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Tax Evasion Versus Tax Avoidance
Transcript of Tax Evasion Versus Tax Avoidance
Elements & Penalties of Tax Evasion
Unexplained failure to report substantial amounts of income identified as received.
Omissions of entire sources of income.
Inadequate explanation for dealing in large sums of currency, or the unexplained expenditure of currency.
Jayanna, an advertising consultant, is contemplating instructing some of her clients to pay her in cash so that she does not have to report the income on her tax return. Use an available tax service to identify the three basic elements of tax evasion and penalties associated with tax evasion.
(Textbook, #57, p.3-25)
The legal act of arranging one's transactions to minimize taxes paid.
Tax avoidance becomes tax evasion when you lie and withhold information that affects the calculation of your taxes.
The government supports tax avoidance:
taxpayers aren't obligation to pay more taxes than required by law
“Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”
Judge Learned Hand
Commissioner vs. Newman
Tax evasion falls outside the confines of legal tax avoidance.
Consequences of tax evasion:
It costs the federal government 450 billion dollars a year.
It raises taxes for honest taxpayers.
Accountants in the FBI
The willful attempt to defraud the government by not paying taxes legally owed.