A recent Huffington Post article indicated that the U.S. government was losing nearly $3 trillion each year to tax avoidance. Now, that's a lot of money that rich people allegedly are siphoning off government's coffers by hiring fiscal experts who have a knack for decoding even the most convoluted IRS statutes. Questions of tax avoidance and fiscal evasion don't apply only to the wealthiest among us, though. Whether you are part of the middle class or facing economic tedium and just scraping by, you must familiarize yourself with the concepts of fiscal evasion and tax avoidance to stay out of trouble, fiscally and legally speaking. Note also that you have resources to tap into if you ever face troubles for tax evasion or fiscal avoidance.
Also known as tax minimization, tax avoidance refers to procedures, techniques, expertise and tools that fiscal specialists and other professionals use to reduce the amount of taxes a person pays while abiding by the law. Two key phrases you should remember here: "regulatory compliance" and "income tax reduction." U.S. tax legislation often is so difficult and replete with loopholes, the same statute can be interpreted differently by different people and applied to varying situations – a scenario that invariably leaves the door ajar for multiple legal hypotheses and, sometimes, fiscal abuses.
The bottom line is that tax avoidance is legal. If you need more information or want someone to comb through your paperwork with a fiscal perspective, talk to your tax attorney or accountant. The specialist typically will:
- Pore over your financial data,
- Figure out your needs and how you can curb your overall tax liability
- Delve into IRS stipulations and find those applicable to your condition, and
- Draw up a strategy to match your financial and fiscal needs with specific sections of the Tax Code.
Unlike tax avoidance, tax evasion is illegal – period. Don't let someone talk you into signing up for a dubious tax scheme promoted by a dubious company located somewhere in a tax haven. The Internet is replete with myriad organizations offering complex fiscal services, most of which supposedly are provided by international fiscal specialists. That's the keyword: international. You have no business talking to an international tax professional on matters relating to U.S. domestic tax filing. If the IRS catches up to you, you could be in deep trouble, financially speaking, and could even face some jail time.Tax evasion covers numerous schemes, including:
- Registering assets under someone else's name
- Lying on the amount of tax owed
- Opening secret accounts overseas – think offshore accounts
- Keeping two sets of accounting books to conceal actual income and expenses, and
- Dealing exclusively in cash.
Note, though, that the IRS would not accuse you of tax evasion if you simply fail to pay your tax liability on time or make an "honest" mistake while calculating your fiscal debt or claiming a deduction. Even gross negligence while preparing and filing your return does not qualify as fiscal fraud – another name for tax evasion.
Who Can Help You If You Are In Fiscal Trouble?
If you inadvertently or unknowingly find yourself in the midst of a tax evasion event, report it immediately to the IRS. Contact the agency's Tax Help Line for Individuals at 1-800-829-1040, or talk to a customer service representative Monday through Friday, from 7:00 a.m. through 7:00 p.m. local time. Explain the problem to the representative and ask him or her what course of action you should take to address the issue. Don't forget to write down the representative's name as well as the confirmation number and time of the call, important data you would need when following up with the IRS via a written letter. While you are at it, seek the expertise of a tax attorney or someone else well-versed in the intricacies of the Tax Code along with ways to effectively handle tax evasion. Something you should also do is to contact your state's Department of Taxation, explaining the situation to authorities and possibly sending them a copy of the correspondence you sent to the IRS.
The main idea here is to be forthcoming about things if you mistakenly find yourself in a situation that could resemble a tax evasion scheme. That way, you talk to the authorities upfront, get help from a professional, and ultimately shield yourself from future legal or fiscal trouble.
Knowing the difference between tax avoidance and tax evasion can help you steer clear of government-initiated litigation and the ensuing fiscal and financial problems. Tax avoidance, a legal exercise, aims to minimize how much money you fork over to the government, while tax evasion is plain illegal and seeks to conceal assets and income from authorities.