Can You Go to Jail For Not Paying Taxes?
If you’ve gotten behind on paying your taxes, the fear of criminal prosecution, fines, and imprisonment may have crept into your mind.
But is it actually a criminal offense to simply be behind on your taxes? Can you go to jail for not paying taxes?
The answered is mixed and is more a question of your intent in getting behind on your taxes.
While both taxpayers would be subject to civil penalties and interest, there’s a world of difference when it comes to criminal charges between these two taxpayers:
- The taxpayer who owes the IRS $100,000 because, even though they filed their returns timely and set aside money to pay their tax bill, experienced an unforeseen catastrophe that caused them to be unable to pay their tax debt.
- The taxpayer who owes the IRS $100,000 because they tried to get out of paying their tax bill, as evidenced by their failure to file several years of tax returns, their keeping of two separate sets of books, and their insistence on being paid “under the table” to avoid being issued a 1099 or any other kind of paper trail that would make the IRS aware of their earnings.
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What the Law Says
When it comes to going to jail for not paying taxes, there are two relevant sections of the tax code: 7201 and 7203.
Felony Under Section 7201 “Attempt to Evade or Defeat Tax”
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 the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
Misdemeanor Under Section 7203 “Willful failure to file return, supply information, or pay tax”
Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”.
The Key Element: Willfulness
Now, a key element of both misdemeanor noncompliance under Section 7203 and felony tax evasion under Section 7201 is willfulness, which is a “voluntary, intentional violation of a known legal duty” (United States v. Bishop; see also United States v. Pomponio).
For example, for the misdemeanor, noncompliance in and of itself is not a crime; the law does not merely say, “Filing to pay a tax is a crime” or, “Failing to file a required tax return is a crime”; it states that the noncompliance must be willful.
The IRS can certainly charge you penalties and interest on non-willful noncompliance — which you may be able to get abated — but the government can’t convict you of a crime in these matters unless it can show that you willfully did not comply.
In the eyes of the law, willfulness is the line between a tax mistake and a tax crime.
To be criminally liable for a tax violation, the government must prove that a taxpayer willfully failed to comply with the law.
This doesn’t mean the person simply forgot, miscalculated, or misunderstood the tax code; it means the person knew what the law required and intentionally chose to disregard it.
For example, someone who who underpays due to a genuinely misunderstood deduction is not acting willfully, even if tax is owed.
The same is true for someone who relies in good faith on incorrect advice from a tax professional.
On the other hand, a taxpayer who is fully aware of their filing or payment obligation and makes a conscious choice to ignore it is acting willfully.
And ultimately, for the prosecution, proving willfulness is essential in any criminal tax case.
But what’s the difference between a willing attempt to evade or defeat a tax — which is a felony — and, say, a willing failure to pay a required tax?
This is where we turn to the 1943 Supreme Court decision in Spies v. United States.
Felony or Misdemeanor: Spies v. United States
Now, if you were to read simply those two sections, you may get the sense that there is some overlap between them — and you’d be right.
What’s the difference between willfully attempting to evade or defeat a tax and willfully failing to pay a tax?
That was the question in the Spies v. United States case, a foundational Supreme Court case that distinguishes felony tax evasion (such as in Section 7201) from misdemeanor compliance (such as in Section 7203).
District Court Conviction
In this case, there was no question whether the taxpayer, Mr. Spies, failed to file his tax return for the year 1936 (the year in question) and pay the related tax — Mr. Spies admitted as such, and the District Court found him guilty.
However, in his District Court jury trial, Mr. Spies was only indicted with and found guilty of felony tax evasion; he was not even indicted for misdemeanor noncompliance.
Jury Instructions
During his District Court trial, therefore, Mr. Spies’ attorney therefore requested that the District Court give an instruction to the jury in the jury trial that it may not find the defendant guilty of the felony evasion charge if the jury found “only” that the defendant had willfully failed to file a required return of income and willfully failed to pay the required tax on that income.
The District Court refused this request, instead instructing the jury that if they found that the defendant owed tax for the year 1936, that he failed to file a return for that year, and that he failed to pay the tax for that year, the jury may find him guilty of felony tax evasion.
“Affirmative Act” Concept
Mr. Spies’ attorney also requested that the District Court also instruct the jury that “an affirmative act was necessary to constitute a willful attempt.”
The District Court rejected this request, instead stating that “attempt” simply means “to do or accomplish,” that an “attempt” does not require an “affirmative act,” and that “an attempt may be found on the basis of inactivity or on refraining to act.”
The government’s contention in this case, then, that if a taxpayer both fails to file a tax return and pay the related tax, these two things alone, “without more,” constitute felony tax evasion.
Meanwhile, Mr. Spies’ attorney contended that a taxpayer’s failure to file a tax return and failure to pay the related tax merely constitutes two misdemeanors — “and it takes more than the sum of two misdemeanors to make [a] felony.”
