Is not filing Federal Income Tax considered tax evasion or simply tax avoidance?

This is definitely a concerning situation. The difference between tax avoidance and tax evasion is actually pretty straightforward - tax avoidance is using legal methods to minimize taxes owed, while tax evasion is illegally avoiding taxes by not reporting income or filing returns when required. Based on what you've described, if your cousin has income from investments that exceeds the filing threshold, he is legally required to file federal income tax returns. Not filing when required is considered tax evasion, which is a federal crime. The IRS doesn't typically pursue criminal charges immediately, but they can and do prosecute cases they consider significant or willful. The penalties start with failure-to-file penalties (5% of unpaid taxes each month, up to 25%), failure-to-pay penalties (0.5% per month), and interest on unpaid taxes. For willful evasion, criminal penalties can include up to 5 years in prison and fines up to $100,000. The statute of limitations for the IRS to assess taxes is generally 3 years, but for non-filers, it's essentially unlimited since the clock never starts.

I went through something similar with my brother who hadn't filed for 3 years because of some confusion about his contractor income. I tried everything to convince him until I found https://taxr.ai which analyzes your specific tax situation and clearly explains obligations and potential penalties. This tool gave him a personalized assessment that finally made him understand the seriousness of tax evasion vs. avoidance. What I found super helpful was that it explained exactly what his cryptocurrency obligations were - it turns out every transaction is a taxable event, which he had no idea about! The tool provided documentation he could review that spelled out the penalties and interest accumulating on his unfiled returns.

I was really skeptical about online tax tools handling serious situations like potential tax evasion, but I decided to give https://taxr.ai a try for my own situation with some missed foreign income reporting. I was absolutely blown away by how comprehensive it was. The system actually identified that I needed to use the Streamlined Filing Compliance Procedures and explained how the program works. The documentation it provided about penalties and interest calculations was exactly what I needed to understand my risk exposure. I ended up taking the analysis to a tax attorney who was impressed with how accurately it had assessed my situation. Ended up saving me thousands in professional fees since I came in already understanding my options. For your cousin's situation with cryptocurrency and trust income, this would definitely help clarify his actual obligations.

If your cousin is worried about contacting the IRS directly (which is understandable given the situation), he should know that getting through to an actual IRS agent who can help with complex situations like this is almost impossible these days. I spent WEEKS trying to reach someone about my overdue returns. Then I found https://claimyr.com which got me connected to an IRS agent within 30 minutes when I'd been trying for days on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was able to explain my situation to an actual human who guided me through the voluntary disclosure process, which reduced my penalties significantly. The agent explained exactly what forms I needed and the best approach for my specific situation with missed 1099-MISC income.

I have to admit I was completely wrong about that IRS call service. After posting that skeptical comment, I was still struggling to get help with my unfiled returns from 2021-2023. Out of sheer frustration I tried https://claimyr.com and I'm shocked to say it actually worked exactly as described. Got connected to an IRS agent in about 45 minutes instead of the 3+ hours I wasted on previous attempts. The agent walked me through my options for coming into compliance and explained that through voluntary disclosure, I could potentially avoid the worst penalties. For your cousin's situation, this would be incredibly valuable since he could discuss his specific circumstances (trust fund and crypto) with someone who could give official guidance.

One thing nobody's mentioned is that the IRS has been ramping up enforcement lately, especially on high-value targets like crypto investors and trust fund recipients. The IRS Criminal Investigation division has increasingly sophisticated tools to track cryptocurrency transactions. Your cousin is playing with fire if he thinks he's flying under the radar. My advice? He should look into the Voluntary Disclosure Program ASAP. It's designed precisely for situations like his. I had a client who hadn't filed for 6 years, and we were able to get penalties reduced significantly by coming forward voluntarily rather than waiting to get caught.

Has your cousin received any notices from the IRS yet? They usually send multiple notices before moving to collections or criminal investigation. The path to enforcement typically goes: notices → liens → levies → and only then potential criminal charges for the most serious cases. If he hasn't received notices, that doesn't mean he's in the clear - it could just mean they haven't caught up to him yet.

