Illegal practice of intentionally evading taxes. Taxpayers who evade their true tax liability may underreport income, overstate deductions and exemptions, or participate in fraudulent tax shelters. If the taxpayer is caught, tax evasion is subject to criminal penalties, as well as payment of back taxes with interest, and civil penalties. Tax evasion is different from
Tax Avoidance which is the legal use of the tax code to reduce tax liability.
[top]Illegal income and tax evasion
In the United States, persons subject to the Internal Revenue Code who earn income by illegal means (gambling, theft, drug trafficking etc.) are required to report unlawful gains as income when filing annual tax returns (see e.g., James v. United States), but they often do not do so, because doing so could serve as an admission of guilt. Suspected lawbreakers, most famously Al Capone, have therefore been charged with tax evasion when there is insufficient evidence to try them for their non-tax related crimes. Other times tax evasion can be used as a "one more nail in the coffin" by prosecutors by stating that if a person earns illegal income, s/he may also be guilty of tax evasion. Those who attempt to report illegal income as coming from a legitimate source could be charged with money laundering. By contrast: In the UK law enforcement agencies do not generally have access to tax returns and so illegal earnings can supposedly be safely declared[citation needed] but in practice those carrying on criminal activities generally prefer not to do so, and so can sometimes be prosecuted for tax evasion rather than for other crimes. Soviet spy Aldrich Ames, who had earned more than $2 million cash for his espionage, was also charged with tax evasion as none of the Soviet money was reported on his tax returns. Ames attempted to have the tax evasion charge dismissed on the grounds his espionage profits were illegal, but the charges stood.
[top]Level of evasion and punishment
Tax evasion is a crime in almost all countries and subjects the guilty party to fines and/or imprisonment - in China the punishment can be as severe as the death penalty. In Switzerland, many acts that would amount to criminal tax evasion in other countries are treated as civil matters. Even dishonestly misreporting income in a tax return is not necessarily considered a crime. Such matters are dealt with in the Swiss tax courts, not the criminal courts. However, even in Switzerland, some fraudulent tax conduct is criminal, for example, deliberate falsification of records. Moreover, civil tax transgressions may give rise to penalties. So the difference between Switzerland and other countries, while significant, is limited. It is often considered that extent of evasion depends on the severity of punishment for evasion. Normally, the higher the degree of punishment, the higher the level of evaded amount.
[top]Definition of tax evasion in the United States
The application of the U.S. tax evasion statute may be illustrated in brief as follows, as applied to tax protesters. The statute is Internal Revenue Code section 7201:
Quote:
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Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.
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Under this statute and related case law, the prosecution must prove, beyond a reasonable doubt, each of the following three elements:
- the "mens rea" or "mental" element of willfulness — the specific intent to violate an actually known legal duty;
- the "attendant circumstance" of the existence of a tax deficiency — an unpaid tax liability; and
- the "actus reus" (i.e., guilty conduct) — an affirmative act (and not merely an omission or failure to act) in any manner constituting evasion or an attempt to evade either:
1. the assessment of a tax, or
2. the payment of a tax.
An affirmative act "in any manner" is sufficient to satisfy the third element of the offense. That is, an act which would otherwise be perfectly legal (such as moving funds from one bank account to another) could be grounds for a tax evasion conviction (possibly an attempt to evade "payment"), provided the other two elements are also met. Intentionally filing a false tax return (a separate crime in itself[28]) could constitute an attempt to evade the "assessment" of the tax, as the Internal Revenue Service bases initial assessments (i.e., the formal recordation of the tax on the books of the U.S. Treasury) on the tax amount shown on the return.
[top]Failing to file returns in the United States
According to some estimates, about three percent of taxpayers do not file tax returns at all. In the case of U.S. Federal income taxes, civil penalties for willful failure to timely file returns and willful failure to timely pay taxes are based on the amount of tax due; thus, if no tax is owed, no penalties are due. The civil penalty for willful failure to timely file a return is generally equal to 5.0% of the amount of tax "required to be shown on the return per month, up to a maximum of 25%. By contrast, the civil penalty for willful failure to timely pay the tax actually "shown on the return" is generally equal to 0.5% of such tax due per month, up to a maximum of 25%. The two penalties are computed together in a relatively complex algorithm, and computing the actual penalties due is somewhat challenging.
