Lying on your tax return is a federal crime that can send you to prison for up to five years. Whether you intentionally underreported income, claimed fake deductions, or simply stopped filing returns altogether, the IRS has the authority to pursue criminal charges that carry life-altering consequences. Tax crimes fall into three main categories under federal law: tax evasion, tax perjury, and failure to file. Each carries its own penalties, and understanding the differences could be the first step in mounting an effective defense.
What Qualifies as a Federal Tax Crime?
The Internal Revenue Code is notoriously complex, and millions of Americans make innocent mistakes on their returns every year. The IRS knows this. What separates a simple error from a federal crime comes down to one word: willfulness. To face criminal prosecution, you must have intentionally violated a tax law you knew existed. Carelessness, confusion, or bad math won’t land you in federal prison. Deliberately hiding income or fabricating deductions will.
The distinction matters because the government bears the burden of proving your intent beyond a reasonable doubt. This is the highest standard in American law, and it’s why experienced defense attorneys can often challenge tax crime allegations successfully. But make no mistake: if prosecutors can prove you acted willfully, the penalties are severe.
Tax Evasion Under 26 USC 7201
Tax evasion is the most serious federal tax offense. Under 26 USC 7201, anyone who “willfully attempts in any manner to evade or defeat” a federal tax commits a felony. The statute is intentionally broad. Congress wanted to capture every creative scheme taxpayers might devise to avoid their obligations.
What separates tax evasion from other tax crimes is the requirement of an affirmative act. Simply failing to pay isn’t enough. Prosecutors must prove you took some deliberate step to defeat the tax system. This might mean hiding assets in offshore accounts, maintaining two sets of financial books, creating fictitious invoices to inflate deductions, or destroying records before an audit. The IRS sees these patterns constantly, and their Criminal Investigation division has become remarkably sophisticated at detecting them.
To secure a conviction, the government must prove three elements: that you owed more tax than you reported, that you took some affirmative action to evade that tax, and that you acted willfully. That final element is where many cases are won or lost. If your attorney can demonstrate you genuinely believed your tax position was legal, or that you relied in good faith on professional advice, the willfulness requirement may not be satisfied.
The penalties reflect how seriously Congress treats this offense. A conviction for tax evasion carries up to five years in federal prison and fines reaching $100,000 for individuals or $500,000 for corporations, plus the costs of prosecution. These aren’t theoretical maximums. Federal judges regularly impose substantial prison sentences in tax evasion cases, particularly when the amounts involved are significant or the defendant showed sophisticated planning.
Tax Perjury and Fraud Under 26 USC 7206
You don’t need to hide millions in offshore accounts to face federal tax charges. Simply signing a return you know contains false information violates 26 USC 7206, commonly called the tax perjury statute. Every tax return includes a declaration that you’re signing under penalties of perjury. When you sign knowing something on that return is materially false, you’ve committed a federal felony.
The law casts a wide net. Misidentifying your primary source of income, claiming dependents who don’t qualify, or inventing charitable contributions all fall within its reach. You don’t even need to be the one filing the return. Tax preparers who knowingly help clients file false returns face the same charges under Section 7206(2). The IRS has increasingly targeted unscrupulous preparers who manufacture fraudulent refunds, and both the preparer and the taxpayer can end up facing prosecution.
Unlike tax evasion, the government doesn’t need to prove a tax deficiency to convict you of tax perjury. The crime is complete the moment you sign a return containing a material falsehood you knew about. This makes 7206 charges somewhat easier for prosecutors to prove, though they still must establish willfulness beyond a reasonable doubt.
A conviction under Section 7206 carries up to three years in federal prison and fines up to $100,000 for individuals or $500,000 for corporations. While the maximum sentence is shorter than for tax evasion, federal prosecutors often charge multiple counts, and sentences can run consecutively.
Failure to File Under 26 USC 7203
Some people respond to tax anxiety by simply not filing at all. This might feel like avoiding the problem, but it creates a different one. Under 26 USC 7203, willfully failing to file a required tax return is a federal misdemeanor. The same statute covers failure to pay taxes you owe, failure to keep required records, and failure to supply information the IRS has requested.
The government must prove you were legally required to file, that you failed to do so by the deadline, and that your failure was willful. That third element is where defense attorneys focus their efforts. Life circumstances sometimes make filing genuinely impossible. Medical emergencies, natural disasters, or reliance on a tax professional who dropped the ball can all undermine the government’s willfulness case.
Failure to file carries a maximum sentence of one year in federal prison and fines up to $25,000 for individuals or $100,000 for corporations. These are misdemeanor-level penalties, but a federal conviction of any kind creates lasting consequences for employment, professional licensing, and immigration status. And if the IRS believes your non-filing was part of a broader evasion scheme, they may upgrade the charges to a felony under Section 7201.
How IRS Criminal Investigation Builds Tax Cases
Tax crimes rarely announce themselves. Most cases begin with something mundane: a routine audit that uncovers discrepancies, a tip from a disgruntled former employee or spouse, or pattern analysis that flags returns for review. The IRS processes over 150 million individual returns annually, and their computers have become adept at identifying statistical anomalies.
When the civil side of the IRS suspects criminal conduct, they refer the case to Criminal Investigation, commonly known as CI. This is a distinct division staffed by special agents who carry badges and firearms. CI agents don’t audit returns. They investigate crimes. They execute search warrants, subpoena bank records, conduct surveillance, and interview witnesses. By the time a CI agent contacts you, the investigation has likely been underway for months.
