Tax Evasion Statistics: Just How Damaging Is it to Not Pay Your Taxes?

The taxation system relies on taxpayers being compliant and honest in reporting their annual income. Self-reporting is one of the central features of the U.S. tax-collection procedure. As such, the effects of tax crimes are higher than just the revenue withheld from the government. Tax evasion statistics show that this crime compromises taxpayers’ trust in the system, too.

Tax evasion, often considered to be synonymous with tax fraud, is the act of misrepresenting or concealing the amount of taxable income on an annual tax return. Failure to file the return completely or in a timely manner is also considered a tax crime, as is simply not paying tax. Unintentional errors in calculation and the filing procedure fall under inadvertent tax evasion.

Tax evasion should be differentiated from tax avoidance, the act of deliberately arranging your affairs to pay the minimum tax possible. Tax avoidance is legal, whereas tax evasion is not. The lines, however, are not clear-cut; there is a vast grey area in between evasion and avoidance. A big part of this grey area is the existence of offshore accounts in tax havens.

Examinations by the Internal Revenue Service are rare and actual convictions are even rarer. However, the gap between the taxes owed and the taxes collected by the federal government is around $450 billion.

IRS investigations usually bring in around $50 billion a year in delinquent taxpayer money, which includes monetary civil penalties. The average prison penalty for tax fraud in the United States was around 15-18 months in 2017.

We’ve collected the most important figures concerning tax evasion and compiled a comprehensive list that covers all the bases of this financial crime.

Ballpark estimates suggest tax fraud costs the American government more than $450 billion annually.

(Fortune)

This is called the “tax gap” – the difference between taxes due and taxes collected. This number excludes the reduction of taxes by avoidance, such as offshore booking of profits. Internal Revenue Service collectors manage to recover only about one-ninth of that amount ($52 billion), according to tax fraud statistics published by the IRS.

In 2018, the net tax collected in the U.S.A. was $3 trillion.

(Internal Revenue Service)

The net amount is calculated by deducting tax refunds from the gross total, which was around $3.4 trillion. More than 52% of the net amount was collected from individual and estate and trust income taxes, a total of $1.57 trillion. The next biggest chunk of money was collected from employment taxes: $1.12 trillion, or 37.6% of the net total.

Tax crime stats show that IRS investigations yielded a net total of $40 billion in 2018.

(Internal Revenue Service)

Tax investigations usually take longer than a single year to complete. The IRS collected a gross total of $55 billion in unassessed taxes in 2018. Another $30 billion was collected from civil penalties, which occur when a tax crime is detected.

Multinational corporations manage to avoid paying $90 billion in taxes annually.

(Citizens for Tax Justice)

Tax avoidance via offshore subsidiaries is the common name for de facto corporate tax evasion. Statistics show that 362 of the Fortune 500 companies have subsidiaries in international tax havens, such as Bermuda or the Cayman Islands.

55 Fortune 500 companies that have offshore subsidiaries would owe an additional $147.5 billion in taxes if all of their profits were booked in the U.S.A.

(Citizens for Tax Justice)

These are the 55 corporations that actually disclose what they would expect to pay in taxes if all of their profits were booked in the United States. For this reason, many financial experts believe offshore tax havens are simply a loophole that encourages corporate tax evasion.

For example, Apple would have to pay about $36.4 billion in taxes for the $111.3 billion it has booked offshore. Being based and managed in the U.S.A. and incorporated in Ireland allows Apple to avoid paying taxes to any country for the biggest part of its assets. It does this by being a tax resident of neither country.

There were a total of 2,886 criminal IRS investigations in the 2018 fiscal year.

(Internal Revenue Service)

A total of 2,130 cases were referred for prosecution.

There are three categories of criminal investigations for tax fraud: legal source tax crimes (1,099 cases), illegal source financial crimes (1,064 cases), and narcotics-related tax crimes (723 cases).

There were 584 sentenced cases of tax fraud in the U.S.A. in the 2017 fiscal year.

