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What Is Tax Evasion (All You Need To Know)

Wondering What Is Tax Evasion?

What is considered “tax evasion” under the law?

What’s important to know?

Keep reading as we have gathered exactly the information that you need!

Let me explain to you what tax evasion is all about once and for all!

Are you ready?

Let’s get started!

What Does Tax Evasion Mean

Tax evasion refers to an individual or company’s illegal conduct, acts, or omissions intended to avoid paying taxes to the state.

In other words, when a person or company illegally avoids paying taxes, we consider that to be “tax evasion”.

Fundamentally, tax evasion is considered a crime that can lead to criminal accusations against a person.

There are two forms of tax evasions:

  • Evasion of assessment
  • Evasion of payment

When a person acts in a way that prevents the IRS from assessing the person’s true tax liability (this is an evasion of assessment).

When a person hides assets or transfers assets after tax has become due and payable with the intention to avoid paying taxes, that’s considered as evasion of payment.

Evading Tax Liability

As the name suggests, tax evasion suggests that a taxpayer is “evading” or “avoiding” the payment of taxes that should have been paid.

There are many ways a taxpayer could attempt to escape paying taxes, such as:

  • Failing to report income
  • Underreporting income 
  • Seeking inflated tax deductions to reduce income 
  • Inflating expenses to reduce income 
  • Doing business in “cash”

In essence, tax evasion can apply to both the nonpayment or underpayment of taxes.

Tax Avoidance

Tax evasion is different than “tax avoidance”.

In essence, for tax evasion, a person needs to use illegal methods to avoid taxes.

On the other hand, tax avoidance refers to legal techniques used by a person or company to reduce tax liability.

A few legal tax avoidance strategies are to take advantage of tax deferral techniques, make charitable donations, or invest in special accounts where the law provides preferential tax treatment (like IRA accounts or others).

Now that you know what tax evasion means in general, keep reading as I have more specifics on tax evasion that you must absolutely know.

What Is Considered Tax Evasion

What acts or omissions are considered tax evasion?

Section 7201 of the Internal Revenue Code states:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
Author

According to the Internal Revenue Code, Section 7201 states that tax evasion is:

  • Any act, conduct, or omission 
  • That is willful 
  • Intended to defeat or evade taxes 

In essence, a taxpayer that deliberately attempts to avoid paying taxes that should have been paid under the tax code will be considered as a taxpayer evading taxes (or a tax evader).

The Internal Revenue Service can find that an individual or business entity evaded taxes regardless of the fact that they had filed their tax forms or not with them.

An “act” or an “omission” can lead to the conclusion that a person acted in a manner to defeat paying taxes.

On the other hand, if a person did not “willfully” or “deliberately” underpay taxes or avoid paying taxes, he or she would not be found guilty of tax evasion under the law.

What Is The Penalty For Tax Evasion

What are the penalties for being found guilty of tax evasion?

Tax evasion can lead to criminal charges being filed against a person.

When a person is found guilty of tax evasion, it means that the person attempted to pay less than his or her true tax liability or did not pay at all.

In other words, the agency must prove that the person’s actions and conduct were willfully intended to evade taxes.

In many cases, the penalties for evading taxes are:

  • Payment of the true tax liability (the tax amount that was avoided)
  • Fines up to $250,000 for individuals
  • Fines up to $500,000 for corporations 
  • Jail time of no more than five years 
  • Combination of fines and imprisonment 
  • Interest charges on unpaid amounts

As you can see, depending on the severity of the tax evasion crime, a person or company can end up having to pay steep fines but can also face jail time.

If a person or company has consistently evaded taxes over the years, the ultimate financial consequence can be quite harsh (not to mention the possibility to serve time in jail).

What Is Tax Evasion vs Tax Fraud

What is the difference between tax evasion and tax fraud?

Both tax evasion and tax fraud have the same meaning.

In essence, tax fraud is another way of referring to tax evasion representing a crime intended to avoid paying taxes.

Tax evasion is a felony under US laws.

For a person to be found guilty of tax fraud (or tax evasion), the prosecutor must prove the following elements beyond a reasonable doubt:

  • There must be evidence that the taxpayer effectively owed taxes 
  • The taxpayer acted to avoid paying taxes (there is an affirmative act by the taxpayer to avoid taxes)
  • The taxpayer’s conduct was willful and intentional 

What Are Examples of Tax Evasion

What are some examples of tax evasion?