In cases where a taxpayer does not have enough money to pay the entire tax bill, the IRS can work out a payment plan with taxpayers.
For years for which no return has been filed, there is no statute of limitations on civil actions -- that is, on how long the IRS can seek taxpayers and demand payment of taxes owed.
For each year a taxpayer willfully fails to timely file an income tax return, the taxpayer can be sentenced to one year in prison. In general, there is a six-year statute of limitations for with respect to Federal tax crimes.
Q: What is the statue of limitations for tax evasion?
A: There is no statute of limitations on tax fraud.
Q: Is tax evasion a criminal or civil law?
A: There are both civil fraud and criminal fraud statutes. It depends on what the IRS decides to pursue.
Q: Can an immigrant who was married to a US citizen 10 months ago be deported for crimes such as domestic battery and tax evasion?
A: Yes, both crimes are felonies. If the foreign national is taken to trial and convicted, he will be required to serve the sentence imposed and will be deported upon the completion of the sentence or if paroled.
Any conviction for a Domestic Assault type crime is grounds for removal proceedings.
Q: What states have adopted the first provision of the uniform marriage evasion act?
A: Illinois, Louisiana, Massachuettes, Vermont and Wisconsin.
The law basically applies to same sex unions and does not apply in any context to underage persons.
The majority of US states use federal statutes when it concerns the avoidance of restrictive laws from one state to another.
Q: While married and self-employed you filed joint tax returns with your now ex-husband who received tax credits for all the 5 years but you had a business so how do you get the tax credits split up?
A: If the refund was made out to both spouses then it belongs equally to both unless or until a court rules otherwise.
If the ex-husband forged the wife's signature and cashed the refund check he may have some explaining to do on several levels.
Be that as it may, the injured spouse's only recourse would be to file suit in the appropriate state court, (small claims being the best choice) to recover her share of the refund.
The IRS will not pursue the matter for her unless wrongdoing is evident, (such as a fraudlent return) in which case both filers would be subject to an audit.
Q: Should you file a US tax return if you were working abroad and paying tax abroad and claimed as a dependant on your father's US tax returns?
A: You still need to file if you meet the minimum income requirement for your circumstances. US citizens are taxed on their worldwide income, although you may be able to qualify for the foreign earned income exclusion. Even if you qualify for the exclusion and subsequently have no taxable income, however, you must still file if over the income minimum.
In addition, your father may need to revisit the rules for claiming dependents. Depending on your age and circumstances, including the time you have lived with him and whether you are in school, you may not be a dependent for tax purposes.
Q: Are the 2008 federal tax rebate checks just an advance on next year's tax refunds?
A: The tax rebates are based on a reduction of your taxes in 2008. Basically, in 2008, the tax has been reduced by 10% on the first $3000 of your income (per taxpayer), and there is an additional tax credit for children. This amounts to $300 per individual, $600 per couple, and $300 per dependent child.
This is money advanced from your taxes this year, but you are getting the money back now rather than next year. HOWEVER, it will not affect your tax refund next year because the refund is based on an actual reduction in your taxes, rather than just being an advance on your normal refund next year.
Q: What are the tax implications after your property has been foreclosed on and how does that affect an income tax return?
A: Cancellation of debt does not typically apply on the foreclosure of a home, as far as being treated as straight income. A foreclosure is treated the same as the sale of a home. Your cost-basis of the house will stay the same as if you sold the house. The amount of debt forgiven is treated as your sales price. This will create either a Capital Gain or a Capital Loss.
It is possible to claim a Capital Loss for your home, to determine if your specific circumstance meets the criteria refer to IRS Publication 523. Complete the worksheet for computing your home's adjusted basis to determine if you have a capital loss or gain resulting from the foreclosure.
Publication 523 (2007), Selling Your Home
If you end up showing a capital gain, you may still use the home exclusion rules to exclude up to $250,000 of that capital gain ($500,000 for married filing joint). ie. if you lived in the home for 2 of the last 5 years, etc.