If CI believes it has built a prosecutable case, the special agent prepares a comprehensive report and forwards it through multiple layers of review. Cases that survive this scrutiny are referred to the Department of Justice Tax Division, which makes the final decision on whether to seek an indictment. This multi-step process means federal tax prosecutions are relatively rare. The IRS criminally investigates only a tiny fraction of problematic returns. But when they do prosecute, their conviction rate exceeds 90 percent.
That statistic underscores why early intervention matters. Once the DOJ has approved prosecution, your options narrow considerably. An experienced tax crime attorney can sometimes intervene during the investigation phase, presenting evidence or arguments that convince CI not to recommend charges. This window closes once the case reaches federal court.
Civil Penalties Add Financial Pain
Criminal prosecution represents the most severe consequence of tax violations, but it’s not the only one. The IRS imposes civil penalties that can multiply your financial exposure dramatically, and these apply even when the government doesn’t pursue criminal charges.
Filing a late return triggers a penalty of 5% of your unpaid taxes for each month you’re late, capping at 25% of the total owed. Pay late, and you’ll face an additional 0.5% monthly penalty on the outstanding balance, also maxing at 25%. These penalties compound, and interest accrues on top of them.
The civil fraud penalty is far more punishing. If the IRS determines that any portion of your underpayment resulted from fraud, they can assess a penalty equal to 75% of the fraudulent underpayment. Unlike criminal fraud, which requires proof beyond a reasonable doubt, civil fraud requires only clear and convincing evidence. And while there are statutes of limitations on most tax matters, civil fraud has none. The IRS can reach back decades to assess this penalty.
Accuracy-related penalties occupy a middle ground. Negligence or substantial understatement of income can trigger a 20% penalty on the understated amount. These penalties don’t require proving fraud, just carelessness or positions that lacked substantial authority.
Defending Against Federal Tax Charges
The willfulness requirement creates the primary battleground in tax crime defense. Federal law defines willfulness as the voluntary, intentional violation of a known legal duty. If you genuinely didn’t know you were required to file, or honestly believed your tax position was correct, you may lack the mental state necessary for conviction.
Good faith reliance on professional advice provides another avenue of defense. If you provided complete and accurate information to a qualified tax professional and followed their guidance, that reliance can negate willfulness. The key is that your reliance must have been genuine and reasonable. Seeking out a preparer specifically because they promised aggressive positions won’t provide cover.
Constitutional challenges sometimes succeed as well. The IRS must follow proper procedures when gathering evidence. Searches conducted without valid warrants, Miranda violations during custodial interrogation, or improper grand jury procedures can all result in evidence being excluded. An experienced defense attorney will scrutinize every step of the investigation for procedural errors.
The complexity of tax law itself can serve as a defense. Some tax positions fall into genuinely gray areas where reasonable professionals disagree. If your position had substantial authority supporting it, the mere fact that the IRS disagreed doesn’t make you a criminal. Tax courts regularly side with taxpayers on disputed issues, which proves these disagreements are often legitimate.
Frequently Asked Questions
What’s the difference between tax evasion and tax avoidance?
Tax avoidance is legal. It means using deductions, credits, and strategies the law allows to minimize what you owe. Tax evasion is illegal. It means using fraud, concealment, or misrepresentation to pay less than you legally owe. The line between aggressive avoidance and criminal evasion isn’t always bright, which is why professional advice matters.
Can I go to prison for not filing taxes?
Yes, if your failure was willful. Under 26 USC 7203, willful failure to file is a federal misdemeanor carrying up to one year in prison. However, the IRS typically reserves criminal prosecution for egregious cases showing clear patterns of intentional non-compliance. Most non-filers face civil penalties rather than criminal charges.
How long can the IRS investigate tax crimes?
The statute of limitations for most tax crimes is six years from the date the return was filed or due. However, civil fraud has no statute of limitations, meaning the IRS can assess fraud penalties against returns filed decades ago if they can prove the fraud by clear and convincing evidence.
What should I do if IRS Criminal Investigation contacts me?
Stop talking immediately and contact an attorney. CI agents are not auditors. They are law enforcement officers building a criminal case. Anything you say can and will be used against you. You have no obligation to answer questions, provide documents, or make their job easier. Politely decline to speak without counsel present, then call a defense lawyer that same day.
My tax preparer made mistakes. Can I still be charged?
Possibly, but preparer error is a strong defense. If you provided accurate information and relied in good faith on a qualified professional’s advice, that reliance can negate the willfulness element. The IRS may pursue the preparer instead, particularly if they find a pattern of fraudulent returns. Keep all documentation of what you provided and what advice you received.
Get Help from an Experienced Federal Tax Crime Attorney
Federal tax prosecutions carry consequences that extend far beyond prison time. A felony conviction affects your career, your professional licenses, your reputation, and your family. The IRS Criminal Investigation division is staffed by some of the most capable investigators in federal law enforcement, and they spend months building cases before you ever know you’re a target.
The attorneys at Varghese Summersett have defended clients facing the full spectrum of federal white-collar charges, including tax evasion, tax fraud, and failure to file. We understand how CI builds cases, where their investigations are vulnerable, and how to position our clients for the best possible outcome. Sometimes that means negotiating a favorable resolution before charges are filed. Sometimes it means taking the case to trial and holding the government to its burden.
If you’re under investigation or facing charges for a federal tax crime, early action matters. Contact us at 817-203-2220 or reach out online for a confidential consultation. The call is free. The advice could change everything.
