Tax evasion is illegally avoiding paying taxes, failing to report, or reporting inaccurately. The most common one is failing to report cash income. The government imposes strict and serious penalties for tax evasion.

Tax evasion is different from tax avoidance, which is making use of legal methods to minimize tax due. There are many deductions you can legally claim to reduce your tax liability, for example if you have dependents (the more dependents, the lower your taxes), if you have certain medical expenses or if you contribute to certain retirement plans or to charitable organizations. Taking advantage of them and keeping your tax bill to a minimum is quite legal and if you do that you are guilty of no crime. However, when companies, individuals, or any other legal entities intentionally avoid their legal responsibility, that is tax evasion and the penalties are severe, including prison terms and hefty fines.

The Internal Revenue Service (IRS) oversees the regulation of taxes. It also prosecutes any person or entity that avoids payment of taxes due, and can assess penalties.

The IRS has nearly 3000 special agents who are trained to gather the information used to detect tax evasion. They have access to tax returns, the power to issue a summons for access to further financial information, and the right to seize or freeze monies in the attempt to collect the necessary financial information.

The IRS audits some taxpayers at random each year, but most audits are a result of unusual activity. If a person claims a lot of deductions in proportion to their income, or if a person with a lot of assets declares a very small income, an audit may result. If it is established that taxes have been intentionally evaded, the IRS can levy tax liens, seize assets, freeze money in check and savings accounts, and garnish wages. Any and all properties held by the individual taxpayer can be seized and sold at auction if no attempt is made to repay the liability.