Taxpayers who learn about a tax issue often worry about what happens next. Many people have heard horror stories about business owners, self-employed professionals and even celebrities going to jail because of tax issues. They may feel anxious every time they see a letter from the Internal Revenue Service (IRS) in their mailbox.
Their fear can lead to them making the wrong decision regarding how they handle the situation. Many people who become frightened about the consequences of a tax controversy become avoidant. Instead of seeking to address the matter, they put it off because they aren’t sure what to do. Tax issues may only continue to worsen as interest accrues and additional filing periods pass without a resolution to the issue.
For those facing allegations of an underpayment of taxes, failure to file tax returns or a failure to disclose offshore resources, getting help as early in the process as possible can be beneficial. One of the first questions that many people have when consulting with a tax attorney is whether the IRS has the authority to jail them for their failure to pay their taxes in full and on time.
The IRS doesn’t prosecute people directly
Contrary to what people sometimes believe, the IRS does not actually have the authority to bring charges against individuals. What the IRS does is evaluate income tax records and other financial documents to identify warning signs of fraud or tax evasion.
When IRS professionals find signs of fraud, they may request the initiation of a criminal investigation. They need to determine if the matter involves criminal tax fraud or just mistakes. Provided that there is compelling evidence, the IRS may refer more egregious cases to the Department of Justice for prosecution.
Federal prosecutors can bring charges against people accused of tax fraud, tax evasion and other financial crimes using the evidence gathered during the IRS investigation. However, the IRS does not directly prosecute people for financial crimes. They can submit evidence to the Department of Justice and may require that taxpayers undergo an audit as a way of determining whether they failed to pay their taxes in full.
Jail time is one of the potential penalties in scenarios where intentional tax evasion or other tax crimes occur. That being said, those who are able to settle their tax matters amicably with the IRS can prevent a scenario in which tax controversies end up referred out to the Department of Justice for prosecution.
Understanding how federal income tax issues can go from warning letters to audits to criminal charges can be beneficial for those accused of violating federal tax rules. Even those facing significant controversies are often in a strong position to take steps to limit the fallout of the accusations against them.
