The Tax Evasion- Tax evasion refers to any attempt to avoid payment of taxes owed by illegal methods. It is a crime in which an individual or entity intentionally underpays, or avoids paying, taxes. Every year, each citizen who has income and/or assets is required to file a tax return. Each year many people misrepresent how much money they earned, and claim deductions to which they are not entitled in an effort to keep their money away from the authorities. Tax evasion schemes are plentiful, but all involve the misrepresentation of an individual’s or business’ income and/or assets when reporting to the tax authorities, in order to reduce the amount of taxes they owe.
However, every citizen and business has the right to take lawful steps to decrease their tax liability, including tax deductions and charitable contributions. But, “avoiding payment of necessary taxes through illegal measures is criminal” & will lead to serious consequences.
Tax evasion activities include:
- Under-reporting income
- Inflating deductions or expenses
- Hiding money
- Hiding interest in offshore accounts
Tax Evasion / Mistake:
The Tax Evasion- Tax evasion is not the same as making a mistake. Since tax forms can be complicated, mistakes can and do occur. If an individual files his taxes after having made a mistake on the tax return forms, he would not face tax evasion charges. In order for an individual or business to face criminal tax evasion charges, the tax authority must prove that the underpayment was intentional. If the underpayment was due to an error, the taxpayer will likely be required to pay the deficient amount, and possibly a small fine, or interest on the amount. If the fines are not paid however, criminal charges could be filed against the defendant.
Types of tax evasion :
The common forms of tax evasion are failing to report cash income, reporting less than actual income, hiding money in overseas accounts and improperly claiming tax deductions. Taking unauthorized deductions for personal expenses on a business tax return or falsely claiming (or inflating) charitable deductions are forms of tax evasion. Other types include filing a false tax return, omitting property, underreporting an estate’s value and overestimating the value of property donated to charity. Corporations may commit tax evasion by paying employees in cash and not filing proper returns.
In Canada, (As per 2018 regulations)
The Tax Evasion- The penalties for tax evasion are directly related to the offense. Section 238 of the Income Tax Act states the penalties for failing to file a tax return if you’re required to do so. This offense results in a fine of anywhere between $1,000 and $25,000 and up to one year in prison.
Section 239 indicates that those convicted of tax evasion could pay anywhere from half to double the amount that they were trying to save by cheating on their taxes. In addition to paying a fine, offenders may face up to two year
Programs and Prevention-
The CRA has taken measures to detect and prevent tax evasion. The Informant Leads Program gathers information on suspected or known tax evaders. Informants can report information online, by mail or by phone.
The Criminal Investigations Program investigates instances of tax evasion and refers cases to the Public Prosecution Service of Canada.
In the USA, (As per 2018 regulations):
If a person willfully commits the act of tax evasion, he may face felony charges. Tax evasion penalties include imprisonment of up to five years, and fines as high as $250,000. The defendant may also be ordered to pay for the costs of prosecution. Similarly, other tax evasion penalties include community service, probation, and restitution depending on the circumstances of the case. It penalties can be harsh, depending on the severity of the crime. This is to deter people from attempting to dupe the IRS.
The Tax Evasion- If the taxpayer comes forward and files amended tax returns of their own volition and begins to pay the debt, the IRS usually does not pursue criminal charges. Also, the IRS tends to be forgiving of those that volunteer late returns, instead of giving the IRS time to pursue the errant taxpayer.
It is a crime, so the obvious preventative measure to avoid the crime is to follow the rules. If you are unable to file on time, request an extension through the IRS. If you still owe taxes from previous years, it is best to pay on this debt as quickly as possible. Even if you have not filed taxes in years. It is wise to begin filing now before the IRS discovers the omission.