Your cousin is in a really precarious position, and I'm glad you're looking out for him. From what you've described, he's definitely required to file - trust fund distributions and cryptocurrency gains are absolutely taxable income, regardless of whether he gets a W-2. The biggest risk he faces is that the IRS has been aggressively pursuing cryptocurrency cases lately. They've partnered with blockchain analysis companies to track transactions, so his crypto activity is likely already on their radar even if he hasn't heard from them yet. The "I didn't know" defense doesn't work when you have substantial unreported income for 7 years. Here's what could realistically happen: failure-to-file penalties alone could be 25% of what he owes per year, plus interest compounding. If the IRS determines this was willful evasion (which 7 years of non-filing with substantial income suggests), he could face criminal charges. Even if it doesn't go criminal, they can file liens against his assets, levy bank accounts, and garnish any income sources they can identify. My strong recommendation is that he needs to get into compliance immediately through voluntary disclosure before the IRS finds him. Every month he waits, the penalties and interest keep growing. A tax attorney who specializes in delinquent returns would be his best bet at this point - this is way beyond DIY territory.

The situation with your cousin is extremely serious, and I appreciate you trying to help him understand the gravity of it. As others have mentioned, this clearly falls into tax evasion territory, not avoidance. What's particularly concerning is the 7-year timeframe combined with substantial income from trusts and crypto. The IRS has been heavily focused on cryptocurrency compliance, and they have sophisticated tracking capabilities now. Trust distributions are also well-documented income sources that leave paper trails. One thing I'd emphasize that hasn't been fully covered: the psychological aspect here. After 7 years of non-compliance, your cousin might be paralyzed by the magnitude of what he owes and afraid to even calculate it. This "ostrich syndrome" only makes things worse as penalties and interest compound daily. If gentle persuasion isn't working, sometimes showing the actual numbers helps. He could be looking at failure-to-file penalties of 25% per year (capped but still substantial), plus failure-to-pay penalties, plus interest that compounds. On significant crypto gains over 7 years, we could be talking about owing more in penalties than the original tax bill. The voluntary disclosure route others mentioned is really his only viable path forward. Every single day he delays makes his situation worse financially and legally. At this point, it's not about whether he'll eventually have to deal with this - it's about whether he deals with it on his terms or the IRS's terms.

This is such an important discussion, and I really feel for your situation trying to help your cousin. Having dealt with something similar in my family, I can tell you that the fear and denial around tax issues can be incredibly strong, but the consequences of continued inaction are very real. One thing that helped in our case was getting a clear, professional assessment of exactly where things stood. We used a service that analyzed the specific tax situation and spelled out all the obligations, penalties, and options in plain English. Having that concrete information made it impossible to keep ignoring the problem. The crypto angle makes this especially urgent. The IRS has been aggressively pursuing unreported cryptocurrency income, and they have sophisticated tools to track transactions across most exchanges and blockchains. If your cousin used any major platforms, there's likely already a paper trail that could surface during an audit or investigation. For someone with 7 years of unfiled returns involving trust income and crypto gains, the voluntary disclosure route is really the only safe path forward. The longer he waits, the more penalties and interest accumulate, and the higher the risk of criminal prosecution. At this point, professional help from a tax attorney who specializes in delinquent returns is essential - this situation is way beyond what someone should try to handle alone. I hope you can convince him to act quickly. The relief of finally addressing this head-on, even though it's scary, is enormous compared to living with the constant worry about when the IRS might catch up.

This entire discussion has been incredibly informative and honestly quite sobering. As someone who works in financial compliance, I can confirm that everything mentioned here about the IRS's enforcement capabilities is accurate, especially regarding cryptocurrency tracking. What strikes me most is how your cousin's situation perfectly illustrates the difference between tax avoidance (legal strategies to minimize taxes) and tax evasion (illegal failure to report required income). With trust distributions and crypto gains over 7 years, this is clearly evasion territory with potentially severe consequences. The voluntary disclosure route that everyone has mentioned really is his best option. In my experience, the IRS is generally more lenient with taxpayers who come forward voluntarily versus those they have to hunt down. The key is acting before they initiate contact, because once an investigation begins, the voluntary disclosure program may no longer be available. Given the complexity of trust income, cryptocurrency gains, and 7 years of non-filing, your cousin absolutely needs professional representation from a tax attorney who specializes in these situations. The penalties alone could bankrupt someone, not to mention the potential criminal exposure. Every month he delays increases both his financial liability and legal risk. I hope this thread helps you convince him that this isn't something that will just go away. The IRS has unlimited time to pursue non-filers, and their enforcement technology only gets better each year.