Many of the people who commit the crime of tax evasion do so to conceal income that was obtained illegally. However, regardless of the source of the income, tax evasion penalties are applied to the income once a person, or business, have been investigated by the Internal Revenue Service (IRS). Those penalties for tax evasion depend on the circumstances of the crime and the investigation, but they must comply with the federal tax evasion lawThe difference between legal and illegal income is clear for the most part.

 

 

Legal income is defined as being funds that are obtained through legal employment which are reported to the Internal Revenue Service as a part of an employee's net income during the fiscal year. Illegal income is money that is obtained through illegal means, to include theft or embezzlement, or money that is not reported as a part of an income tax return as part of a person's net income during the fiscal year.

 

 

As such, illegal income may be investigated and confiscated should the Internal Revenue Service find that the funds were not listed in the person's net income in addition to other tax evasion penalties. However, the act in which the illegal income was obtained is not prosecuted.

 

 

The penalties for tax evasion are noted under Article 26 USC Subtitle F, Chapter 75. This federal law dictates the fines and jail time that can be imposed on persons and businesses that commit tax evasion. The tax evasion penalties include a potential maximum of $100,000 in fines, a potential maximum of five years in jail, or both depending on a judge's ruling on the case. These tax evasion penalties may also be imposed on the state level should a state have it's own tax evasion law or statute.

 

 

Aside from the penalties for tax evasion, the illegal income that is associated with the investigation of the Internal Revenue Service can be taxed under the Internal Revenue Code. The reason for this is that the law applies to the net income of a person regardless of its source. Which means the same deductions and strictures apply to the funds as the law does not fall under the title of criminal law.

 

 

In one case, Commissioner v. Tellier, it was ruled that an embezzler can receive tax deductions for the legal fees incurred in the investigation of tax evasion. The embezzler was still subject to the penalties for tax evasion, but did receive the deduction as the illegal income was listed as a part of the net income of the defendant.

 

 

Other law enforcement agencies may become involved in the investigation of tax evasion, especially if the investigation discovers that there is income obtained illegally involved. The full extent of tax evasion penalties can be imposed in conjunction with the criminal investigation for the method in which the funds were received. For example, Al Capone, an infamous gangster during the 1930s, was convicted of income tax evasion and received the full extent of the penalties for tax evasion along with other criminal charges.

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.

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.