Ask the Taxgirl: Tax Evasion

Taxpayer asks: Hi Taxgirl,

I’ve been claiming lots of dependents (that don’t exist), but not filing or paying any Federal income taxes for the past three years. What is going to happen to me?

Taxgirl says:  Generally, if you’ve made a genuine mistake or you’ve omitted to include income on your return (or file at all), and you approach the IRS (as opposed to them coming to you), the best approach is to file amended returns with the correct information for the prior years.  If you can’t afford to pay the difference all at once, you can enter into a payment plan with IRS.  You will be subject to interest and penalties.

However, what you’re describing sounds a lot like willful fraud - a totally different story.  In your case, I would definitely advise the filing of corrected returns ASAP and also the retention of a good tax practitioner to help you out.  The normal statute of limitations likely does not apply to you (exceptions exist in cases of fraud or gross under-reporting and there is no statute of limitations if you do not file at all) so depending on how many years you’ve been doing this, you could potentially be on the hook for a number of years. 

If the IRS comes to you first, the penalties for what you’re describing range from substantial financial penalties to jail time.  Consult a tax practitioner ASAP.

Like any good lawyer, I need to add a disclaimer:
Unfortunately, it is impossible to give comprehensive tax advice over
the internet, no matter how well researched or written. Before relying
on any information given on this site, contact a tax professional to
discuss your particular situation.