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Illegal Tax Activity

Tax Services. Tax Problems. > Illegal Tax Activity

Tax Evasion

Introduction 

Sometimes life gets in a way, and it becomes quite challenging to pay your tax obligations. The amount and variety of tax obligations depend on taxpayers’ income and the types of assets in one’s possession.

Often, people become concerned regarding high tax obligations and look for many different ways to reduce them.

Some people follow others’ footsteps and go with the tax evasion method.

Of course, most of us know that tax evasion is illegal. 

If you are planning to discover more about what tax evasion is, this article is for you. So, let’s have a look!

Tax evasion is a criminal offense.

Tax evasion includes one of the most fundamental elements- intent. Intentionally hiding your income, hiding money and its interest altogether in offshore accounts, or fabrication deductions is a criminal offense. According to https://www.law.cornell.edu/wex/tax_evasion, tax evasion is using illegal means to avoid paying taxes. 

For example, some people don’t want to report illegal drug sales and gains from the sales. (see source*1) On June 16, 1931, Al Capone pled guilty to tax evasion and prohibition charges. Individuals involved in illegal businesses often engage in tax evasion because reporting their true incomes would be an admission of guilt and could result in criminal charges. Those individuals who decide to report that illegal income from a legitimate source can face money laundering charges. 

Tax evasion is a crime that results in monetary penalties, imprisonment, or both. (See source*2) Section 7201 of the Internal Revenue Code reads, “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 five years, or both, together with the costs of prosecution.

To convict, the prosecution must prove beyond a reasonable doubt:

  • an unpaid tax liability exists,
  • evade or attempt to evade a tax,
  • possession of the specific intent to evade a known legal duty to pay. 

Judging the tax evasion conditions.

If you want to avoid getting penalized for evading the taxes, you should be aware of the conditions/ scenarios that lead to this criminal activity. 

  1. Not putting all the incomes thoroughly: One of the most common scenarios in which you will find some taxpayers evading tax obligations is not mentioning all the incomes and their sources properly. Either they omit some of the income sources or manipulate the income data.
  2. Manipulation of income books: Sometimes, many taxpayers enter wrong inputs in their accounting books to evade the high tax debts. Sometimes, taxpayers categorize their personal expenses as business-related. 
  3. Wrong deductions. Sometimes taxpayers claim dependents that they have no legal right to claim. 
  4. Improper income and/or deductions categorization to be in a low-income bracket. 

Is tax evasion the same tax avoidance?                  

No, both tax evasion and tax avoidance are different on several grounds. In tax evasion, a taxpayer takes help from illegal ways to reduce the tax debts and make falsified returns. However, in tax avoidance, a person looks for legal and approved methods to reduce the tax debts and avoid criminal offense. 

Conclusion 

Let’s not sugarcoat the entire situation and give you false hopes. Tax evasion is a serious crime, and there are high chances of being caught. If you are caught filing a fraudulent return, the consequences are significant. So, it’s better to avoid tax evasion techniques, even though it might sound lucrative at some point in time.

Source: 

  1. https://www.fbi.gov/history/famous-cases/al-capone#:~:text=On%20June%2016%2C%201931%2C%20Al,not%20bound%20by%20any%20deal.

2. https://www.law.cornell.edu/wex/tax_evasion

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