Tax evasion applies to both illegal arrears as well as illegal underpayment of taxes. Even if a taxpayer fails to file an appropriate tax form, the IRS may decide whether tax has been levied based on information that must be submitted by a third party, such as W-2 information provided by the employer or 1099. Generally, a default is not considered a crime of tax evasion unless it is considered willful.
Failure to pay the appropriate taxes can lead to criminal prosecution. In order for a tax to be levied, it must be judged that the tax evasion is the willful act of the taxpayer. Not only will you be responsible for paying your tax arrears, you may be convicted of an official charge or sentenced to imprisonment. According to the IRS, penalties include imprisonment for up to five years, a fine of up to $250,000 for individuals, up to $500,000 for businesses, or both, plus the cost of prosecution.
A number of factors are considered when determining whether a default is intentional. Most commonly, a taxpayer’s financial situation is investigated to determine if non-payment is the result of fraud or concealment of reportable income.
A delinquency may be considered fraudulent if a taxpayer tries to conceal the property by associating it with someone other than herself. This may include reporting income under a pseudonym and social security number (SSN), which may constitute identity theft. A person who fails to report work that does not follow traditional payment record methods may be found to be concealing income. This may include accepting cash payments for goods or services provided without properly reporting to the IRS during tax filing.
Limitations of Tax Planning: Tax planning has certain limitations. For salaried tiers, employers are responsible for accurate tax deductions. In the case of a business, the employer is responsible for reporting rights and factual income. People with taxable income can claim excess expense claims and deductions to hide their income to avoid taxes or to reduce their tax burden. In these cases, tax evasion/avoidance is central.
Tax evasion: Tax evasion is the use of lawful methods to minimize your tax obligations. In other words, it is the act of using a local tax system for personal gain in order to reduce the tax burden. While tax evasion is a legitimate method, it is not recommended as it can be used to your own benefit to reduce your taxes. Tax evasion is an act of unfairly exploiting the shortcomings of tax regulations by seeking new ways to avoid paying taxes within the scope of the law. Tax avoidance can be accomplished by adjusting your account in a way that does not violate any tax rules. Tax evasion is legal, but in some cases it can fall under the category of crime.
Characteristics and differences between tax avoidance, tax avoidance and tax planning:
- Character: Tax planning and tax evasion are legal, tax evasion is illegal
- Attributes: Tax planning is moral. Avoiding taxes is immoral. Tax evasion is illegal and unpleasant.
- Motivation: Tax planning is a way to save money. But tax evasion is tax evasion. Tax evasion is the act of concealing taxes.
- Consequences: Tax avoidance leads to deferral of tax liabilities. Tax evasion leads to fines or imprisonment.
- Purpose: The purpose of tax evasion is to reduce the tax obligation by applying the script of the law, and tax evasion is to reduce the tax obligation by using unreasonable means. The tax plan is to reduce tax obligations by applying the provisions of the law and morals.
- Acceptable: Tax planning and tax avoidance are allowed, but tax evasion is not.