Those caught evading taxes are generally subject to criminal charges and substantial penalties. It's considered tax evasion if taxpayer knowingly fails to report income or under-report income (claiming less income than you actually received from a specific source), provides false information to the IRS about business income or expenses, deliberately underpays taxes owed or substantially understates taxes (by stating a tax amount on return which is less than the amount owed for the income reported). Tax evasion differs from tax avoidance, which is the use of legal methods to modify an individual's financial situation to lower the amount of income tax owed.