What Is Tax Evasion?

Tax evasion occurs when individuals and corporations work to avoid paying taxes. In other words, it is when companies and individuals try to “get out of” paying taxes by using illegal methods. The most common example is misrepresenting or concealing certain information from tax authorities to reduce the amount of taxes paid. When people or corporations report less income, hide money in foreign banks, or conceal profits or gains, tax evasion is being committed.

Be sure not to confuse tax evasion with tax avoidance. Tax avoidance is when one uses legal loopholes and other legitimate methods to reduce the amount of tax he or she needs to pay. The key word of course is legal. Many people often hire tax attorneys for tax avoidance purposes.

LegalMatch Law Library Managing Editor, , Attorney at Law

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Most people comply with tax laws due to a sense of good will, and the belief that others are complying so they should too, maintaining the fairness of the system.   This sense of compliance may be because of the good will of many, or due to fear of getting caught and suffering adverse consequences. Many people fear that whatever information is misrepresented or concealed, it will one day be found out by the I.R.S. The I.R.S. after all does report an extremely high sentencing rate.

One thing to keep in mind is the I.R.S. is not your enemy. They are aware of many individuals who make a living off selling tax evasion schemes to innocent people. In other words, many people have made a business out of selling their tax services to others by enticing clients with the idea of paying less and getting more from their tax return. These individuals usually use tax evasion schemes and falsely represent their services to people.

The I.R.S. is aware of such fraudulent services and will help innocent tax payers who have been misled. Therefore if you have been defrauded by someone selling you a tax evasion scheme, the I.R.S. tracks such people and punishes them for their fraudulent practices.   The innocent taxpayer will often not be punished for the wrongdoing of others.

However, the I.R.S. does not hesitate to punish those who deserve it. According to I.R.S. Code 7201, tax fraud is a felony. Therefore, upon conviction, individuals and/or corporations may be required to pay back taxes owed to the I.R.S. with interest, pay additional monetary penalties and fines, and/or spend time in confinement. Famous celebrities who have been involved with tax evasion include Martha Stewart, Wesley Snipes, and President Obama’s Treasury Secretary Tim Geithner.

Overall, the lesson to take away is that although tax evasion may seem appealing at first since we all want to save money and pay less taxes, in the end, just say no. It is highly likely that you will get caught, and the potential felony charge and punishment is not worth it. Be truthful to the I.R.S. and the I.R.S. will protect you from fraudulent tax evasion schemes.

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