Q: Do you have to give up any Tax refunds or 2008 tax rebate checks while on chapter 13?
A: If you have not exempted them, yes. The tax rebate could not have been exempted if you filed your 13 before it became law. Any tax refund after filing means you are overwithholding and that is not allowed in a c. 13, so it usually has to go to the trustee, unless it is a small amount.
Q: Is Self employment tax included in the normal federal income tax bracket for the self employed or is it separate?
A: Self-employment tax is separate from income tax. Self-employment tax is actually the Social Security and Medicare taxes on self-employment income.
The tax rate for Social Security is 12.4%. The tax rate for Medicare is 2.9%.
When you are employed by another person, one-half of your Social Security and Medicare taxes are withheld from your gross wages. The other half is paid by your employer.
When you are self-employed, you are both the employee and the employer, and must pay 100% of the Social Security and Medicare taxes due on your self-employment income. These taxes often come as a major shock to the newly self-employed.
SE income is usually calculated on Form 1040 Schedule C. SE tax is calculated on Form 1040 Schedule SE.
More information:
Self-Employment Tax
Q: What are the differences between the tax expense figure in the income statement and the tax liability in the balance sheet?
A: A tax liability on a balance sheet typically has not yet been paid.
Q: What tax forms must be considered when filing a consolidated C corporation tax return when assets are less then 10 million dollars?
A: The 1120 series is used to file C corp returns. Each co in the group should have it's own entire pro-forma return made, and an elimination Co made on the Consolidating schedules for tax to produce one combined entitiy. Remember that the States may not allow, and others may require, consolidayed or Unitary filing.
Dividends, ownwership percentages, intercompany transactions, accrual accounts and items that must be recorded to equity rather than deferred accounts, (the entire FAS 109 thing is for GAAP only), but can get a bit honery.
Obviously, the specific schedules needed to be completed, and whether forms 1118, 4797, 5462, Schd. D, etc. etc., depend on the operations and accounting for the Co or group. Schedule M-1 (now actually M-3) needs to be paid particular attention to.
Q: If you are married and you get a mortgage in only one of your name when you file tax jointly would it make any difference When you add the other's name later how does the tax work?
A: If you have enough income, you can write off any interest you paid on your mortgage. This will help reduce your taxable income.
Q: If you are a retiree who owes no tax should you file a 2007 tax return in order to qualify for the stimulus package?
A: Yes, the IRS says you must. Even if you only have social security, you'll get a refund.
Q: How does a tax deductible slip from Goodwill work come tax time?
A: See the link below for complete explanations, limits and other requirements for having a supportable charitable contribution deduction.
http://www.irs.gov/pub/irs-pdf/p526.pdf
Q: Which tax software is better TaxCut or TurboTax for an individual tax filer?
A: Both are very user friendly.
Q: If a tax debt is over 10 years old can the IRS keep any tax refunds that you are entitled to?
A: The statute starts to toll when the tax debt is assessed, not when it comes into existence. So long as you do not agree with the IRS to any other collection period, the IRS has ten years from the date of assessment to take action to collect the tax; e.g., initiate a levy or court proceeding. However many things "toll" the counting of time, so 10 years in IRS legal years, can frequently be much more in real years.
Or keeping your refunds.
More information:
TaxAlmanac - Internal Revenue Code:Sec. 6502. Collection after assessment
Q: What can you do to lower tax when received severance pay and retention bonus in one year that push you to much higher tax bracket than normal?
A: As it has already been done, very little. It is earnings in that year.
It is unlikely it would push you to a much "higher tax bracket", as there really are only a few brackets! (And the low one of drops off at about 18K). So, while you may be paying more cash this year, your probably paying a similar percent. (Brackets rates apply only to the amounts above the lower bracket, so when reaching a 25% bracket your first 18K or so is still taxed at teh low rate).
Q: What is the name of the tax form that is given by an insurance company to a law firm for settling a personal injury case which is then used for tax reporting purposes?
A: Usually it will be on a 1099-MISC, reported in the "Other Income" box.
Q: Is overseas communication tax an expanded withholding tax?
A: No.
Its an excise tax.
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