Income Tax Evasion Income tax evasion is defined as purposefully avoiding the payment of taxes. This can include not paying taxes at all, or defrauding the government. Tax evasion and tax fraud are both crimes punishable by hefty fines, foreclosures and possible incarceration. The vast majority of tax fraud is committed by people who under report their income. That is why the IRS flags those who are self-employed and people who are paid in cash. Other forms of tax fraud include using false Social Security numbers, keeping false accounting records, and more.