Tax evasion is a criminal offense under U.S. federal and state laws that is committed by taxpayers to evade or avoid paying taxes owed. It can include any act by a taxpayer which results in attempts to evade the payment of income taxes, property taxes, or payroll taxes. Tax evasion is a serious crime under U.S. tax law. Individuals, corporations, partnerships, and other entities are liable for tax evasion.
There are two major types of tax evasions: criminal acts and innocent statements, said an IRS audit defense lawyer in Tennessee. Criminal tax evasion occurs when a taxpayer makes a false statement on tax forms, or attempts to misrepresent information about income and assets. For example, the common schemes are to pay taxes online, claim deductions for overstate expenses, or increase deductions through accounting tricks. Innocent statements occur when a taxpayer makes an honest-to-goodness error when filing taxes. The IRS will accept an honest response to the requirements of the tax form, but if the response is incorrect, the taxpayer may be charged with an understatement of tax liability. For example, saying you don’t own shares in a private company when you do is an honest statement, but saying you don’t own shares in a private company when you do actually own the shares – which would represent an understatement of tax liability.
Tax evasion and tax avoidance are not illegal, but they do not amount to a criminal violation. Nevertheless, these crimes are charged criminally and can lead to significant penalties. A person who commits tax evasion or tax avoidance may be fined, imprisoned, forced to reimburse costs, and may also have to perform community service.
In addition to criminal consequences, a taxpayer may be subjected to administrative penalties. These penalties may include Notice of Proposed Penalties (NPP), which is a paper notification that describes a proposed penalty, including the amount and type of tax liability. An administrative penalty can be assessed for a variety of tax evasions or avoidance, such as failing to file a return, claiming a tax exception or a tax deduction, misrepresenting income, bankruptcy, tax liens, tax fraud, and Failure to Account For Expenses. An individual who is determined to be in violation of the provisions of the tax code or regulations, or who has committed fraud in the application process or billing of taxes may be required to pay a fine and be subjected to jail time.
Tax evasion and tax avoidance are illegal because they do not increase a person’s taxable income. In the case of illegal evasion, a taxpayer may evade or avoid paying taxes through a variety of methods. One common method is to reduce taxable income through non-correlated business transactions. Other methods used include investment in real estate and financial instruments, the use of tax shelters, paying interest on tax debt using a false pretense, and structuring bank accounts to avoid detection. Taxpayers may also use legal deductions to reduce their taxable income, including many legal deductions that a person would otherwise be entitled to based on his or her income level.
Tax evasion and tax avoidance have serious consequences for the taxpayers who engage in them. A tax liability can cause personal injury and property damage, impose financial burdens on the parties involved, cause criminal prosecution, and erode the trust between the citizenry and their government. In order to minimize tax liability and prevent the serious consequences that tax evasion and avoidance can cause, every taxpayer must become aware of and comply with his or her legal obligations. Tax attorneys and law specialists provide assistance to taxpayers in situations where the tax liability has become due and individuals have neglected to meet their obligations regarding tax compliance.
