People generally do not want to pay more than they absolutely must in taxes. Especially when filing annual income tax returns, professionals, business owners and other taxpayers often look for every possible deduction, credit and exemption they can apply to minimize their tax burden and possibly maximize the refund they receive.
Occasionally, those attempting to minimize their tax obligation go so far that they end up accused of tax evasion, resulting in not only financial obligations but possibly criminal prosecution. What distinguishes unlawful tax evasion from tax avoidance?
Tax evasion involves lying
There are two main types of lies. There are lies of commission, where people actively attempt to misrepresent their circumstances by providing untrue information. There are also lies of omission, where people intentionally withhold information that might change the opinion or decision of another party.
Both types of lies can lead to claims of tax evasion. Claiming that personal spending was a tax deduction, claiming credits for dependents who don’t exist and otherwise intentionally misrepresenting the situation of a taxpayer can constitute tax evasion. Withholding information about income or assets instead of making accurate, thorough disclosures on paperwork can also constitute tax evasion.
Unlike tax evasion, which involves providing inaccurate information, tax avoidance entails using credits, deductions and other tax rules to reduce the final amount of taxes due. Tax avoidance is perfectly legal, whereas tax evasion can lead to intense scrutiny of a tax return, as well as substantial consequences.
Anyone facing an audit, accused of tax evasion or concerned about other enforcement actions may need legal support. Working with an attorney familiar with tax law can help people avoid mistakes that expose them to enforcement actions and respond effectively to audits and any other communication from tax authorities.