Prosecutors in Madrid have indicted Carlo Ancelotti on suspicion of avoiding 1m euros in taxes due for revenues from image rights while coaching Real Madrid between 2014 and 2015.
Ancelotti, who now coaches Everton, could not be reached for comment.
The Madrid Community Prosecutor's office said in a statement Ancelotti had concealed revenues "intending to avoid his tax duties towards the public treasury with no justification."
As well as working for Real Madrid and Everton, Ancelotti has had trophy-laden spells at other European clubs including AC Milan, Chelsea, Paris Saint-Germain and Bayern Munich.
A former player who was capped 26 times for Italy and played in the 1990 World Cup, Ancelotti has won the Champions League three times as a coach, twice with AC Milan and once with Real Madrid.
Big-name players such as Portugal's Cristiano Ronaldo and Argentina's Lionel Messi and, more recently, Brazilian-Spanish player Diego Costa, have also been sued in tax cases, as has Portuguese coach Jose Mourinho.
They agreed to pay fines.
Representatives for Ancelotti could not be reached and there was no immediate comment from Everton on the case.