Tax evasion involves the wilful intent of a taxpayer to avoid paying taxes or to pay less than his rightful share of taxes. In financial year 2007, the United States government lost an estimated £224 billion due to tax evasion. The penalties for tax evasion range from hefty fees to prison sentences in the federal penitentiary system. These penalties also apply to people who file frivolous returns, either because they are protesting the tax code or for some other reason. Those convicted of tax evasion may also be liable for court costs.
Essential Elements of Tax Evasion
Tax evasion should not be confused with tax avoidance, which is a lawful process of minimising one's tax burden by taking advantage of all legal means. According to the decision handed down by the United States Supreme Court in Sansone v. United States, 380 U.S. 343, 351 (1965), tax evasion has three elements that must be present before prosecution takes place: tax deficiency, wilful evasion or attempt and an affirmative act that demonstrates the evasion or attempted evasion of tax liability. All three elements must be present for the charge of tax evasion to apply.
Attempt to Evade Taxes
An attempt to evade taxes is a felony under federal tax law. Upon conviction, an individual receives a penalty of not more than £162,500, a five-year prison sentence or both. A taxpayer filing on behalf of a corporation may receive a fine of not more than £325,000, a five-year prison term or both.
Wilful Failure to Collect or Pay Taxes
Wilful failure to collect or pay taxes is also a felony under federal tax law. Upon conviction, an individual may receive a fine of not more than £162,500, a five-year prison term or both. A taxpayer filing on behalf of a corporation may also receive a five-year prison term, however, the fine for corporations is a maximum of £325,000.
Wilful Failure to File, Supply Information or Pay Taxes
Wilful failure to file, supply information or pay taxes is considered a misdemeanour under federal tax law. Nonetheless, upon conviction, an individual may receive a one-year prison sentence or be required to pay a fine of up to £65,000 or both. Convicted taxpayers filing on behalf of a corporation may also receive a one-year prison sentence or a fine of up to £130,000 or both.
Fraud and False Statements
Fraud and false statements included on tax returns are a felony under federal tax law, whether a taxpayer prepares her own return or a professional prepares the return for her. The penalties are the same for taxpayers or for professional tax preparers. Upon conviction, an individual taxpayer or a tax preparer acting on behalf of an individual taxpayer may receive a prison sentence of three years or be required to pay a fine of £162,500 or both. A corporation or a tax preparer acting on behalf of a corporation may receive a three-year prison sentence, a fine of up to £325,000 or both.