Last Updated: May 24, 2021
With the beginning of a new year…
… it’s time to pay our taxes.
While it’s not among the top 10 activities on your list, it still has to be done.
However, some people decide to go against the system and don’t pay the taxes that they owe. 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 2020, 593 people were sentenced for tax crimes in the United States.
- Al Capone was sentenced to 11 years in prison for tax evasion.
- About one in every six 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 three years, there have been almost 5,000 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 resulting cost of tax evasion was a net tax gap estimate of $381 billion.
That translates to about 83.6% of taxes paid voluntarily and on time. With enforcement efforts, the estimated share of taxes eventually paid is 85.8%. These numbers have remained almost unchanged, from 2001 up until now.
In other words:
2. According to tax fraud statistics, about one in every six dollars owed in federal taxes goes unpaid.
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 five main categories. These are:
- Health insurance
- Retirement Benefits
- National Defense
- Interest on the debt
- Other spending: covering education, housing, transportation, agriculture, and more.
But authorities don’t stay idle. Tax fraud investigation should probably get its own TV show or something because:
3. In the last three years, there have been almost 5,000 investigations of tax crimes.
According to IRS tax evasion statistics, there were 1,598 investigations of tax crimes in 2020. In 2019, this number was 1,500. The year before that, it was 1,714.
As the total was 1,811 in 2018, we can see a slight downward trend. However, the sample size and variance are too low to discern a broader pattern — especially considering the uptick in 2020.
Even if the individual tax evasion scenarios are going down, the tax gap is not getting any narrower.
Of course, there are penalties for tax evasion. Let’s see what they are:
4. Failure to file taxes will cost tax dodgers 5% of unpaid tax required to be reported per month the sum remains delinquent.
That’s pretty steep, but fortunately, it stops accruing after five months (i.e., when it reaches 25%).
People who report their taxes diligently but fail to pay them can expect to pay a fine in the amount of 0.5% of the tax not paid by the due date per month. The percentage can decrease to 0.25% if a proper extension is requested or increased to 1% if tax is not paid within 10 days of a notice of intent to levy.
In each case, every month following the due date, the recurring charge is applied on the remaining unpaid tax until the tax is fully paid or until 25% is reached.
5. In 2020, there were 593 tax evasion convictions in the US.
In 2019, 848 people were sentenced, and in 2018 — 1,052. The numbers vary from year to year, but there’s a clear downward trend.
6. 945 prosecutions were recommended for tax crimes in 2020.
In 2018, there were 1,050 recommendations. During the following two years, the number dropped below 1,000. In 2019, the number of recommended prosecutions was 942, and in 2020 — 945.
Usual tax evasion penalties include fines and, in some cases, jail time.
7. Tax fraud conviction might cost you up to $100,000 and jail time.
If you’re thinking of “forgetting” to file a tax return, think again. The penalty for committing tax fraud is jail time and a hefty fine. If you willfully fail to pay estimated taxes or keep records and are convicted in court, you might have to pay about $100,000 and may even be facing time in prison of one year. People who have received single payments in excess of $10,000 face an increased penalty up to the maximum of $250,000 ($500,000 for corporations) and five years in jail. Both penalties are levied only in extreme cases.
The average jail time for tax evasion is 3–5 years. Definitely not worth it.
All of that is in addition to taxes owed and accrued interest. Lastly, let’s not forget that tax evasion will also negatively impact your credit score.
8. 95% of Americans think that paying taxes is their civic duty.
That’s right, an overwhelming majority of Americans think that paying taxes is good and that everyone who cheats on their taxes should be held accountable. This leaves 5% who think that not paying taxes is totally fine and 8% who don’t think tax dodgers should be held accountable.
So, who goes to jail for tax evasion?
9. The average tax evader is a white man around the age of 50.
The average age of tax offenders is 50, and almost 50% of them are white. Over 80% don’t have any criminal history, and almost all of them are American citizens.
10. In 2019, $1.8 billion tax fraud was identified.
Other financial crimes totaled $4.4 billion, and 1,726 warrants were executed, leading to the seizure of 1.24 petabytes of information.
In 2018, the identified tax fraud was $9.69 billion, while in 2017, it was $2.5 billion. It seems that 2018 was a busy year for IRS agents.
11. Tax evasion statistics reveal that 73% of the direct investigative time was spent on investigating tax crimes in 2019.
That’s about the same as the previous two years — 75.1% in 2019 and 73.2% in 2018.
With so much time dedicated to investigating tax crimes, it’s clear that the IRS is taking tax evasion seriously. They are occupying around three-quarters of investigative time every year.
12. In the period of 2001–2010, tax evasion accumulated to $3.09 trillion.
(Source: Community Tax)
The years with the highest cost of tax evasion were 2006 and 2007, each with $376 billion.
Within the same period, the lowest amount was in 2003 with $257 billion.
13. In 2019, the IRS caught 443,000 fraudulent tax returns.
For context, that’s out of 155,611,000 filed returns for the same year. The stopped filings would have resulted in $1.9 billion in refunds had they not been caught.
Tax avoidance is present in all its forms. That’s why the IRS is always vigilant.
14. The IRS can issue audits up to three 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 audit your tax returns six years or even more after filing if there’s suspicion of income underreporting by at least 25%.
Sure, mistakes happen. But in most cases, people don’t have trouble paying taxes. They just don’t want to and are trying to trick the system.
But did you know that evasion rates differ across different types of taxes?
15. 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.
16. About $420 billion in corporate profits is shifted out of 79 countries every year.
(Source: The Conversation)
This equals around $125 billion in lost tax revenue for these countries. This results in underfunded state services, which contributes to rising worldwide inequality.
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:
17. 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 interestingly enough, he was only sent to prison for evading taxes.
In 1931, he was indicted for five counts of tax evasion and received 11 years of imprisonment. He also had to pay $7,692 for court costs and fined $50,000. In addition, Capone had to pay $215,000 with interest due on back taxes.
Now, for a more recent case of federal tax evasion:
18. Nicholas Cage owed $14 million in taxes after selling most of his possessions.
(Source: ABC News)
This is one of the more unusual tax evasion examples. At one point, Cage was worth $150 million and had made $40 million in 2009 alone. Unfortunately, he’s been misfiling his taxes for years and the fines, which — when combined with his exorbitant spending — left him almost penniless. Despite selling most of his possessions (including a castle), he still owed almost $14 million, around half of which he paid off in 2012. In the end, he sued his financial manager, claiming improper conduct that led to tax fraud charges.
Fortunately for him, the uptick in his career allowed him to eventually pay off his tax debts.
Back to present day:
19. 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 began on January 15, 2020. The deadline to file and pay any tax owed is April 15, 2020. Due to the pandemic, it’s possible to ask for an extension up to October 15. 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.
20. 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 had jumped by 17% since 2006 when it was £30 billion.
As you can see, it’s not all rosy 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.
21. 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.
The IRS has a Tax Fraud Hotline too. Just remember not to try to investigate 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 won’t do you any good and might land you in trouble.
Don’t be Nicolas Cage, don’t lose your castle!
These tax evasion statistics provide a sobering view of all the tax crimes happening in the US, the UK, and all around the world.
Pay attention to your taxes, and you’ll be fine. If you need any help with filing your taxes, you can always check out our tax software reviews and make sure you’re in the clear. As a favorite fictional character of ours would say, “Constant vigilance!” Bonus points to you if you guess who it is in the comments.