Understanding the Difference Between Tax Avoidance and Tax Evasion

The Internal Revenue Service maintains the country’s tax system, which functions based on voluntary compliance from taxpayers. No one from the IRS will come to your house and arrest you on April 16 if you did not file your taxes by the previous day’s deadline. If you continue that pattern of not complying with the tax law, and the government is able to prove that such conduct was willful, then it is a criminal offense. But what about tax avoidance? We explain the consequences of these below. 

Tax Avoidance

Have you ever claimed a deduction on your taxes based on interest you paid on your mortgage? What about reporting expenses you incurred when you took a new job out-of-state? Although it may not sound logical, you have technically committed tax avoidance. The good news is that tax avoidance is completely legal; in 1935, the US Supreme Court affirmed the legality of tax avoidance through “wholly legitimate means.”

In fact, the income tax system even encourages you to participate in tax avoidance to better your personal financial situation. Sometimes you hear about tax loopholes that lead some large entities to avoid paying any income taxes. Whether or not you approve of these loopholes, they are also situations of tax avoidance.

Tax Evasion

Tax evasion is a crime — a felony, even — under the umbrella of tax fraud. While tax avoidance is simply planning your finances in a legal way to reduce your tax burden, tax evasion means you intentionally concealed or left off income or took a false deduction when you filed your taxes.  In other words, you lied on your tax return. A trial for tax evasion may cost you hundreds of thousands of dollars, even if you are found not guilty. 

Penalties for a conviction of tax evasion include imprisonment for up to five years. Whether or not you intended to conceal something from the IRS is crucial in determining your guilt. An honest error you committed while filing taxes, commonly referred to as negligence, is not likely to land you in prison for years. The analysis is whether an act was willful.

Tax Law Is Complex

Since 2006, there have been over 4,500 modifications to the US tax code. Therefore, it is impossible for the average tax-paying citizen to be aware of every facet of tax law. Fortunately, we can help you with any issues you are having with the IRS. Call us at (305) 374-5544 for experienced legal guidance and some peace of mind.

The following two tabs change content below.

Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

Latest posts by Weisberg Kainen Mark, PL (see all)