Tax evasion is the avoidance of paying government taxes by failing to report, or fraudulently reporting, income earned and subject to tax.[1] It differs from tax avoidance (which is the use of tax laws to legally minimize, or avoid altogether, any taxable income), though in some cases the difference rests upon legal interpretation, which may be dubious.
An example of tax evasion would be the sale of real estate whereupon the seller agrees upon a price, but structures the sales documents to report a lower sales price (with the rest paid "under the table" in cash), in order to minimize or avoid any gain, and thus any tax. (The buyer would also participate in a form of tax evasion, in that the disclosed price would now be the basis for future property tax assessment, thus illegally lowering the amount of owed property tax.)
Studies show that an estimated 30-40 percent of Americans cheat on their tax returns.[2] Money lost from these illegal actions has defrauded the United States government of $290 billion a year according to the IRS. Advocates of a Fair Tax system use the loopholes in the current tax system as one of their main justifications for change.[2]
Penalties
The United States Tax policy enforcement comes from the Internal Revenue Service, which works with United States Tax Division attorneys. Together this group helps in the making of tax administration policy's, handling of civil trials and appellate litigation in federal and state courts, and pursuing federal grand jury investigations.[3] The Internal Revenue Service (IRS) can prosecutes any person or entity that avoids payment of taxes due, and can assess penalties.
| Crime | Penalty |
|---|---|
| Failure-to-file | The penalty is 5% of the tax not paid by the due date for each month or part of a month that the return is late. Penalty can not exceed more than 25% of your original tax amount. If reasonably cause for not filling tax is found, then no penalty will be placed. This penalty also offers a discount to offenders that file pay penalty within 60 days. If deemed necessary, criminal prosecution for failure to pay income tax may be used,[4] a maximum prison sentence of one year placed. |
| Tax Penalty for frivolous return | Offender may have to pay $500 if a tax return is filed that does not include enough information to figure the correct tax or shows an incorrect tax amount due to. In some cases other penalties may also be initiated.[4] The government does not have to prove intent of the offender to commit evade tax. This is a felony and can result in a prison sentence of up to three years and/or fines up to $100,000.[5] |
| General Tax evasion | This is a felony and if a citizen is convicted, he can carry a prison sentence of up to five years and/or fines up to $100,000.Although the evasion may have been carried out by accountants and business managers, the citizen is held responsible for his tax return.[5] |
Motivation
Experts state the there are two main motivations for citizens to commit tax evasion. The first motivation is ease in committing tax evasion. In the United States less than 1 percent of returns are audited, which gives the incentive for people to try to beat the system. Joe Antenucci, professor of accounting and finance at Youngstown State University, stated, "Any gambler will tell you, when you have a high payoff and low risks, that is when you want to be involved". The second motivation is pork spending by government officials and branches.[2]
See also
References
- ↑ http://www.investorwords.com/4895/tax_evasion.html
- ↑ 2.0 2.1 2.2 “Tax cheats cost United States hundreds of billions” http://www.post-gazette.com/pg/07084/772106-28.stm
- ↑ http://www.usdoj.gov/tax/
- ↑ 4.0 4.1 http://www.taxdeal.com/tax_penalties.html
- ↑ 5.0 5.1 http://ezinearticles.com/?Tax-Evasion-Penalties&id=179227