One of the things that can get you into trouble with the law is not paying your taxes. If you hide your income or fail to file the correct taxes, you could face heavy fines or penalties.
The Internal Revenue Service doesn't want every person who fails to file to end up in jail. It realizes that people make mistakes and that there are reasons why people don't always pay on time. For that reason, the IRS will listen to your reasons for not filing or paying taxes before determining if it wants to negotiate through an installment plan, reduce your tax liability or criminally prosecute you.
When is failing to pay tax a criminal act?
Failing to pay your taxes becomes a crime when it is a willing action. The IRS believes that any failure to pay is a crime, but most of the time, would rather find a solution to help you pay rather than pursue criminal action. However, if you intentionally do not pay or obtain an income from illegal sources, the IRS is more likely to recommend prosecution.
In some cases, an investigation into the source of your income could lead to racketeering or fraud charges, depending on how blatant your actions were.
What happens if the IRS believes you're underpaying your taxes?
If the IRS thinks you are underpaying your taxes, then it will begin an investigation into the case. From there, the IRS will decide if the case should progress. If so, a criminal investigation begins. The agent in charge works with the IRS to make sure it's following the law while investigating. The Justice Department's tax division takes over the case following the investigation.
Normally, the IRS does not enforce filing taxes that are over six years old. It's possible to seek an audit including years beyond the last six in some cases, though.
What happens if you owe money to the IRS?
If it turns out that you do owe money to the IRS, you may have to pay penalties, interest and the total amount for the taxes. It's normal to be able to work out an installment plan if you owe taxes and were unaware or can get the approval of the IRS. You may also be able to negotiate a settlement to help you resolve the tax nonpayment issue with the IRS and avoid criminal penalties in some cases.