Last Updated: August 10, 2020
With the beginning of a new year…
… it’s time to pay our taxes.
It’s not among the top 10 activities on your list.
Still, it has to be done.
However, some people decide to go against the system and don’t pay taxes that are owed. That’s called tax evasion, and it is (you guessed it!) illegal. It is often considered tax fraud, and you could go to jail for that.
Tax evasion statistics reveal that this is a huge problem in the US.
It’s a problem all around the world, really, but is somehow underestimated.
Now, let’s look at the most important points and see why that is:
Fascinating Tax Fraud Statistics (Editor’s Pick):
- In 2019, 848 people were sentenced for tax crimes in the United States.
- Al Capone was sentenced for 11 years in prison for tax evasion.
- About 1 in every 6 dollars owed in federal taxes is not paid.
- Every year, the amount of unpaid taxes is about three-quarters the size of the entire annual federal budget deficit.
- In the last 3 years, there have been more than 5000 investigations of tax crimes in the US.
- In the UK, the government has estimated tax losses of £35bn.
“Is it illegal to avoid paying my taxes?”, you’re probably wondering.
Yes, it is.
It is considered a crime, and there are severe penalties.
(Income tax statistics will tell you all about what you need to do.)
Now, let’s dig deeper into the latest tax evasion statistics.
We’re going to start with the US and stats coming straight from the kitchen – the US Internal Revenue Service.
1. The gross average tax gap in the US was estimated at $441 billion per year.
This sum does not take into account subsequent payments – voluntarily or through IRS administrative and enforcement efforts. These payments were estimated at $60 billion. The result was a net tax gap estimate of $381 billion. That’s the huge cost of tax evasion.
That translates to about 83.6% of taxes paid voluntarily and on time. With enforcement efforts, the estimate share of taxes eventually paid is 85.8%. These numbers have remained almost unchanged throughout the years, from 2001 up until now.
In other words:
2. According to tax fraud statistics, about 1 in every 6 dollars owed in federal taxes is not paid.
Every year the amount of unpaid taxes is about three-quarters the size of the entire annual federal budget deficit. That’s why tax evasion in the USA is a real problem that needs more attention.
Federal expenditures fall into 5 main categories. These are:
- Health insurance
- Retirement Benefits
- National Defense
- Interest on the debt
- Other spending, covering education, housing, transportation, agriculture, and more.
Consequently, those that fail to pay their taxes fail to fulfill their duties as citizens. Thus, they encumber the government and their fellow citizens.
But authorities don’t stay idle. Tax fraud investigation should probably get its own TV show or something, because:
3. In the last 3 years, there have been more than 5,000 investigations of tax crimes.
According to IRS tax evasion statistics, there were 1,500 investigations of tax crimes in 2019. In 2018, this number was 1,714. The year before that, it was 1,811.
Perhaps the fact the number of investigations is getting lower means tax fraud cases are also decreasing? It’s an optimistic view but not necessarily true. Especially considering the first two stats. Even if the individual tax evasion scenarios are going down, the tax gap is not getting any narrower.
But there is a penalty for tax evasion, of course. Just look at that:
4. In 2019, 848 people were sentenced for tax crimes in the US.
In 2018, the sentences were 1,052, and in 2017 – 1,303. It varies from year to year, and current stats can’t give a definite answer as to whether the trend is going down or not.
In 2017, there were 1,196 indictments. In 2018, the number of recommended prosecutions was 1,050, and only last year, tax evasion convictions were 942.
Usual tax evasion penalties include a fine and in some cases, jail time.
5. Failing to file a tax return might cost you up to $25,000 and time in jail.
If you’re thinking of “forgetting” to file a tax return, think again. This can cost you a hefty fine and even send you in jail for up to 1 year.
Naturally, tax fraud jail time and the size of the fine depend on the type of crime.
If you willfully fail to pay estimated taxes or keep records, you might have to pay about $25k and even go to jail for a period of 1 year. Usually, it’s one or the other, but in extreme cases, it’s both penalties plus the prosecution’s cost.
The average jail time for tax evasion is 3-5 years. Definitely not worth it.
6. If a taxpayer files a tax return more than 60 days after the due date, they might end up paying up to $250,000.
You read that right. Better pay on time, or you’ll have to pay double.
Moreover, tax dodgers who willfully fail to disclose offshore bank accounts face up to 5 years in prison. Also, a fine of more than $124,588 per year per violation or half of the balance present in the taxpayer’s account at the time of the violation. Yikes!
Not to mention that tax evasion will also have great impact on your credit score.
In fact, it’s much more likely to have to pay than to go to jail. Here’s the proof:
7. The IRS indicted only 1,330 taxpayers out of 150 million in 2015.
(Source: H&R Block)
They were indicted for legal-source tax evasion. The IRS mainly targets people who understate what they owe.
So who goes to jail for tax evasion?
People who omit to declare an entire source of income (like a side job-generating extra cash), conceal a bank account, give false statements, and strategically delay filing and paying taxes. These are the most common tax evasion examples.
And, more specifically…
8. The typical tax evader is male and under 50.
(Source: Community Tax)
He’s usually involved in the highest tax bracket and a complicated return type.
Typically, to avoid taxation, tax offenders overstate charitable contributions (particularly church donations). Apparently, they’re not afraid they’ll be struck by lightning or anything…
9. In 2019, $1.8 billion tax fraud was identified.
In 2018, the sum was $9.69 billion, while in 2017, it was $2.5 billion. There is a huge difference between 2018 and the rest of the years. It seems that 2018 was a busy year for IRS agents. And work never ceases.
