The law does not require taxpayers to arrange their finances in order to maximize their taxes. All taxpayers are entitled to take all lawful steps that apply to their individual situations in order to minimize their tax liabilities. For example, it is lawful to take tax deductions that are available, and a taxpayer may avoid taxes on a certain amount of income by making charitable contributions.
Contrasted with legal efforts to minimize tax liabilities, tax evasion is a crime. Tax evasion typically involves failing to report income, or improperly claiming deductions that are not authorized. Some of the most common forms of tax evasion include the following:
* Failing to report the cash income
* Taking unauthorized deductions for personal expenses on a business’s tax return
* Falsely claiming charitable deductions—or inflating the amount of charitable deductions—when there have in fact been none or there have been significantly less than claimed
* Overestimating the value of property donated to charity
* Filing a false tax return, improperly omitting property and knowingly and significantly underreporting the value of an estate
According to section 7201 of the Internal Revenue Code (IRC), it is a federal crime for anyone to willfully attempt to evade or defeat the payment of federal income taxes. A taxpayer can be found guilty of that offense when all of the following facts are proved beyond a reasonable doubt:
1. The defendant owed substantial income tax in addition to that declared in the defendant’s tax return
2. The defendant knowingly and willfully attempted to evade or defeat the tax
The prosecution need not show the exact amount of the taxes due, but it must prove that the defendant knowingly and willfully attempted to evade or defeat a substantial portion of the additional tax charged in the indictment.
In this context, the word “attempt” means that the defendant knew or understood that he had taxable income which he was required by law to report to the Internal Revenue Service (IRS) during the particular tax year or years involved. Nevertheless, the defendant attempted to evade or defeat the tax, or a significant part of the tax on that income, by willfully failing to report all of the income the defendant earned during that year.