Tax Evasion

Tax evasion is a general term for when someone deliberately breaks tax laws to avoid paying taxes. It is the illegal form of tax avoidance, in which someone avoids paying taxes through legal means such as through legal entities and loopholes. Tax evasion is usually in the form of individuals or businesses lying about the amount of money they have made in order to pay fewer taxes.

The difference between the amount of money owed the government by a business or individual, and the amount actually paid to the government, is called the “tax gap.” The IRS estimated that the tax gap for the fiscal year of 2007 was about $345 billion, which is about 14% of that year's federal revenues.

Common forms of tax evasion include:

• Hiding illegal income. Because income from gambling, theft, etc. is obtained illegally, no taxes are paid on it. After all, if you were to include money you'd earned from selling drugs on your taxes, you'd be admitting to having broken the law. Because of the incongruity between legal income and illegal income, the government has been able to prosecute racketeers like Al Capone for failure to report illegal income on taxes.
• Failure to declare customs. It is illegal to not pay duty for goods brought into the country.
• Failure to report legal income. One of the most common forms of tax evasion is lying about income in order to reduce the amount of taxes paid.
• Lying about dependents. Improperly filing dependents is another common form of tax evasion.

The IRS takes these cases seriously and will investigate individuals and businesses when they suspect fraud. Tax evasion is a felony and can be punishable by fines of up to $100,000 and possible prison time.

Contact Us

If you would like more information on tax evasion as it pertains to your business, contact the Austin business lawyers of Slater, Kennon & Pugh Ltd.LLP, by calling 512-472-2431.