10. Tax evasion statistics reveal that 75.1% of direct investigative time was spent on tax in 2019.
That’s a lot!
It was almost the same story the year before – 73.2% in 2018 and 72.5% in 2017.
There is slow but steady growth. So that means more and more time is spent on tax fraud investigations every year.
11. In the period of 2001-2010, tax evasion accumulated to $3.09 trillion.
(Source: Community Tax)
The years with the highest tax evasions costs were 2006 and 2007, each with $376 billion.
Within the same period, the lowest score came in 2003 with $257 billion.
12. In 2016, the IRS caught 35,000 fraudulent e-filed tax returns.
(Source: Community Tax)
As opposed to 741 paper tax returns. It seems people lie more readily online than on paper.
Still, tax avoidance is present in all its forms. That’s why the IRS is always vigilant.
13. The IRS can issue audits up to 3 years after submission.
(Source: Community Tax)
Once you’ve submitted everything, don’t think you’re safe! Even if a lot of time has passed! In fact, the IRS can issue audits up to 6 years later if you are suspected of underreporting your income by at least 25%.
Sure, inadvertent mistakes happen. But in most cases, people don’t have trouble paying their taxes. They just don’t want to and try to trick the system.
But did you know that evasion rates differ across different types of taxes?
14. The individual income tax accounted for about 72% of evasion in 2008-2010.
And it accounted for only about 44% of taxes paid.
Meanwhile, payroll taxes – the second largest source of government revenue in the US – have a much lower evasion rate. Payroll taxes are paid on the wages and salaries of employees. They are used to finance social insurance programs such as Social Security and Medicare.
Payroll taxes and self-employment taxes accounted for only about 19% of evasion, and 39% of taxes paid. Corporate taxes accounted for about 9% of evaded taxes and 9% of actual revenues.
So income tax evasion leads the way by far, while corporate tax fraud is not as common. Still, corporate tax evasion suggests bigger sums and is as damaging.
15. About US$420 billion in corporate profits is shifted out of 79 countries every year.
(Source: The Conversation)
This equals around $125 billion lost tax revenue for these countries. That’s why their state services are underfunded. If they are, it’s by other, often lower-income taxpayers.
This is how inequality rises within countries and across the world. And that’s why tax evasion is a felony crime. One that is not taken lightly.
Now, let’s see some of the most famous corporate tax evasion cases in history:
16. Al Capone was sentenced to 11 years in prison for tax evasion.
The infamous Chicago gangster has been associated with a variety of illegal acts. Some of them include extortion, stealing, prostitution, and murder. But funnily enough, he was only sent to prison for evading taxes.
In 1931, he was indicted for 5 counts of tax evasion and received 11 years of imprisonment. He was also charged with $7,692 for court costs and fined $50,000. Capone also had to pay $215,000 with interest due on back taxes.
Now, for a more recent case of federal tax evasion:
17. In 2009, the actor Nicolas Cage was charged by the IRS of $6.2 million back taxes fee.
(Source: History by day)
Cage made $40 million in 2009 alone. According to the IRS, for years, he incorrectly deducted personal expenses and failed to pay his taxes. It’s hard to believe he didn’t have access to some good accountants to help him with that, right?
Cage then sued his manager for negligence and fraud. Nevertheless, the actor lost a lot – a castle and several houses, and he is still paying his remaining debts.
The castle part must’ve stung a bit.
Back to present days:
18. More than 150 million individual tax returns for the 2019 tax year are expected to be filed in the US.
The US Internal Revenue Service announced that the nation’s tax season for individual tax return filers will start on January 27, 2020. The deadline to file and pay any tax owed is April 15, 2020. Plenty of time for potential tax evaders to decide to do the right thing after all.
Let’s see what the situation in the UK is and compare.
19. In the UK, the government has estimated tax losses of £35bn.
The government’s official estimate of tax losses is now the highest it has ever been since 2008. And these figures have been increasing at a worrying speed. The tax gap has jumped by 17% since 2006 when it was £30 billion.
As you can see, it’s not all roses and butterflies in the United Kingdom either. And sentencing for tax evasion continues.
But there are lots of conscientious and vigilant citizens who help the country fight criminals.
No, not Captain Britain.
20. In 2017-8, 40,695 people called the UK tax evasion hotline.
(Source: Patrick Cannon)
A staggering number of people reporting suspected tax evasion! And that’s more than double compared to 2016-7 when there were 20,200 reports in total.
It’s only natural for diligent citizens to report this behavior. It creates inequality and instability, after all.
The IRS has a Tax Fraud Hotline too. Just remember not to try to investigate more yourself. It can get dangerous.
So now you know the answer to the question “What is tax evasion?” You also know what happens to tax evaders. Don’t be like them, kids, or you’ll get on Santa’s naughty list!
If you have any problems with taxes, resolve them immediately. Waiting and avoiding them might lead to you being punished, even if you’re not trying to commit tax fraud on purpose.
Don’t be Nicolas Cage, don’t lose your castle!
These tax evasions statistics provide a sobering view of all the tax crime happening in the US, the UK and, surely, all around the world all the time.
The good news is that governments are aware of the problem and taking more measures to counteract tax evasion.
Pay attention to your taxes and you’ll be fine. As a favorite fictional character of ours would say, “Constant vigilance!” Bonus points to you if you guess who it is in the comments.