By Law Office of A. Oliver Hassibi

February 14, 2018

Given that it’s February and April is around the corner, taxes are on everybody’s mind. A lot of people are afraid of being audited by the IRS, especially those who are not W2 employees, but who are business owners, independent contractors and freelancers. In fact, the fear of an IRS audit is one of the reasons why workers are so careful to file their taxes before the deadline.

According to the Internal Revenue Service (IRS), “The nation’s tax deadline will be April 17 this year – so taxpayers will have two additional days to file beyond April 15.” The question is, how many taxpayers this year will be prosecuted for tax evasion? In reality, very few people are actually prosecuted for tax evasion each year, but it does happen.

Who does the IRS target the most? Is it the people who don’t file their taxes? The people who lie about their tax deductions? The people who hide their income from the IRS? The people who file their taxes, but fail to mail in a check to the IRS? Generally, the IRS targets taxpayers who willfully and knowingly understate how much they owe the IRS.

The typical tax evasion cases involve taxpayers who:

  • Claim false deductions
  • Lie about their income
  • Misreport their credits
  • Do not file their annual tax return

“But what if I can’t afford to pay the IRS what I owe?” While this can certainly be scary as the taxpayer, the good news is that you don’t automatically become a target because you don’t have the money to pay your taxes. However, if you try to hide assets so you don’t pay your back taxes or if you fail to file your tax returns, you could get unwanted attention from the IRS and in some cases, face criminal prosecution.

What Can Get Me in Trouble?

If you file a tax return and the IRS conducts an audit and the agency finds errors that the IRS believes you knowingly and intentionally committed, and the errors were large and indicated a pattern of intentional tax evasion, you could face an IRS prosecution. Usually, the IRS looks for unreported income and fishy behavior during the audit itself, such as hiding bank account records from the IRS auditor.

In today’s ever-increasing “gig economy,” a lot of W2 employees are starting side businesses and freelancing on the side. Sometimes, gig workers are new to being an independent contractor and they fail to report their income correctly. When such a person fails to report income from a side hustle, it can lead to tax evasion charges.

Tax evasion is a federal crime under Title 26 USC § 7201, punishable by up to 5 years in prison, and by a fine not to exceed $250,000.00.