Tax Evasion
| Author | Jeffrey Wilson |
| Pages | 1327-1331 |
Page 1327
The law does not require taxpayers to arrange their finances in order to maximize their taxes. All taxpayers are entitled to take all lawful steps that apply to their individual situations in order to minimize their tax liabilities. For example, it is lawful to take tax deductions that are available, and a taxpayer may avoid taxes on a certain amount of income by making charitable contributions.
Contrasted with legal efforts to minimize tax liabilities, tax evasion is a crime. Tax evasion typically involves failing to report income, or improperly claiming deductions that are not authorized. Some of the most common forms of tax evasion include the following:
Failing to report the cash income
Taking unauthorized deductions for personal expenses on a business's tax return
Falsely claiming charitable deductions—or inflating the amount of charitable deductions—when there have in fact been none or there have been significantly less than claimed
Overestimating the value of property donated to charity
Filing a false tax return, improperly omitting property and knowingly and significantly underreporting the value of an estate
According to section 7201 of the Internal Revenue Code (IRC), it is a federal crime for anyone to willfully attempt to evade or defeat the payment of federal income taxes. A taxpayer can be found guilty of that offense when all of the following facts are proved beyond a reasonable doubt:
The defendant owed substantial income tax in addition to that declared in the defendant's tax return
The defendant knowingly and willfully attempted to evade or defeat the tax
The prosecution need not show the exact amount of the taxes due, but it must prove that the defendant knowingly and willfully attempted to evade or defeat a substantial portion of the additional tax charged in the indictment.
In this context, the word "attempt" means that the defendant knew or understood that he had taxable income which he was required by law to report to the Internal Revenue Service (IRS) during the particular tax year or years involved. Nevertheless, the defendant attempted to evade or defeat the tax, or a significant part of the tax on that income, by willfully failing to report all of the income the defendant earned during that year.
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During an audit, if an IRS revenue agent suspects fraud, he can impose penalties himself, or he can refer the case to the Criminal Investigation Division (CID). The CID is part of the enforcement mechanism for the IRS. It is divided into two parts—General Enforcement (for ordinary taxpayers) and Special Enforcement (for unions, organized crime, and cases involving drugs).
The CID has broad powers. In fact, a taxpayer may not even know the CID is investigating him until the taxpayer is formally charged. The CID takes its job very seriously and conducts extremely thorough investigations. In pursuit of evidence, CID agents may contact a taxpayer's friends, employer, co-workers, neighbors, and bankers, and spouse. There are CID offices throughout the United States. CID agents are federal investigators who have been trained in law enforcement techniques. Most CID agents are also accountants, and many have earned their CPA.
The CID may monitor mail and may apply for a court order for a phone tap. For example, In October, 2000, prompted by the IRS, the U. S. District Court ordered American Express and MasterCard to provide credit and debit card information pertaining to U. S. taxpayers involving banks in Antigua, the Bahamas, and the Cayman Islands for the 1998 and 1999 tax years. The IRS has estimated that some $70 million in annual taxes is lost through offshore tax evasion activities. The banks of Antigua, the Bahamas, and the Cayman Islands are favorite locations in which to conceal revenue from the IRS.
If taxpayers fail to report transactions and pay taxes on those transactions, they could be guilty of tax fraud, tax evasion, and money...
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