Tax evasion is when a person or a company purposefully underpays its taxes. This applies to both people and companies. A distinction should be made between tax mistakes and tax evasion. For tax evasion, clear intent needs to be shown. The processing of taxes can be very complicated, and mistakes are common. It is recommended that the tax form is filed properly but just because a mistake is made does not mean that you are guilty of tax evasion. The IRS must prove your guilt and show to the court that you have made these errors purposefully with the intent of tax evasion. In the case of a mistake, the amount of tax due must be paid. In some cases, a fine must be paid as well, but a criminal trial is evaded.
Taxes are calculated in a simple manner. Each year a person must file a tax return detailing their annual income, salary, business, profit, their annual expenses and the size of their families. On this basis, the IRS calculates the Adjusted Gross Income (AGI) based on special deductions from the annual income. The AGI is then matched with a pre-set tax chart that determines, based on your AGI, which tax bracket you’re in. The AGI is matched with the appropriate tax bracket, and a number is generated based on the taxes that are owed. The IRS then determines whether you are eligible for tax deductions based on special factors. These deductions are cut from the tax you must pay.
All steps of the taxation process are susceptible to fraud. If a tax return is not filed, then the IRS is essentially incapable of inspecting the person’s or company’s finances. The most common form of tax fraud is the under-reporting of income; the company or person will attempt to show their income as lower than it really is to secure lower taxes. Another form of tax fraud is the fraudulent inflation of expenses where expenses are over reported so that lower tax is charged based on the AGI.
If you have been accused of tax evasion, it is important that you consult an attorney near you, so that you can receive professional advice regarding your next steps.