Yes, but only in specific situations. A late or missing return can bring civil penalties added to the tax. It becomes a crime under Revenue and Taxation Code section 19706 when the failure to file is willful and done with intent to evade the tax, and a separate misdemeanor under section 19701 can apply to repeated non-filing over two or more years that results in an estimated delinquent tax liability of at least $15,000, with or without intent to evade.

The crime: willful failure to file with intent to evade

Under Revenue and Taxation Code section 19706, any person, or any officer or employee of a corporation, who willfully fails to file a required return or to supply required information, with intent to evade the personal income tax or the corporation tax, is punishable, at the court’s discretion, by up to one year in county jail or by imprisonment in state prison, by a fine of up to $20,000, or by both a fine and imprisonment, together with the costs of investigation and prosecution. Because a state prison term is possible, Penal Code section 17(a) classifies the offense as a felony, and section 17(b) lets it become a misdemeanor in listed circumstances, such as a sentence other than prison.

The statute requires two things together: the failure must be willful, and it must be done with intent to evade the tax. A missed deadline without that intent does not meet it. The Franchise Tax Board (FTB) has a Criminal Investigation Bureau whose special agents are fully sworn peace officers; FTB describes the bureau as investigating Revenue and Taxation Code crimes such as state income tax evasion, state income tax fraud, and asset concealment, with agents who may write and execute search warrants and request or seize records (FTB Criminal Investigation Bureau).

A separate misdemeanor for a pattern of non-filing

Revenue and Taxation Code section 19701 reaches a person who, “with or without intent to evade,” repeatedly over a period of two years or more fails to file required returns or supply required information, or files false or fraudulent returns or information, resulting in an estimated delinquent tax liability of at least $15,000. That person is liable for a penalty of up to $5,000, recovered in court in the name of the people, and is also guilty of a misdemeanor punishable by a fine of up to $5,000, up to one year of imprisonment, or both, plus the costs of investigation and prosecution. The misdemeanor does not apply to a person who is mentally incompetent or has dementia, Alzheimer’s disease, or a similar condition. The same section also covers willfully failing to pay tax or estimated tax when it is due, and for a corporation it presumes that the president or chief operating officer is the person responsible for filing.

Civil penalties that are not crimes

Revenue and Taxation Code section 19131 adds a late-filing penalty of 5 percent of the tax for each month or part of a month the return is late, up to 25 percent, unless the failure was due to reasonable cause and not willful neglect; if the failure to file is fraudulent, the rates become 15 percent and 75 percent. The tax used for this penalty is reduced by payments made by the original due date and by credits. FTB’s own summary says this penalty applies when “You did not pay by the due date of the tax return and did not file your tax return by the extended due date” (FTB penalties and interest). If you fail to file after FTB’s notice and demand, section 19133 allows FTB to add another 25 percent of the tax it determines, again unless the failure was due to reasonable cause and not willful neglect. These are additions to the tax, not criminal convictions.

A conviction can also mean a restitution order

If a court orders restitution in a criminal tax case, Revenue and Taxation Code section 19722 lets FTB collect it in any manner provided by law for a delinquent income tax liability, including an earnings withholding order and a recorded Notice of State Tax Lien. The amount accrues interest from the date it is posted to FTB’s records, and no refund or credit is allowed for amounts paid. FTB states that criminal restitution orders “can only be waived or abated by a court order” (FTB restitution orders).

Federal law is separate

Federal law runs on its own track: 26 U.S.C. section 7201 makes any willful attempt to evade or defeat a federal tax a felony with a maximum of five years of imprisonment.

Facts that change the risk

  • How many years are unfiled, and whether together they span two or more years and an estimated delinquent liability of $15,000 or more.
  • Whether FTB has sent a notice and demand to file, which can lead to the 25 percent demand penalty if you do not respond.
  • Whether there is evidence bearing on intent to evade, such as hidden accounts, unreported income sources, or false statements to FTB, as opposed to simply falling behind.
  • Whether the unfiled returns belong to you personally or to a corporation you run.

If you have unfiled California tax returns and are worried about more than a bill, the Law Offices of David S. Chesley can review your filing history and any FTB notices before you respond to the state. Call (800) 755-5174 to discuss your situation.