The law is clear that any person who willfully attempts “in any manner to evade or defeat any taxes imposed” by the tax code can be found guilty of tax evasion.

The law broadly captures any act, conduct, or omission, intended to avoid paying taxes as tax evasion.

As a result, there are many possible ways a taxpayer may possibly be found guilty of tax evasion.

To give you an idea, here are some examples of how a person may be found guilty of tax evasion under the US tax code:

  • A taxpayer underreports income or conceals sources of income 
  • A taxpayer falsifies income records 
  • A taxpayer willfully underpays taxes
  • A taxpayer inflates expenses 
  • A taxpayer fraudulently declares expenses that did not exist or destroys records 
  • A taxpayer knowingly inflates tax deductions
  • A taxpayer hides money from the tax authorities
  • A taxpayer hides money or interests in offshore accounts
  • A taxpayer conceals assets by associating with another person 
  • A taxpayer falsely declares taxes under a false name
  • A taxpayer does not record income properly when receiving “cash” for goods and services

Although these are just some examples of how a person or company can be found evading taxes, there are many other ways that a person or company may be found to be violating the tax laws.

The most famous case of tax evasion in US history is surely the Al Capone case.

Al Capone was the head of an organized crime family found guilty of tax evasion leading to his incarceration.

What Is Tax Evasion Takeaways 

So there you have it folks!

What is tax evasion in simple terms?

What is considered under the law as tax evasion?

In essence, “tax evasion” is when a taxpayer deliberately attempts to pay less taxes than its true tax liability.

In the United States, anyone who willfully evades taxes is subject to criminal accusations as tax evasion is considered a federal offense.

There are many ways a person can be found evading taxes, such as:

  • Falsifying income and expense records
  • Failing to report all income
  • Failing to record cash transactions 
  • Filing taxes under a fake social security number
  • Falsely claiming deductions 
  • Using multiple financial ledgers
  • Failing to file tax returns 

When a person or company acquires money through illegal channels and falsely attempts to report them as coming from legitimate sources can be found guilty of money laundering charges.

For the government to prove that there were acts of tax evasion, it must prove that the defendant effectively owed taxes, that it engaged in affirmative conduct intended to mislead the IRS, and the conduct was willful.

I hope that I was able to answer your question relating to the question what does tax evasion mean, what’s considered tax evasion, examples, and the penalties.

Remember, this blog post is designed to provide you with general information to get you started in your research on the topic of tax evasion.

If you are dealing with a tax issue or facing tax evasion charges, be sure to speak to a tax attorney or legal professional who can guide you on the specifics of your case.

Let’s look at a summary of our findings.

What Is Tax Evasion Overview

  • “Tax evasion” refers to an “illegal” attempt to avoid taxes or defeat the imposition of taxes by any individual, corporation, or other legal entity
  • It’s when a person deliberately misrepresents income, expenses, assets, or other information to the tax authorities to reduce tax liability
  • Typical conducts that lead to violations of the law are underreporting of income, overstating expenses, falsifying records, not recording cash transactions, and more
  • While tax evasion is an illegal act to avoid paying taxes, tax avoidance refers to legal and legitimate strategies taxpayers can use to reduce their tax liability 
Bribery 
Electronic surveillance 
Evasion of assessment
Evasion of payment
Felony tax evasion 
Foreign Account Tax Compliance Act
Kickback
Money laundering 
Tax attorney 
Tax avoidance 
Tax cheat
Tax crime 
Tax evader
Tax evasion vs tax avoidance 
Tax fraud 
Tax Haven 
Tax penalty 
Tax withholding 
White-collar crime
Author
Adjustments to income 
Customs duty 
Financial ledger
Form 5329
Gross income 
Land value tax
Panama papers
Sales tax
Tax amnesty
Tax bracket 
Tax farming 
Tax filing 
Tax gap 
Tax ID number
Tax refund 
Tax resistance 
Taxes due 
Tax-free income
Underground economy
Value-added tax
Voluntary compliance
Author

Editorial Staffhttps://lawyer.zone
Hello Nation! I'm a lawyer and passionate about law. I've practiced law in a boutique law firm, worked in a multi-national organization and as in-house counsel. I've been around the block! On this blog, I provide you with golden nuggets of information about lawyers, attorneys, the law and legal theories. Enjoy!

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