500 hours of community service, and a $10,000 fine.
Other famous tax evasion cases include gangster Al Capone. Yes, he was sent to prison for tax evasion, not for bootlegging, prostitution, or murder. Actor Wesley Snipes also did time for failing to pay his taxes.
Snipes allegedly hid income in offshore accounts and did not file federal income tax returns for several years. The actor’s federal tax debt was estimated to be around $12 million.
The biggest tax evasion case in US history happened in 2006 when telecommunications entrepreneur Walter C. Anderson pleaded guilty to two counts of tax evasion and one count of defrauding the District of Columbia. Anderson failed to report approximately $365 million of income on his 1998 and 1999 federal returns.
Anderson was sentenced to nine years in prison and ordered to pay $200 million in restitution. However, a typographical error in the amount of the federal government’s judgment against Anderson has prevented him from having to pay the majority of the taxes owed.
The IRS ended up conceding the taxes and penalties from three years included in Anderson’s case. But, he is still responsible for $23 million owed to the government of the District of Columbia.
“This case sends a strong signal to anyone thinking about going offshore to avoid taxes. We have stepped up our efforts to pursue high-income tax cheating, whether it takes place in the United States or overseas,” said IRS Commissioner Mark W. Everson.
Do you think people should go to prison for tax evasion? Let us know in the comments below.
Sources: Mass Incarceration: The Whole Pie 2020 https://www.prisonpolicy.org/reports/pie2020.html Who goes to prison for tax evasion? https://www.hrblock.com/tax-center/irs/tax-responsibilities/prision-for-tax-evasion/ Jersey Shore's Mike 'the Situation' Sorrentino Pleads Guilty in Tax Evasion Case https://people.com/tv/mike-situation-sorrentino-pleads-guilty-tax-evasion/ 'Jersey Shore' star Mike Sorrentino freed from prison after tax-evasion conviction https://www.nbcnews.com/news/crime-courts/jersey-shore-star-mike-sorrentino-set-be-freed-prison-after-n1052926 TELECOMMUNICATIONS ENTREPRENEUR WALTER C. ANDERSON PLEADS GUILTY IN $200 MILLION INCOME TAX EVASION CASE https://www.justice.gov/archive/tax/usaopress/2006/txdv06Anderson_TaxEvasion.pdf