Failing to file your taxes for a year or so is unlikely to land you in jail, unless it rises to a criminal issue. The distinction lies in intent and conduct.
For the most part, the Internal Revenue Service (IRS) is focused on voluntary compliance and prefers that taxpayers file and pay without notices, penalties, and interest. That said, the IRS can quickly get serious if there appears to be a willful nature refusal to file taxes or pay tax due. One situation that can lead to criminal charges involves payroll tax misuse.
As a business owner, you decide that depositing withheld payroll taxes in your own account, rather than with the U.S. Treasury, is a good idea. You also decide not to report that income on a tax return and simply do not file. Over time, an IRS investigation uncovers the tax crime and criminal charges to follow. This is when seeking guidance from a knowledgeable criminal tax attorney becomes critical. Depending on how the matter is handled, the amount of fraud and other factors, jail time may or may not be imposed.
Bottom line: If you fail to file tax returns and knowingly engage in tax evasion, money laundering, or misuse payroll tax funds, the risk of jail time increases significantly.
Not filing a tax return when tax is owed never looks good, but sometimes deadlines are missed, or circumstances intervene, and several years pass without filing or payment. In other cases, a return may have been filed, but the tax due was never paid.
If you missed filing your returns and paying taxes for a year or two, the IRS generally encourages filing as soon as possible, even when the tax due cannot be paid immediately. Working with the IRS rather than ignoring the issue is unlikely to result in incarceration. Be aware, however, that failure to file penalties and interest still apply when tax is owed.
If a return is not filed, the IRS may prepare one on your behalf. After issuing a Notice of Deficiency, the IRS may assess an additional tax unless you file your overdue return or pursue the matter in U.S. Tax Court within 90 days. Given how quickly penalties and interest can accumulate, some taxpayers find that a personal loan costs less over time.
As unpleasant as catching up on tax payments can be, the risk of jail is generally low. Once your filings are current, staying attentive to future deadlines is essential. For additional insights into recurring tax issues, review our resource guide, "Since You Asked: 15 Common Tax Law Questions and Answers."
If you receive a concerning Notice of Deficiency or IRS audit letter, our tax group can help. At Robert J. Fedor, Esq., L.L.C., we provide legal guidance to help clients respond to IRS scrutiny involving personal or business matters. Contact our legal team at 440-250-9709. We serve clients in Northeast Ohio, Chicago, New York City, and internationally from our offices in Cleveland and Chicago.