Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax liability. It is an attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion schemes often involve misrepresenting income to the tax authorities, such as underreporting income, inflating deductions, or hiding money and its interest altogether in offshore accounts. Tax evasion can also occur by deliberately making a false declaration or no declaration to tax authorities, such as by declaring less income, profits, or gains than the amounts actually earned, or by overstating deductions.
It is important to note that tax evasion is different from tax avoidance, which is the legal practice of seeking to minimize a tax bill by taking advantage of a loophole or exception to the rules, or adopting an unintended interpretation of the tax code. Tax avoidance is not illegal, but tax evasion is a criminal charge that’s subject to penalties and fines.
The consequences of tax evasion can include substantial monetary penalties, imprisonment, or both. The U.S. Government projects that fiscal year 2007 resulted in the government losing $345 billion because of tax evasion.
