tax evasion

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Tax Evasion

The process whereby a person, through commission of Fraud, unlawfully pays less tax than the law mandates.

Tax evasion is a criminal offense under federal and state statutes. A person who is convicted is subject to a prison sentence, a fine, or both. The failure to file a federal tax return is a misdemeanor, but a consistent pattern of failure to file for several years will constitute evidence that these failures were part of a scheme to avoid the payment of taxes. If this pattern is established, the violator may be charged with a felony under section 7201 of the Internal Revenue Code.

The U.S. Supreme Court, in Spies v. United States, 317 U.S. 492, 63 S. Ct. 364, 87 L. Ed. 418 (1943), ruled that an Overt Act is necessary to give rise to the crime of Income Tax evasion. Therefore, the government must show that the taxpayer attempted to evade the tax rather than passively neglected to file a return, which could be prosecuted under section 7203 as a misdemeanor. A person who has evaded taxes over the course of several years may be charged with multiple counts for each year taxes were allegedly evaded.

According to the Supreme Court in Sansone v. United States, 380 U.S. 343, 85 S. Ct. 1004, 13 L. Ed. 2d 882 (1965), a conviction under section 7201 requires proof Beyond a Reasonable Doubt as to each of three elements: the existence of a tax deficiency, willfulness in an attempted evasion of tax, and an affirmative act constituting an evasion or attempted evasion of the tax.

An affirmative act is anything done to mislead the government or conceal funds to avoid payment of an admitted and accurate deficiency. Affirmative behavior can take two forms: the evasion of assessment and the evasion of payment. Affirmative acts of evasion include evading taxes by placing assets in another's name, dealing in cash, and having receipts or debts paid through and in the name of another person. Merely failing to pay assessed tax, without more, does not constitute tax evasion.

The keeping of a double set of books or the making of false invoices or documents can be proof of tax evasion. In some cases the mailing of a false return may constitute the overt act required under section 7201.

Further readings

Mertens, Jacob, Jr. 1996. Mertens Law of Federal Income Taxation. Rochester, N.Y.: Clark Boardman Callaghan.

Cross-references

Taxation; Tax Avoidance.

tax evasion

n. intentional and fraudulent attempt to escape payment of taxes in whole or in part. If proved to be intentional and not just an error or difference of opinion, tax evasion can be a chargeable Federal crime. Evasion is distinguished from attempts to use interpretation of tax laws and/or imaginative accounting to reduce the amount of payable tax.

tax evasion

any act or omission which results in a person paying less tax than is legally due by, for example, concealing or understating a source of income, overstating expenses, making false claims to reliefs or failing to disclose chargeability. It maybe criminal, as opposed to the prudent arrangement of affairs to minimize a tax burden: See TAX AVOIDANCE.
References in periodicals archive ?
He cannot decide not to evade taxes, for, in order to do this, and given his predominantly selfish character, he should first attend to moral reasons for doing so, but then the device would fire and take over Joe's deliberation and decision making.
legal person argument, and 100% of cases brought before the courts have resulted in convictions for tax evasion, counselling others to evade taxes, or both.
Chief reporter Charlie Bird said the Mayo TD had encouraged retired farmer James Howard to evade taxes while she was working for the National Irish Bank.
A spokesman for DaimlerChrysler's Japan unit told the Mainichi the firm did not evade taxes and does not face any tax problems.
Offshore havens allow rich people and businesses to evade taxes. They also facilitate international financial fraud, market manipulation, theft of intellectual property, illegal arms dealing, and drug smuggling.
First, the regulations improperly proceed from the assumption that a business enterprise's decision to hold trademarks and other intangibles in separate companies must be motivated not by legitimate business purposes but by a desire to evade taxes. That assumption, however, has not been supported by any finding that state contractors have improperly used intercompany payments to perpetrate tax fraud upon the State.
If businesses and professionals did not constantly seek to evade taxes, schools might have enough money to try to offset the rotten living conditions of the children of the urban poor.
According to the details, the Karachi Regional Tax Officer, during a survey conducted by the Broadening of Tax Base Zone, said that quite a large number of private schools, A-Level, O-Level tuition centres, pre-nursery training schools and other academies own booming businesses in the city; however, none were registered with the FBR and continue to evade taxes.
A cartel operating at the port of Mombasa has devised a scheme to evade taxes. The ploy involves abandoning cargo and later buying the same during auctions.
The reason why they evade taxes is primarily the absence of trust in the administration.
He said that a company which used to evade taxes on import of laptop computers has promised to pay taxes.
Argentina has urged HSBC Holdings (LSE: HSBA) to repatriate money that it says the bank's Argentine branch moved offshore to help clients evade taxes.