Can You Go to Jail for Not Paying Taxes?

While going to jail for tax issues is rare, it’s not impossible.

Case in point: Mike “The Situation” Sorrentino — star of the MTV reality show “Jersey Shore” — was levied an eight-month prison sentence after pleading guilty to tax evasion.

He was charged with committing fraud in 2014 after the IRS said he failed to pay enough federal income taxes on the $8.9 million he earned between 2010 and 2012.

Sorrentino allegedly made multiple deposits under $10,000 to different banks on the same day to stay under the government’s radar and claimed luxury items as business expenses.

As “The Situation’s” situation shows, going to jail for not paying your taxes is a real possibility. If you think it’s reserved for only those who cheat the government out of millions, normal, everyday people can face serious consequences, too.

Can you go to jail for not paying taxes?

Audit rates have reached an all-time low. According to the Tax Policy Center, the IRS audits less than 1% of individual and partnership returns. But that doesn’t mean you can get complacent. Audits are often random, if they’re not triggered by red flags, and you could be one of the select few chosen for an audit.

Whether you’re incarcerated for tax non-payment is an option is dependent on the crime committed, such as:

• Tax fraud: Tax fraud occurs when you file a false return or file false documents when you submit your tax return.
• Tax evasion: Using illegal means, such as deliberately misrepresenting your earnings or inflating deductions, to avoid paying taxes.
• Failure to file: Failure to file happens when you forget to file a return or deliberately avoid filing a return.

According to David Cawley — a certified public accountant (CPA) and chief financial officer at Micah Fraim, CPA, in Virginia — there are many different consequences that you could face if you commit a tax crime.

“The most common consequence for someone who owes taxes is having to pay penalties and interest on the taxes they owe,” he said. “If you owe taxes and don’t file your tax returns on time, you’ll be subject to penalties amounting to 5% per month of the taxes you owe, up to 25%.”

Worse, interest on unpaid taxes continues to compound daily, which is known as the failure-to-file penalty.

And, if you deliberately try to trick the IRS, you may be risking jail time.

“If you commit tax fraud by either lying on your tax returns or not filing your returns altogether, you may be subject to criminal charges, but taxpayers will never go to jail for not having enough money to pay their taxes,” Cawley said.

In other cases, where the taxpayer is audited and ends up owing money, a civil judgment is placed against the person to recoup the amount owed. Criminal charges only occur when the IRS has determined that fraud or evasion was committed willfully.

It’s important to know that there is a statute of limitations for tax crimes. The IRS has three years after you file to audit you. But if you leave out more than 25% of your income, the statute of limitations doubles to six years.

What to do if you can’t pay your taxes

If you have failed to file your taxes and are worried about the consequences, it’s essential that you take action right away.

“If their returns have not been filed, I would suggest filing them immediately even if they don’t have the money to pay the taxes they owe,” Cawley said.

If you’re behind, it’s a good idea to consult with a tax attorney or accountant first to ensure everything is handled correctly.

If you file your return but can’t afford the tax bill, you won’t go to jail. In fact, you may be able to come up with an alternative arrangement with the IRS.

“Taxpayers can also go on a payment plan with the IRS to help pay off what they owe over time, and, depending on certain circumstances, penalties and interest on taxes owed can be waived,” Cawley said.

A payment plan will give you time to earn extra money to pay what you owe.

Doing your taxes

While spending time in jail is a real consequence some people face for committing tax crimes, it’s more likely that you’ll face a civil judgment and owe penalties and interest charges for not filing your return on time or for not filing accurately.

To avoid any risk of civil or criminal proceedings, it’s important to file your tax return on time, or file for an extension if necessary. You can use one of the many tax software programs out there or, if your tax situation is more complicated or you want an expert’s touch, work with a CPA to help you through the process and ensure you don’t make any mistakes.