In tax evasion, a person or entity intentionally avoids paying a tax liability. Tax evaders generally face criminal charges and substantial penalties. According to the Internal Revenue Service (IRS), willfully failing to pay taxes is a federal offense.
Both illegal nonpayment and illegal underpayment of taxes are considered tax evasion. Whether taxes were owed by a taxpayer is still determined by the information required to be sent in by third parties, such as W-2 information from their employer or 1099s. The failure to pay taxes is not considered tax evasion unless the failure is intentional.
A variety of factors are considered when determining if the failure to pay was intentional. Commonly, the taxpayer's financial circumstances will be examined to determine if the nonpayment resulted from tax fraud or from the concealment of reportable income.