You might have heard the term used on TV, but did you know that tax evasion is a crime? You may be wondering what exactly this term even means. Tax evasion occurs when an individual or business cheats on their taxes by not reporting all of their income, avoiding payment thereof, or by hiding money in offshore accounts. Tax evasion can lead to fines and even prison time.
If you are concerned that you may have engaged in tax evasion, it is best to seek legal counsel right away. The attorneys at Damien Law are experienced in tax law and can help you understand your rights and guide you through the legal process. Contact us today for more information. Read on to learn more:
What is tax evasion?
Tax evasion is the unlawful act of avoiding or minimizing tax liability. It can also be defined as the purposeful, illegal attempt to evade being assessed or avoid the payment of a tax imposed by federal law. It is a crime that is punishable by law, and an individual who is classified as a tax evader can face heavy fines and even imprisonment.
There are several ways to evade taxes, but the most common methods are underreporting income, hiding assets, and claiming false deductions. The IRS has many tools at its disposal to catch tax evaders, including audits, information-sharing agreements with other countries, and sophisticated data mining techniques.
Tax evasion vs tax avoidance
While they may sound similar, tax avoidance is the legal practice of minimizing tax liability within the framework of the tax code, in contrast to tax evasion, which is the deliberate failure to pay taxes or comply with tax law. Tax avoidance includes taking advantage of tax deductions and using tax shelters to reduce taxable income, while tax evasion typically involves underreporting income, claiming excessive deductions, or hiding assets offshore.
While both tax avoidance and tax evasion may result in a lower tax bill, only tax avoidance is legal. Tax evasion is a federal crime that can result in substantial fines and even imprisonment.
So what constitutes tax evasion? The Internal Revenue Service (IRS) defines it as the “deliberate attempt to evade or avoid paying taxes.” This includes any action taken with the intent to reduce or avoid tax liability, such as underreporting income, hiding assets, or claiming false deductions.
The different types of tax evasion
There are several ways to evade taxes, but the most common methods are underreporting income, not paying income tax, hiding assets, and claiming false deductions. Let’s take a closer look at each of these methods.
Underreporting Income: This is probably the most common method of tax evasion. It involves concealing income or reporting less income to tax authorities than you actually earn, so you pay fewer taxes. This can be done on your tax return, or you can deliberately omit income from your tax records.
Hiding Assets: Another common method for evading taxes is hiding assets in order to reduce your taxable income. This can be done by transferring assets to family members or friends, placing them in trusts, or setting up an offshore bank account to keep the IRS from determining their true tax liability.
Claiming False Deductions: Another way to evade taxes is to claim false deductions on your tax return. This includes claiming excessive deductions, such as business expenses that were never incurred, or overstating deductions altogether. This can also go hand in hand with under-reporting income.
The consequences of tax evasion
Tax evasion is a federal crime that can result in substantial fines and even imprisonment. The penalties for tax evasion depend on the severity of the offense, but can range from a few thousand dollars to a million dollars and up to five years in prison.
In addition, the IRS can assess a civil penalty equal to 75% of the amount of taxes that were evaded. This penalty is in addition to any criminal penalties that may be imposed.
So, is tax evasion a federal crime? The answer is yes, tax evasion is a federal crime. It is punishable by law, and individuals who commit it can face heavy fines and even imprisonment. However, it’s important to note that tax avoidance is legal, while tax evasion is not. So, if you’re looking to minimize your tax liability within the bounds of the law, you should use tax avoidance methods, not tax evasion.
How to report suspected cases of tax evasion
If you know someone who is engaged in tax evasion or made an attempt to evade payment for their known legal duty, you can report them to the IRS. You can do this by filling out Form 3949-A, Information Referral. This form is used to report individuals, businesses, or organizations who may be engaging in criminal activity.
You can also contact the IRS directly if you have any information about tax evasion. The IRS has a special hotline for reporting suspected cases, called the Tax Fraud Hotline. You can reach this hotline by calling 1-800-829-0433.
What is a Voluntary Disclosure Program?
The Voluntary Disclosure Program (VDP) is a special program offered by the IRS to help taxpayers who have failed to report income or file tax returns. This
program allows taxpayers to come forward and voluntarily disclose their tax violations and, additionally, it provides them with amnesty from criminal prosecution.
Streamlined procedure vs traditional procedure
There are two main types of VDP: the Streamlined Procedure and the Traditional Procedure. The Streamlined Procedure is for taxpayers who have relatively simple tax violations, while the Traditional Procedure is for taxpayers who have more serious tax violations.
The main benefit of the VDP is that it provides taxpayers with amnesty from criminal prosecution. In addition, it allows taxpayers to avoid paying substantial fines and penalties. However, there are a few things to keep in mind. First, you must voluntarily disclose your tax violations in order to participate in the VDP. Second, you must agree to pay back all taxes and interest, as well as any penalties that may be assessed. Third, you will not be able to take advantage of the VDP if you have already been contacted by the IRS regarding your tax violations.
If you are interested in participating in the VDP, you can contact the IRS directly or go to their website.
How to protect yourself from becoming a victim of tax evasion
There are a few things you can do to protect yourself from becoming a victim of tax evasion. First, make sure that you are aware of the different types of tax evasion and how they work. Second, file your tax return on time and accurately. Third, keep track of all your business expenses, and only claim those that were actually incurred. Fourth, report any suspicious activity to the IRS. And finally, consult with a qualified tax professional to get help with your tax planning, income tax calculating, and compliance.
If you’re looking to avoid criminal prosecution and heavy fines, it’s important to know what tax evasion is and how to protect yourself from becoming a victim. By understanding the basics of tax evasion and knowing what to look out for, you can avoid becoming a victim of this crime. In addition, by participating in the IRS Voluntary Disclosure Program, you can come forward and voluntarily disclose your tax violations, and receive amnesty from criminal prosecution.
Work with experienced attorneys
If you are contacted by the IRS or are under investigation for tax evasion, it is critical to seek legal assistance immediately. The attorneys at Damiens Law have years of experience representing taxpayers in criminal and civil tax proceedings. We can help you understand your rights and protect your best interests.