CAN I GO TO JAIL IF I DO NOT PAY MY INCOME TAXES?

There is no one answer to this question, but, the only answer that is correct is that it depends. If you do not pay your persona taxes, you will not go to jail in most circumstances. The failure to pay taxes seldom gets anyone put in jail. The failure to file a tax return can cause you to go to jail. Many people are afraid to file the tax return if they do not have the money to pay their taxes. The collection arm of the taxing authorities has many ways to collect unpaid personal income taxes, but, putting the taxpayer in jail is almost never used.

 John Dillinger, one of the most notorious gangsters from prohibition of alcohol times, did not go to prison for failing to pay his taxes. In fact, he paid his taxes each year and filed tax returns also. Unfortunately for Mr. Dillinger, he filed returns claiming he made very little money. In fact, he was making large sums of money selling drugs, running illegal gambling games, selling alcohol illegally and once in a while killing someone for a fee. What got him put in jail was filing false tax returns. The same thing has happened to brothels where the madam claimed that she was making very little money. They taxing authorities are not stupid and can figure it out if you are paying for 250 clean towels a week, you must be using them for something.

 Likewise, if your house cost 1,000,000.00 dollars and you paid cash for the house and you claim to make 30,000.00 per year, then where did the money come from? You had better be able to show a rich dead aunt or something.

 Income taxes can be discharged in a bankruptcy if the tax return was properly filed, filed timely and it has been at least three years since the return was filed. Of course, there are certain rules and caveats so just do not assume that the taxes are discharged until you have met with a competent tax adviser or attorney to make sure that the facts in your case will allow you to obtain a discharge.

This determination can only be made after a lot of information is provided to someone such as myself. If you owe taxes for a particular tax year, obtain a tax transcript from the taxing agency so that it may be reviewed. A tax transcript shows a lot of information that you and I will need to know before anyone can tell you if you can discharge your taxes.

 If you owe taxes for multiple tax years, pay the newest year first. Designate on the check what tax year the payment is to be applied to. The IRS or SCDOR always claim that you cannot designate where to apply the taxes, but, so far they have never fought a payment. On the other hand, if they seize money out of your checking or savings account, the taxing agency will always apply the payment in the way that is best for the taxing agency. (Wouldn’t you do the same if you had the option with someone who owes you money?)

Always file your own tax return. Never allow the IRS or SCDOR to file the return for you. If you do so, the return may be deemed to have been assessed rather than filed. If taxes are assessed, the three year rule that I mentioned before will not apply. In fact, it is as if you never filed a return.

 Always file your tax return for income taxes even if you do not have the money to pay. The tax agency will, when it determines that you did not file, simply assume that your tax liability is at least as much as you owed the last tax year. In addition to failure to pay penalties, you now get slammed with failure to file penalties. The failure to file penalties are designed to be higher than failure to pay penalties.

 If you file your tax returns and do not have the money to pay, you probably are not going to jail. If you do not file your returns, you may end up in jail. If you fail to file your tax return, it is not uncommon to lose licenses such as professional licenses and/or driver’s licenses.

 If you always file the returns and make no effort to pay your taxes, you will get into trouble sooner or later. The failure to pay taxes, if consistently repeated, may become a pattern that is just as bad as failing to file your returns. No tax agency is going to allow you to continually live the good life and not pay your taxes. If there is no punishment for not paying your taxes, then no one would pay their income taxes. If everyone else is not paying their taxes, you kind of lose the desire to pay your own taxes.

 The taxing authorities can seize your tax refunds, garnish wages and make you life very hard. If you are in such a situation, you need to talk to a competent tax adviser about what is happening. I had one person who was being garnished and I looked at the numbers and realized she could not afford to pay her taxes. Her expenses were very low, but, her income was less. The Revenue Officer who had been begun the garnishment put the taxes on uncollectable hold, stopped the garnishment and allowed this lady to live and breathe. Contrary to popular belief, most of the collection folks have a good heart. They are not, however, swayed by arguments about how impossible it is to pay taxes if you are driving a car with a $600.00 per month payment for example.    

About Nathan Davis, Esquire

Born in Charleston, South Carolina, Nathan Davis has been practicing law for many years. Mr. Davis has a wide variety of experiences having practiced domestic relations, criminal law, social security law having also practiced collection law in the past. This knowledge is helpful when someone needs to restart their financial life. The practice is now primarily bankruptcy and debtor representation work, but, Mr. Davis continues to also practice real estate law, trusts and estates and a general litigation practice. I believe that the most important part of representation is trying to leave you better off when the case is finished than when you started. Although I will do as my client directs, I will always tell you if I think that you are making a mistake. Bankruptcy is about a "fresh start". If you do not make changes in what you are doing, you will be doing what you are doing now in the future. There is no shame in bankruptcy or other steps that you may take to start your life over. Too often, people worry more about things than about themselves, their family or their future.
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