Penalty for Tax Evasion
The Internal Revenue Code 7201 states that:
“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall in addition to other penalties provided by law, be guilty of a felony and upon conviction thereof, shall be fined not more than $ 100,000 ($500,000 in case of a corporation), or imprisonment of not more than 5 years, or both, together with the costs of prosecution."
What does Tax Evasion Constitute?
According to a Supreme Court ruling, tax evasion exists if the government, through the IRS, can show proof beyond reasonable doubt that there is:
(1) Tax deficiency
(2) Willful attempt to evade tax
(3) It has been proven that the taxpayer committed acts of misleading the government by concealing funds to avoid tax payment, through acts of evasion like placing one’s assets or properties in another person’s name, or dealing in cash and paying debts using another person’s name, or keeping two sets of books and making false invoices or supporting documents.
Merely failing to pay assessed tax, is not considered by the courts of law as tax evasion. However, tax evasion as defined, means there is a fraudulent act involved in order to escape tax payments, whether in part or in its entirety, and without any doubt that the act was done intentionally, and not out of error or difference of opinion.
Acts of attempting to reduce the amount of taxes due and payable, by way of different interpretations of tax laws or through skillful accounting manipulations, are not considered as acts of tax evasion.
Nevertheless, not being guilty of tax evasion does not exempt the taxpayer from other criminal charges and penalties. The attempt to file a return in a manner other than that required by law is considered as an "act of attempting" to evade or defeat tax or a substantial portion of the tax due. These acts are still considered as crimes, for which the taxpayer can still be tried in court and be penalized accordingly.