J. Patrick Quillian, P.C.

J. Patrick Quillian
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Difference between tax evasion and tax avoidance

Many people in Oklahoma confuse tax avoidance and tax evasion. However, there are key differences between these ways that people try to avoid paying their taxes. While implementing tax avoidance strategies is legal, tax evasion is illegal and can result in a prison sentence.

Tax evasion vs. tax avoidance

People who engage in tax evasion try to conceal income from the IRS through illegal means. Tax evasion is done to reduce the taxes people might owe and might involve hiding income and sources. People who are convicted of tax evasion might face penalties, fines, and prison. They will also be forced to pay the back tax debts owed. Tax avoidance refers to using legal strategies to reduce tax liability. For example, placing before-tax dollars in a 401(k) or IRA is legal even though it reduces the taxes that would otherwise be owed.

Penalties for tax evasion

Tax evasion can result in criminal and civil penalties. When people willfully try to evade taxes, they can face up to five years in prison, fines of up to $250,000, restitution for the costs of prosecution, and a felony on their records. Civil penalties that can be assessed for tax evasion include the following:

  • Penalties for underpayments
  • Penalties for failures to file
  • Interest

The penalties can make people owe double or more than their actual tax liabilities.

People who are under investigation by the IRS for failing to file tax returns or concealing income should talk to attorneys who are experienced in handling white-collar crimes, including tax evasion cases. A lawyer who regularly appears in federal court might be able to negotiate a resolution to a client’s case to avoid criminal liability for failing to pay their taxes or failing to file their income tax returns.

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