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Tax Evasion

Smuggling Explained

Smuggling Explained

Smuggling is the act of transporting items across borders into locations where those items may be considered illegal or prohibited. Another reason for smuggling is for the purpose of evading taxes. Smugglers have been involved in this trade for centuries and while the motives remain the same, the techniques used have changed and become more complex.
 
 
Many countries consider the smuggling of goods across borders to be a form of tax fraud in addition to a punishable offense. As a form of tax fraud in some cases, smugglers are subject to the penalties defined in the Customs Act as well as those in federal tax evasion lawOne example of smuggling as an act of evading taxes is the transport of cigarettes within the United States. Different states have taxed cigarettes with different amounts.
 
 
Currently, the state of New York has the highest cigarette taxes in the nation. If a smuggler were to obtain a shipment of cigarettes, or a truck used to transport cigarettes, he or she could then sell those cigarettes in other states while evading taxes. Typically, a smuggler will acquire cartons of cigarettes in an area with low taxes and carry them across state lines to a state that has a higher cigarette tax to turn a profit. In this case, the smuggler could be convicted of tax fraud along with other penalties.
 
 
Similarly, the act of smuggling alcohol was a major offense during Prohibition during the 1920s and early 1930s. In the famous case involving gangster Al Capone, there was not enough evidence to convict him of smuggling whiskey from Canada into the United States, but he was convicted for committing tax fraud and imprisoned for that crime. Some people still attempt to smuggle alcohol through customs while evading taxes to be paid on the alcohol.
 
 
Defrauding the customs department and customs agents is another method of evading taxes. The duties of customs agents are to ensure that invoices of imports are accurate while also detecting any items that are being smuggled into the country. Many smugglers do so should the items they are transporting are illegal or have high taxes associated with them in the country they are entering. Some of the most common methods of smuggling items through customs include:
 
 
         Concealing items in one's luggage;
 
 
         Placing smuggled items in crates along with items listed on an invoice;
 
 
         Altering an invoice to show less items or changing the description of the items on an invoice;
 
 
         Using modes of transport which are not subject to a search by customs agents, such as a private plane or small boats.
 
 
Financial analysts also discuss smuggling as form of tax fraud based on its effect on the economy of a nation. As the act of smuggling attempts to evade paying taxes on items, taxes are not being paid to the government which would then direct those funds to necessary services. For example, the production of cigarettes in Bangladesh is taxed by value added taxes.
 
 
The act of smuggling cigarettes into Bangladesh causes the government to raise other taxes in order to close the deficit caused by smugglers bringing inexpensive cigarettes into the territory. As such, smugglers are prosecuted for tax evasion and other offenses by defrauding the customs department.

What Are Respective Law

What Are Respective Law

Tax evasion law has been established by multiple tiers of government in an effort to combat and discourage people who would commit tax evasion. As it is a crime according to the Supreme Court of the United States and federal law, the Internal Revenue Service and other federal agencies enforce tax evasion laws and their provisions in order to collect those funds owed and prevent offenders from committing those acts again.
 
 
As tax evasion is different from tax avoidance Most states in the United States do not have individual tax evasion laws as they help to enforce the federal tax evasion law already in place. However, some states, such as New Jersey, have amendments within their State Code or State Tax Code which outlines fines and penalties for individuals and businesses that file fraudulent tax returns. The language of this type of tax evasion law at the state level often includes those that filed the taxes, those who assisted and any other parties associated with the crime.
 
 
Using New Jersey as an example, the charge for filing a fraudulent return is a third degree offense. As aforementioned, other states have their own tax evasion laws in response to other forms of this crime that must comply with the federal statute.
 
 
The federal tax evasion law that is in place is filed under as "26 USC Subtitle F, Chapter 75"; this means Title 26 of United States Code, Subtitle F, Chapter 75. There are several sections within this federal tax evasion law in regard to the fines and penalties that are imposed on those that are convicted of income tax evasion. At this level, the crime is considered a felony and details the fiduciary responsibility to the government as well as jail time for the offense.
 
 
According to section 7201 within this federal tax evasion law, those found guilty of tax evasion by a court of law are fined up to $100,000 by the Internal Revenue Service which is to help pay off the taxes owed as well as other fines. In the case of a business committing tax evasion, the maximum fine imposed is $500,000.
 
 
State tax evasion laws may define similar amounts depending on the state government that ratified the law. As for jail time, the federal statute declares that imprisonment for those that commit tax evasion shall not be longer than a period of five years. However, both fines and jail time can be imposed by a judge based on his or her ruling of a case. This also applies to state tax evasion laws.
 
 
Also listed in the federal tax evasion law is a statute of limitations in regard to how long a federal agency, such as the Internal Revenue Service, has to file a case against an individual or business that has allegedly committed the crime tax evasion. Depending on the circumstances of the crime and the investigation, the statute of limitations ranges from three to six years. That period of time is allotted for the investigation and filing with a court for prosecution.
 
 
The majority of tax evasion cases in the United States are investigated and prosecuted by the Internal Revenue Service.

