Tax Fraud vs. Tax Evasion

The terms tax evasion and tax fraud have been used interchangeably with many newspapers in the past. Both can be very serious tax penalties under the IRS code, each has its own set of rules.

Knowing these differences is vital for criminal prosecutions of your tax return. In the U.S., tax fraud is an offense punishable by imprisonment. So unless you want to find yourself in a prison cell, we suggest taking a peek at the internal revenue code to make sure you don’t commit tax fraud and definitely don’t commit tax evasion if you cannot afford to pay your tax debt.

Other crimes require the attestation of intent. The laws on tax fraud/tax avoidance are largely identical.

Although tax fraud and tax evasion may sound similar, they are actually two different things. Both of these offenses can lead to serious penalties from the federal government, so it’s important to understand the differences and steer clear of both. If you find yourself in trouble with IRS or other taxing authorities, let us know – we can help you get through this tough time.

Tax Evasion

The act of illegally avoiding paying taxes is tax evasion. Tax evasion can be done in a number of ways, including underreporting income, hiding money in offshore accounts, or claiming false deductions.

Is tax evasion a federal offense?

Those convicted are considered to be criminals under Section 7101. This section outlines two possible crimes that if uncovered are federal tax crimes.

Avoidance versus Evasion

Avoiding taxes is not a crime. If you avoid paying excess taxes, the IRS won’t come after you.

A person who avoids income taxes doesn’t hide or misrepresent, but shapes and prepares events for the reduction or elimination of tax liabilities as specified in the legislation.

Tax evasion involves doing something to dodge or lose taxes or pay taxes.

In the US alone, it is estimated that tax evasion costs the government billions of dollars each year. There are many different ways that people and businesses can evade taxes, but some of the most common methods include hiding income, inflating expenses, and creating false deductions.

Of course, tax evasion is illegal and can lead to significant criminal penalties, but that doesn’t stop people from trying to get away with it. After all, who doesn’t want to save a little money on their tax returns? Given the high stakes involved, it’s no wonder that tax evasion is such a widespread problem.

Tax Fraud

Tax fraud is the deliberate deception of tax authorities by submitting false information in order to reduce tax liability. In other words, tax fraud occurs after submitting a false or fraudulent return, inflating expenses or income, claiming illegitimate deductions, or simply not reporting taxable income.

Tax fraud Statute of limitations

The federal government has a very limited ability to examine you if you’ve done anything illegal to your property.

The statute of limitations applies to tax fraud civilly rather than criminally. The IRS doesn’t enforce criminal tax issues; instead, the Department of Justice refers to the government agencies that file a lawsuit or indictment with an appeals court.

A six-year statute is imposed when your returns are deemed to include “substantially understated earnings”. The general rule would mean you knowingly hid more than 25 percent of your gross income on your tax returns.

In contrast to civil tax fraud, criminals must prove their case within an absolute reasonable doubt. The enforcement period is usually extended to 6 years after the issuance and is often triggered after a period that is shorter than that.

Tax Crime Overview

The US loses nearly $190 billion to tax evasion every year, the most in the world. On the bright side, however, more than 4/5 Americans report and pay their taxes on time.

As much power as the IRS has, your chances of criminal charges are minimal according to the IRS. However, once charged the conviction rate is almost 95%. The reason for this is that tax prosecutors have limited resources on their end and focus on cases with clear and convincing evidence.