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Wednesday, July 3, 2013

What is Tax Evasion?

Hi, nice to greet you. You are probably here for one of two reasons: you are interested in learning more about tax evasion or you have some problems with your taxes and want to investigate more before start looking how to solve them. In both cases has come to the right place. Here you will find general information, links to companies that give services related to managing taxes and some very interesting videos from the IRS at the end of the article.

  • What is tax evasion?

    Tax evasion is the mechanism by which a person or entity, evade or stop paying taxes on their income generated in order to defraud the treasury. It is an ancient crime that begins from the very moment that the man, needing to organize the administration of public affairs and to support spending of this administration, and needing the provision of funds and services required by the society as a whole, so-called good social, looks at the need for the commitment of the members of this society, to contribute part of their income for the maintenance of common expenses. It's like spending that supports condominium common expenses in the building or neighborhood we live in, but taken at the level of cities, towns, states and countries.

  • How old is tax evasion?

    The early evasions were a form of protest, when those responsible for managing public resources used them for their own enjoyment, which is more commonly known as public corruption. This scourge, present in all countries of the world, is more severe in the third world countries, where their leaders claim the right to own public affairs, and give rise to the ordinary citizen of having rights to evade taxes, as a way to feel that they are not funding with their effort, to support a kleptocracy that controls the government and public resources of the country where they live.

  • How many ways of tax evasion are?

    There are endless ways of tax evasion. From so simple a matter as not paying the parking meter as the great evasions made using accounting fraud to hide the true incomes, which often have been found in large corporations and people of great wealth.

    From the point of view of the common taxpayer the best known tax evasions are:

    • Do not declare to the treasury the income at all and thus not paying taxes.
    • Hide the Treasury the true level of income through fraudulent practices and therefore pay less taxes than really are. This is the most common form of tax evasion.
    • Declaring taxes but then found out the treasury or only partially found the amount thereof.
    • Belatedly declare taxes.
    • Belatedly pay taxes.
    • Import or export goods in the country fraudulently, such as cheating or hiding to the treasury the quality and measure of the goods imported or exported.

  • What is the IRS?

    In the United States, the Internal Revenue Service is in charge of processing tax returns and collecting money for the Treasury. They also investigate companies and people that try to get away with not paying their income taxes by either filing a false tax return or filing it late (tax evasion). Those who file their return late will be penalized 5% on the amount owed for every month they are late, with a maximum amount of 25%. Now, there is a difference between filing a tax return late and making a late payment.

    Those who file their returns on time, but don't pay their taxes will be penalized only 0.50% each month. If non-payment continues the IRS could eventually levy the filer's bank account or attach their paychecks towards the balance owed. There are some people who never file a tax return at all, even though they have made a substantial amount of money during the tax year. This is a misdemeanor charge that could lead them to some jail time.

  • What is an IRS Tax Audit?

    Unfortunately, there are more serious offenses associated with tax evasion that people often commit. Instead of not filing or being late, they simply lie about their income on their tax return before they file it. These false returns get discovered from random IRS tax audits that are picked by a computer based on the information of the returns. There are certainly areas on tax returns that will give off "red flags" in the computer system, which will cause an audit to occur.

    A tax auditor will then ask the filer for all of their paperwork involving their income and expenses. Then the information provided by the filer will be investigated thoroughly by the auditor. If the filer is found to have hidden money or not claiming money they made, then a criminal charge is likely to follow. To file a false tax return is a felony offense and this type of behavior could give a person many years in federal prison. The exact amount of prison time depends on the amount of money that was owed and covered up on the false return. Auditors often target small business people who have a lot of cash circulating throughout their company, since it is easier for them to hide cash.

  • What is tax relief?

    Occasionally the IRS, according to the federal government, could promote some kind of program or incentive in order to reduce the amount of tax that a person or entity would pay. These are temporary incentives to compensate taxpayers that contribute in some sense, say for example, acquiring low power consumption equipment. For our example, if a person or entity has acquired this kind of equipment, could get a deduction in the amount of tax payable by showing that has made this acquisition.

    Another example of this type of relief would be people who have been affected in their heritage by an unwanted environmental event, such as earthquakes, hurricanes, floods, fires, etc.. These people would then be eligible for some type of incentive in the sense of reducing their tax burden.

    It is necessary to know the IRS inside when you aspire to a reduction of the tax burden. Those relief programs can be accessed by any person who can prove the reasons that support its ask for reduction. For difficult cases, ie those in which in some ways has been a tax offense, the person may try to seek advice from a company specializing in tax-related matters in general, and the IRS in particular.

    But be careful when you apply to this kind of advice. Specially not believing in those magical advises that promise up to 99% reduction of the tax burden. This is absurd unless the person could present convincing legal arguments (Penalty Abatement) that allow to aspire to this level of reduction. What is recommended in these cases is not swayed by siren; thoroughly assess aspiring companies promoting as representatives to the IRS, to avoid falling into scams that seek simply take your money without solving anything in return.

    The FTC has a very interesting article that you can read in In general it is not easy to deal directly with the IRS when you are conscious of having committed some kind of tax trick. Specially if you do not know the monster inside. In these cases, consulting with a reputable company may help, but before and carefully doing a detailed review of the credentials of these companies.

  • But, I'm not a millionaire!

    You shouldn't assume that only millionaires and billionaires face real prison sentences if they file a false return. A regular person could lie about a mere $30,000 that they made and then receive a 3-4 year sentence in federal prison. Then on top of that, the filer will have to pay for their attorney costs and any extra fees & penalties associated with their federal income tax debt. So, it is definitely not worth filing a false return.

  • What should I do?

    The worst thing you can do about taxes is trying, in any way, to evade them. Because it is a small ball of snow at first, which then grows and grows and eventually becomes unmanageable. You start lying a little with your real income. But lies at last, sooner than later will have to be covered with another lie, this time of heavier gauge. The third will be even greater than the second, and before long, to keep up or support the original lie, you will have to be involved in a huge lie that will explode at anytime and you will explode with it. Then, from the beginning, in terms of taxes, it's best to be honest and under no circumstances pretend mislead the public treasury.

Image courtesy of Naypong at