Thus, given the Court’s instructions, the jury naturally found Mr. Spies guilty of felony tax evasion, which the Circuit Court of Appeals for the Second District affirmed the District Court’s conviction.
Supreme Court Decision
In its opinion, the Supreme Court made the following key statements:
- “It would be unusual and we would not readily assume that Congress by the felony defined in Section 145(b) [the predecessor to Section 7201] meant no more than the same derelictions it had just defined in Section 145(a) [the predecessor to Section 7203] as a misdemeanor.”
- “The difference between willful failure to pay a tax when due, which is made a misdemeanor, and willful attempt to defeat and evade one, which is made a felony, is not easy to detect or define.”
- “But in view of our traditional aversion to imprisonment for debt, we would not without the clearest manifestation of Congressional intent assume that mere knowing and intentional default in payment of a tax, where there had been no willful failure to disclose the liability, is intended to constitute a criminal offense of any degree. We would expect willfulness in such a case to include some element of evil motive and want of justification in view of all the financial circumstances of the taxpayer.”
- “The difference between the two offenses, it seems to us, is found in the affirmative action implied from the. term ‘attempt,’ as used in the felony subsection…We think that in employing the terminology of attempt to embrace the gravest of offenses against the revenues, Congress intended some willful commission in addition to the willful omissions that make up the list of misdemeanors. Willful but passive neglect of the statutory duty may constitute the lesser offense, but to combine with it a willful and positive attempt to evade tax in any manner or to defeat it by any means lifts the offense to the degree of felony.”
Thus, the Supreme Court concluded that in order for a taxpayer to commit felony tax evasion, there must not only be the elements of willfulness and (obviously) a tax debt owed — there must also be (to use the language of the Sansone case in its reference of the Spies case) “an affirmative act constituting an evasion or attempted evasion of the tax.”
Furthermore, in the Spies case, the Supreme Court gave this non-exhaustive list of example affirmative acts:
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- Keeping a double set of books
- Making false entries or alterations
- Making false invoices or documents
- Destroying books or records
- Concealing assets
- Covering up sources of income
- Handling one’s affairs to avoid making the records typical in similar transactions
- Engaging in any conduct the likely effect of which would be to mislead or conceal
How Much Do You Have to Owe the IRS to Go to Jail?
There is no set amount that one has to owe the IRS to go to jail.
This is because the law does not establish some minimum dollar amount at which unpaid taxes suddenly become a criminal offense; the law simply states that any willful failure to pay tax is a crime punishable by fine and prison.
This is to say that when it comes to criminal prosecution the government doesn’t have to show any specific dollar amount owed; it merely has to show that you willfully failed to pay a required tax.
How This Works in Practice
Now, in practice, the IRS Criminal Investigation Division and the United States Department of Justice typically prioritize criminal investigation and prosecution in matters involving larger dollar amounts, egregious conduct, celebrity status, and/or a clear pattern of willful noncompliance over several years.
While technically someone could be prosecuted for willfully failing to pay a relatively small tax debt, such cases are rare given the government’s limited resources and the cost incurred by investigating and prosecuting a criminal tax matter.
Arthur Farnsworth: Prosecuted Over $87,000
That said, it’s not only multi-million-dollar tax evasion schemes that the government investigates and prosecutes.
For example, there was an engineer named Arthur Farnsworth from Pennsylvania who was prosecuted and convicted of federal tax evasion for failing to pay approximately $87,000 in federal income taxes over a three-year period.
$87,000 isn’t pocket change, but it’s not necessarily high-stakes either; at Choice Tax Relief we talk to people who call in everyday who owe more than $87,000.
Farnsworth, who held strong anti-tax views and was active in the Libertarian Party, earned more than $220,000 between 1998 and 2000 but failed to file tax returns or pay any federal income tax.
He was ultimately indicted on three counts of felony tax evasion under IRC Section 7201 and sentenced to 27 months in federal prison, along with a fine and restitution order.
Despite the dollar amount being well below seven figures, the government still pursue Farnsworth for the following reasons:
- He was something of a public figure at the time of his arrest. In 2004, he was running for Congress, and he was arrested in November 2004.
- He clearly took affirmative acts in an attempt to evade tax — setting up fake legal structures, transferring money to sham trusts, etc.
- He was a “tax protestor” — someone who believes that they are not subject to the federal income tax (the government likes to make examples of these kinds of folks)
Bottom Line: There’s No Minimum Amount to Go to Jail
So how much do you have to owe the IRS to go to jail?
There is no magic number.
If you have willfully failed to pay in your taxes, you’ve likely committed a criminal misdemeanor for tax non-compliance.
If you have willfully taken positive, affirmative actions to attempt to hide what you know to be your true tax liability, you’ve likely committed a criminal felony for tax evasion.
That said, due to the government’s limited resources, the vast majority of taxpayers who have technically committed one or both of these crimes do not experience investigation and prosecution, the Farnsworth case notwithstanding.
Author:
Logan Allec, CPA, Founder and Owner
Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.
