Tax Evasion Essay Research Paper In a

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Tax Evasion Essay, Research Paper In a world full of debt, the largest bill is the government s. To raise revenue and make their payments, they impose taxes on people in multiple ways. Although no one is ecstatic about paying taxes, it is not a choice. However, how you report your income and taxes is a choice. There are many ways to get out of paying taxes, some are legal and some are illegal. The legal ways, using the tax laws, to avoid taxes are called tax avoidance and the illegal ways are called tax evasion (Burns, Jones, Kulsrud, Oestreich, Pratt, Schnee, Thompson, Tripp, Tucker, Vogel 1160). Balter defines tax evasion as willfully paying less tax than known to be legally due (2.3). The focus of this paper is how the government determines if a situation is tax evasion,

punishment for these crimes, the different types of tax evasion, the causes, the effects of them and possible ways to prevent these cases. The way the government determines if a case is, in fact, an evasion of taxes, is by following three basic elements set out in code section 7201. First, the tax must be due and owed for the year. Secondly, there must be proof that unlawful activity is involved. Finally, it must be the intent of the taxpayer to evade taxes (Balter 11.26). Section 7201 of the tax code also discusses the legal ramifications of this unlawful act. It states that anyone that evades taxes has indeed committed a felony. They can be fined up to $100,000 and imprisoned up to five years. Since corporations cannot be imprisoned, their fine increases up to a maximum of

$500,000. In addition to these obligations, any underpayment due to fraud used to be penalized fifty percent of the underpayment (Bittker and Stone 950). This penalty is still imposed, but the amount has increased to seventy-five percent of the underpayment according to code section 6653(b). In some more recent cases of tax evasion, new types of sentences were imposed on the evaders. Some offenders even had to make public speeches about the crimes they committed. This is one method that seems to have a positive effect in deterring offenders or repeat offenders from committing evasion (Simon and Witte 112). There are many different outlets that people use to evade taxes. They range anywhere from tax on interest income to tax on illegal income. There never has been a large quantity

of income lost from tax on interest and dividend income, but for a short period of time, it was rising each year until the IRS started matching payer reports with the individual returns. Now, income lost on these items is very low, but there are still some types of interest that go unreported and the IRS has no paper trail to follow them. These items are interest on bearer securities and interest on informal loans between people (15). Investment income often goes unreported also. There are two types of investments, investments within the United States and investments abroad. Despite the risks involved in foreign investments, people tend to commit more abroad. This is due, in part, to the ease of evading taxes on such investments. People have found that if they emigrate to other

countries with lower taxes on capital taxation, they can pay tax there and legally evade the tax in the United States (Mering 201). Another way people have been evading taxes is through bartering. Due to many exchanges with foreign countries, it is easy to keep the transactions from the eyes of the IRS. In fact, returns that include barter exchanges are twice as likely to need tax adjustments than other returns (Simon and Witte 19). Bartering is one of the fastest growing areas in the underground economy. Foreign bartering is not the only type that taxes have been evaded through. Simple bartering between people can consist of baby-sitting or even an exchange of professional services (AICPA 20). The underground economy is definitely a major resource for tax evasion. The