They would go to jail because they were only putting down in their books that they collected a much lower amount of money so they could keep the excess. Like in the beginning, Bloom was looking at the books and said that $2,000 was missing somewhere from the books. So let's say that $10,000 had been collected for the production and only $8,000 used, Lane's character then kept that other $2,000 for himself, which would be illegal. I am not sure if those are the right amounts, but you get the idea. I guess Bloom thought that the IRS wouldn't really pay much attention to the books of a play that had flopped (because it didn't raise any money), so they could just "hide money" here and there in their books and then keep all the extra for themselves without anyone knowing about it. If the show was successful, the IRS would care about the books and then would notice all the money missing.
"That boy could use some Prozac"