What is Individual Income Tax Evasion? Explanation, IRS Penalities and Example Fraud Cases

tax evasion v tax avoidance

Individuals who intentionally file false returns are guilty of tax evasion. If convicted, they face hefty fines and back taxes, in addition to a maximum of five years in prison. Reputable tax accountants and online tax return programs can help individuals avoid tax fraud by filing proper returns.

Tax evasion could get a maximum of 5 years in prison – image by pixabay.com

What Qualifies as Individual Tax Evasion?

An individual who willfully fails to pay income taxes is guilty of tax fraud. According to Cornell University Law School, an individual is committing tax evasion when he knowingly:

  • neglects to file returns
  • files false returns
  • reports less than actual income
  • reports more than actual deductions
  • hides money in accounts outside the country
Hiding money in accounts outside the country is tax evasion – image by eupoliticalreport.eu

Tax fraud cases range from simple tax evasion to complicated tax schemes.

Penalties for Tax Evasion

According to the IRS (code 7201), tax evasion is a felony. Individuals who commit tax fraud can be sentenced to:

  • spend up to five years in prison
  • face additional time under supervised release
  • pay full restitution in back taxes
People with tax evasion would go to prison – image by pixabay.com
  • pay up to $250,000 in fines
  • pay the costs of prosecution

Examples of Individual Tax Fraud Cases

In February of 2010, Connecticut resident Patricia Baddeley Meehan was charged in a more complicated tax scheme, in which she defrauded the law office for which she worked. She used credit cards for personal use, cashed checks from a law firm account, and took cash advances at casinos.

Patricia Baddeley Meehan used credit cards for personal use – image by savingsking.com

She was charged with tax fraud, since she neglected to report the money (she illegally used) as income. Meehan was sentenced to nearly four years in prison and three years of supervised release. She was also ordered to pay full restitution to her employer, plus back taxes, penalties and interest to the IRS.

Meehan was sentenced to nearly four years in prison – image by istockphoto.com

How to Avoid Tax Fraud

According to Cornell University, to convict an individual of tax evasion, the prosecution must prove that the individual has an unpaid tax liability, which she intentionally attempted to evade. Thus, an individual can avoid tax fraud by filing proper tax returns each year through a reputable and trustworthy source.

An individual can avoid tax fraud by filing proper tax returns each year – image by theeconomictimes.com

Individuals can prepare tax returns through local accountants, chains (such as H & R block), or online programs (including Turbo Tax and Tax Act).

As long as an individual includes all income and deductions properly and files through a reputable source, he can avoid tax fraud and the resulting IRS penalties.


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