You can face criminal charges for tax evasion when you participate in illegal activities to avoid paying your taxes. In most cases, a tax evasion scheme will involve misrepresenting your personal or business income to the IRS.
This misrepresentation can take on several forms. For example, tax evasion can occur when you hide money and its interest in offshore accounts, inflate deductions or under report your income. You can also face charges for tax evasion if you intentionally do not file tax returns or claim residency in different states where you do not live.
Evading your taxes can result in significant fines, imprisonment or both. For instance, according to Section 7201 of the Internal Revenue Code, if you willfully evade or defeat an imposed tax, you could be guilty of a felony. Consequences for this crime can include a fine of no more than $100,000 and a prison term of no more than five years.
To prove you are guilty of tax evasion, the prosecution must establish the existence of an unpaid tax liability. They also have to prove you engaged in a willful action or attempt to avoid the tax. And finally, they must show you had the intent to not pay your tax.
Arguing that you accidentally provided incorrect information is one of the most common defenses to tax evasion. In some cases, this can be a beneficial defense if providing the incorrect information was accidental and devoid of the intent to defraud the government.