Knowing THe Tax Evasion Statistics

Knowing THe Tax Evasion Statistics

That statistics regarding IRS tax evasion demonstrate the large number of people who attempt to defraud the Internal Revenue Service as well as the federal government. These people are often investigated by field examiners of the Internal Revenue Service in order to collect back taxes and impose tax evasion charges on those who have committed tax evasion. The tax evasion charges that are filed against those who have committed IRS tax evasion are compliant with the Internal Revenue Code as well as other state and federal tax evasion laws.
 
 
One of the major issues that the Internal Revenue Service and the federal government faces in regard to IRS tax evasion and balancing the federal budget is the "tax gap". In 2005, it was estimated that the United States has a tax deficit of approximately $345 billion that it will never collect. Efforts have been made to close this gap but only a small percentage, roughly ten percent, has been received by the Internal Revenue Service since this information was made available.
 
 
This ten percent was collected through tax evasion charges imposed by field examiners and other agencies. However, as the problem has not been resolved, the tax gap continues to grow and billions of dollars continue to remain uncollected due to IRS tax evasion.
 
The Internal Revenue Service and other financial analysts for a time believed that the growth of the GDP would help to close the tax gap. The GDP is the nation's gross domestic product and it is calculated through measuring a nation's overall economic output. The equation for calculating GDP is C + Inv + G + (eX – i) or private consumption + gross investment + government spending + (exports – imports).
 
 
The belief was that the growth of the GDP plus increased tax collection and tax evasion charges would close the tax gap in a few brief years. However, as of late this has not proven true as the Internal Revenue Service indicates that billions of dollars will never be collected due to IRS tax evasion. 
 
 
Another factor that shows the extent of IRS tax evasion is the estimates that show approximately $30 billion annually will never be collected in federal income tax returns. However, if the Internal Revenue Service investigates a number of cases, it may receive approximately $2.2 billion from imposing tax evasion charges. While this is a step towards closing the gap, that still leaves $28 billion unaccounted for.
 
 
The reason for this disparity is a lack of resources for the Internal Revenue Service. Between 1992 and 2002, the Internal Revenue Service witnessed a 28 percent decline in its field examiners due to cutbacks in the federal budget while the workload for cases that required investigation increased 16 percent. The incapability of the Internal Revenue Service to investigate each case allows for the tax gap to grow and IRS tax evasion to go unpunished.
 
 
Despite these numbers, a small percentage of cases are brought before the courts in penalize and punish the perpetrators of IRS tax evasion. These cases are largely high profile cases in which the defendant has a high income and the tax evasion charges filed show that he or she owes a substantial amount of money in back taxes.

Understanding Tax Evasion

Understanding Tax Evasion

Tax evasion is a crime that is committed often in the United States and other nations as people attempt to defraud tax authorities and conceal financial information. Many cases of income tax evasion are investigated by the Internal Revenue Service (IRS) in the United States as discrepancies and false tax information are uncovered by agents of the IRS. These investigations into tax evasion have uncovered new, varied methods of deceiving the federal government, all of which are illegal under United States tax law.
It is important to note that tax evasion is different from tax avoidanceThere are many methods of income tax income tax evasion that people commit every year in hopes of retaining their income and concealing the source of that income. Some of these methods include falsifying financial records, masking expenses and simply not paying taxes. There are other means of tax evasion, but these are some of the most common.
Falsifying financial records encompasses several different actions which are intended to deceived tax authorities. One such method is filing a false tax return which presents a person’s income as less than it actually is in order to receive tax relief. Another method is by having “two books”, or different financial records of transactions. One book is presented as being the proper information used for taxation purposes while the other contains the true financial records and transactions that occurred. The term “cooking the books” is used when someone falsifies financial records in this manner.
Masking expenses typically involves someone making it appear as though personal expenses are in fact business expenses in order to receive some forms of tax relief. This form of income tax evasion is often difficult to uncover through the involvement of other parties such as accountants and tax attorneys which have a better knowledge of the taxation process.
Not paying taxes is the simplest form of tax evasion, though it is the most blatant. Should someone stop paying taxes, or there is no record of income taxes ever being paid, the Internal Revenue Service is able to notice these disparities and conduct an investigation into the person’s financial records and impose penalties.
Income tax evasion comes in many forms as it can be committed by individuals or businesses in varying degrees. Most individuals commit this crime in order to conceal the source of income, which may be illegal as evidenced in many cases of tax evasion. As for businesses, many investigations into income tax evasion are lengthy and arduous due to the infrastructure of the business. Also, should the business have a team of lawyers and accountants, navigating the course of financial transactions can be difficult for agents of the Internal Revenue Service.
The effects of income tax evasion can be felt on both a minute and broad scale. The individual who committed the fraudulent act, as well as those close to him or her, will be affected by the investigation and prosecution of that individual. Outside of that microcosm, the national and global economy are affected as funds are not available to pay for public services such as roads, government-sponsored healthcare, retirement plans among others.