Tax Evasion - causes and consequences of not submitting your return

The tax gap resulting from tax evasion has cost the IRS, and therefore the State, about 381 billion dollars between 2011 and 2013, and that money was not invested in programs and social benefits.

Tax evasion is not only a burden on the government, but it also brings consequences for individuals and corporations.  Cornell University Law School reminds us of Section 7201 of the Internal Revenue Code:  " 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."  

As we can see, these are severe consequences of not filing or evading taxes. Let us continue to discuss the consequences, the causes and some famous cases of tax evasion.

Causes of tax evasion

We should all know that tax evasion occurs, not only when an individual or corporation does not pay its taxes, but also when it "hides" the true state of its finances (income and expenses) from the tax authorities.

It is not just a question of evading the return or payment, but of practices of taxpayers aimed at hiding income figures or inflating deductible expenses for the sole purpose of paying less.

The Inter-American Center of Tax Administrations  CIAT  lists among the causes of tax evasion the following:

• High tax types or rates.
• The regressive scheme of taxes and the difference in rates between tax brackets.
• Tax burden generated by the different levels of government: federal, state and local.
• A low cultural and educational level of the population.
• Accounting treatment of depreciations, amortizations, intangibles and other susceptible accounts in the allocation of true book value.
• Significant levels of the informal economy and/or sectors not covered.
• Tax havens and significant differences among the tax regimes of different countries.
• Global payment networks, collaborative platforms, ecommerce, and other new and flexible digital economy schemes.
• Digital currencies and other alternative payment models.
• Technological backwardness in the Revenue Service, as well as red tape in the processes and difficulty in taxing and controlling emerging schemes.

Do not miss our post: List of documents needed to file your taxes.

Consequences of not submitting your return

In addition to the criminal consequences for the evidence of the evasion felony already mentioned above, there are other types of penalties if you decide not to submit your tax return, or submit your return and then not pay the taxes, the former are more severe than the latter.

For example: If you don't file your tax return by April 15, you can receive a penalty equivalent to 5% of your unsubmitted taxes for each month of delay in the submission, up to 25%. In addition, any delay of more than 60 days results in the payment of a minimum amount of $135.

Now, if you file your taxes properly but don't pay, the IRS will charge you penalties for non-payment, from 0.5% of your unpaid taxes per month, up to 25%. In addition, the amounts owed carry interest, at the short-term federal interest rate. And in all these cases, the most common penalty for not filing your income  tax return on time is to lose your refund.

CNBC  notes that by repeatedly ignoring the tax season, the IRS can do the following, in addition to imposing fines:

• File a federal tax lien against you
• A claim is raised against your assets
• Total loss of tax refund
• Revocation of passport
• Investigation and possible criminal charges for evasion.

These are enough reasons to file and pay your taxes on time and if you deem it necessary, seek the support of experts.

Some famous cases of evasion

Cases of tax evasion are becoming more public and notorious. eFile  tells us that the lists of the biggest tax evaders are compiled and disclosed in states like California and New York. Let's look at some of the most notorious evasion cases in recent years:

• October 2020 in Texas, Robert Brockman, the billionaire and CEO of the tech company Reynolds and Reynolds Co. He was charged with tax fraud for $2 billion by federal prosecutors, the largest tax evasion case brought against a U.S. citizen to date.
• Milton Teagle "Richard" Simmons, who at his age is a fitness celebrity, was fined $24,000 by the IRS for his tax practices between 2007 and 2015.
• Mike 'The Situation' Sorrentino, a Jersey Shore celebrity, was charged with tax evasion in January 2018, because he concealed about $9 million of his income between 2010 and 2012 and had to spend 8 months in jail.
• William Leonard Roberts II, better known as rapper Rick Ross, had to pay $4 million to the IRS after it issued a notice of confiscation of his assets in 2016 for tax evasion.
• Another rapper, Trey Songz, received in 2015 a IRS tax lien for taxes unpaid in 2013. The bill, including the fine, amounted to US$ 750,000.
• His colleague Jeffrey Atkins was less fortunate. In 2013, he was sentenced to 23 months in prison; he had to pay a bill of 1.1 million, so the sentence was reduced and switched to house arrest.

File and pay your taxes on time

You do not have to be a singer, a rapper or a public figure for the IRS to act against you and apply a penalty for evading or not filing your taxes; keep it current and, if necessary, seek the advice and support of experts.

At GBS Group, we can give you the advice and comprehensive solutions in tax matters you need.