Virtually every person who earns income has to pay both federal and state income taxes. The exact amount that they owe depends on how much they earn, how they earn their income and what deductions or exemptions they may qualify to claim.
The Internal Revenue Service (IRS) looks carefully at tax returns. Not only do workers review each return for accuracy, but they may also compare it with financial documents presented by employers and financial institutions. When there appear to be mistakes in someone’s income tax return, the IRS may audit them. Other times, when the tax discrepancies are particularly significant or egregious, federal authorities may pursue tax evasion charges against an individual.
Someone accused of tax evasion may have had no intent to break the law. Instead, they may have simply attempted to minimize what they paid in taxes each year. Could the IRS misconstrue tax avoidance as tax evasion?
Tax avoidance is actually legal
The IRS offers credits, deductions and exemptions for taxpayers to reduce the financial burden on both individuals and businesses. It is perfectly lawful for people to make use of every available option for reducing their total tax liabilities. The practice of tax avoidance is legal and relatively common in the United States.
For example, people can claim deductions based on the number of minor children and their household. They may be able to exempt certain types of income from taxation and might qualify for credits depending on their circumstances. Some people make 11th-hour contributions to charitable organizations and deposits in retirement accounts to reduce how much they pay in income taxes.
The IRS expects people to employ tax avoidance strategies to reduce how much they pay in taxes each year. However, those efforts may cross the line and become tax evasion when someone intentionally misrepresents their circumstances. Tax evasion could involve intentionally not reporting certain income or trying to use credits, deductions or exemptions that are not technically available to someone.
An individual who is facing allegations of a tax crime may have a hard time fighting back against those claims due to the complexity of tax law. Going over tax records with a professional could help someone develop a reasonable defense strategy when accused of illegal tax evasion.