Wherever you are whatever you do, you are duty bound to pay taxes. However, there are several people who avoid paying taxes and there are some who evade taxes. There is a fundamental difference between the two. Tax avoidance means using tax laws to your advantage so that you can reduce the amount of tax you pay, and most importantly it's legal. The law does not say that you need to manage your finances so as to maximize taxes, but you can take lawful steps to minimize the amount of taxes you pay.
For example, you can avail of tax deductions on certain income like contributing to charity. On the other hand, tax evasion is illegal and it means that a person is making attempts at not paying taxes, and where an individual fails to show the proper income. Moreover, it may also include unauthorized deductions, claiming false charitable donations and overestimating property value. According to law, it's a crime against the country if there is a willful attempt not to pay taxes. There is a tax evasion statute of limitations which an individual must face, and it varies for every state.
As per the Internal Revenue Service (IRS), anyone who gets money by illegal activities, whether it's theft, drug trafficking or gambling, must report these as income. Mostly they don't, as this means an admission that they are guilty and this may lead to criminal charges. If someone wants to report them as legal income so as to pay income tax, they again have the chances of facing money laundering charges.
Tax Evasion Punishment
Since tax evasion is a criminal offense, it may lead to significant penalties or imprisonment or both. If any individual willfully tries to evade or defeat any of the taxes applicable in the country, he or she is guilty of felony, and is bound to be penalized as per law. The fine can go up to US $100,000 for an individual and US $500,000 for a corporation.
Moreover, depending on whether it's a corporation or an individual, they may be imprisoned for a maximum of 5 years. If a person is convicted he or she would have to either pay the fine or can be imprisoned, or may be slapped with both the penalties. However, the tax authorities need to prove beyond reasonable doubt that the tax liabilities are substantial and the individual or corporation has willingly and knowingly tried to evade tax.
Statute of Limitations for Tax Evasion
Every three years, the Internal Revenue Code sets out a broad framework of statute of limitations of matters related to taxation. But as evading taxes is a crime, there are some exceptions to the usual statute of limitations. Usually, for an individual who has evaded taxes, the statute of limitations is six years. This period on tax evasion statute starts the day on which you were supposed to file for the return. In case an individual evaded taxes by making false or fallacious returns, the statute of limitations does not apply.
Tax Evasion: Some Numbers
As per records with the US government, around 3% of the people who are eligible to pay taxes do not pay them at all. Depending on the amount of money owed, civil penalties are imposed for willfully not filing tax returns on time. But there are no penalties associated if an individual does not owe any taxes. So make sure that you file tax returns on time irrespective of whether you come under the tax bracket or not.
There are tax evasion statute of limitations, so make sure that you don't evade taxes. Rather, you can opt to avoid taxes by making some investments or making some donations to charitable institutions.