Understanding Tax Evasion: 5 Frequently Asked Questions

No one likes paying taxes. But while they can be complex, taxes are a major part of the American way of life. They are a vital aspect of nation building and help support many organizations and programs that citizens rely on at a local, state, and federal level. Taxes help support social service programs, public health and education, national defense programs and much more.

Despite the collective headache filing taxes often gives many people when April rolls around, it’s important to pay taxes accurately and on time. However, not everyone does this and some engage in what is known as tax evasion. To dig deeper into tax evasion, how it occurs, and the possible outcomes, David Stewart reviews some commonly asked questions on the subject.

tax evasion concept

What Is Tax Evasion?

Tax evasion is defined as any action that is meant to defraud the IRS. It occurs when an individual or a corporation knowingly misrepresents their income to the IRS in an effort to avoid paying taxes. Misrepresentation can include underreporting yearly income, hiding taxable money, and transferring income to offshore accounts.

What are the Types of Tax Evasion?

The main types of tax evasion include personal income tax evasion, business tax evasion, and employment tax evasion. Personal income tax evasion occurs when an individual falsely reports their income. Business tax evasion occurs when a business owner underreports income, exaggerates the amount of deductions, claims false deductions, claims personal expenses as business expenses or hides assets or income. Employment tax evasion involves not paying employment taxes, falsely reporting payroll and employment leasing, among other things.

When can the IRS Charge You with Tax Evasion?

The IRS can charge you at any time for tax evasion if they have grounds to conclude that you have committed fraudulent activity. To be criminally convicted of tax evasion, the IRS must prove that unpaid liability exists and that you hid taxable income to avoided payment.

What are the Punishments for Tax Evasion?

If found guilty of tax evasion, several punishments can result, including the following:

  • Fines
  • Civil penalties
  • Imprisonment

Should I Consult with a Lawyer If I Am Accused of Tax Evasion?

If you have been accused of tax evasion, you should consult with a tax attorney immediately to determine your rights and the best course of action.

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