(United States Sentencing Commission)

This number seems to be decreasing, with 667 confirmed tax offenders in 2013. Sentencing for tax evasion has had a guideline minimum over the past five years of around 24 to 26 months. However, the average tax evasion jail time sentence was between 15 and 18 months, thanks to government-sponsored departures.

The median amount of evaded tax in 2017 was $277,576.

(United States Sentencing Commission)

This number has grown significantly since 2013, when the median tax loss was around $160,000. In 2017, the offense was worth less than $1.5 million in 87.2% of cases, while 19.8% of the time it was worth less than $100,000, according to US tax evasion statistics.

Tax fraud offenders are predominantly male. In 2017, 69% of them were men.

(United States Sentencing Commission)

Who goes to jail for tax evasion? Apparently, white male American citizens in their fifties.

The demographic profile of tax offenders is as follows: 52.4% are white, 30.8% are African American, and 10.3% are Hispanic. On average, they’re 52 years old, and the vast majority of offenders are United States citizens (93.8%).

The Northern District of Illinois had the most tax delinquents in FY 2017: 35 in total.

(United States Sentencing Commission)

The state with the highest rate of tax evasion in the USA is California – there were a total of 85 convictions for tax crime in the northern, central, and eastern districts of the Golden State.

There is a wide consensus among Americans (95% of whom completely or mostly agree) that paying taxes is their duty as citizens, according to IRS tax evasion statistics.

(Internal Revenue Service)

While keeping in mind that this was an IRS survey carried out online and over the phone, it’s safe to say that almost all Americans feel taxes are essential for their country to function properly. Only 2% of respondents to the IRS survey dared to categorically disagree with the statement that it’s their civic duty to pay taxes.

About 10% of American citizens say it’s okay to cheat on income taxes “a little here and there.”

(Internal Revenue Service)

Again, the vast majority of respondents (85%) said it’s not acceptable at all to commit tax crimes. “As much as possible” was the answer to the question “What is an acceptable amount to cheat on income tax” for 3% of the population.

Of 196 million tax returns filed in the 2018 fiscal year, 0.5% were examined.

(Internal Revenue Service)

While an examination by the IRS doesn’t necessarily mean that the taxpayer is in trouble, it’s certainly not a pleasant experience. Calculation mistakes happen and sometimes things just slip your mind. But even if you haven’t done anything wrong on purpose, a letter from the IRS is seldom good news.

IRS audit percentages show that of the approximately one million tax returns that required an examination, 74.8% were audited via correspondence, while the rest required the dreaded field audit. The number of examinations has dropped from 1.5 million in FY 2013 to one million in FY 2018.

IRS audits in FY 2018 resulted in a total of $26 billion recommended additional taxes that need to be paid, according to tax statistics.

(Internal Revenue Service)

Investigations cross fiscal years; this number represents the additional taxes that were requested by examining returns filed for the 2017 calendar year.

Of the almost one million returns that were examined, more than 22,000 examinees did not agree with the examiner’s assessment, with $10.2 billion in unagreed additional tax being requested.

Almost 30,000 audits actually resulted in taxes being refunded to the examinee, totalling in $6 billion returned to taxpayers. Those are the rare cases when a letter from the IRS turns out to be good news, not a precursor to IRS prosecutions.

The IRS accepted 24,000 offers for compromise to decrease the liable tax owed by delinquents.

(Internal Revenue Service)

A taxpayer can propose a compromise to the IRS in special circumstances when he or she does not have the means to pay the tax owed. If the IRS finds that the tax liability cannot be paid either in a single payment or via a payment program, it may accept the settlement offer.

IRS tax evasion statistics show that out of 59,000 offers, 24,000 were accepted, resulting in a total of $261 million in reduced tax payments.

The IRS abated $12 billion in civil penalties in 2018.

(Internal Revenue Service)

Civil penalties occur even if you make an unintentional mistake while filling out your annual tax return. An abatement is the reduction of a penalty due to an error by the IRS or similar circumstances, such as bankruptcy abatement. According to tax evasion statistics, more than $2 billion in penalties was abated for individual and estate and trust tax returns last year.