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Tax Evasion

Economic Effects and Tax Evasion Explained

Economic Effects and Tax Evasion Explained

Income tax evasion has numerous effects on the economy of the region in which it occurs as well as upon the global economy. The effects of this crime may seem localized, but as nations trade and conduct business with each other, the economic standing of one country will in turn affect another. One method of repairing this web would be through heightened tax fraudOne of the largest economic factors involved with income tax evasion in the United States is the "tax gap" as described by the Internal Revenue Service (IRS) and financial analysts.
 
 
According to reports from the Internal Revenue Service, over $345 billion in back taxes will never be collected by the agency or its field examiners. This amount of money is due to a lack of resources from the federal government to collect this money which would be appropriated for public services that the government, state and federal, provides for United States citizens.
 
 
It is estimated that $30 billion in income taxes is not collected annually due to income tax evasion. Improved tax fraud penalties would help to reduce this number, but the increasing tax gap makes it difficult to direct resources to the Internal Revenue Service and other tax authorities to collect this money.
 
 
The impact of this tax deficit can be felt national as the accumulation of taxes owed prevents government spending in critical areas. This includes aid to schools, welfare, benefits to senior citizensCurrently, tax fraud penalties are imposed by state and federal tax evasion laws
Aside from income taxes, there are other taxes that are evaded regularly in the United States and other nations. 
 
 
These taxes are the value added tax and the sales tax. Presently in the United States there is no national value added tax (VAT) which makes it easy for businesses to avoid paying this tax as do not have to report it. The sales tax is more difficult to evade as customers pay these taxes in stores along with their bill, but businesses attempt to evade it by underreporting sales to tax authorities.
 
 
Furthermore, there is no established economic model to describe the effects of income tax evasion on the economy. Economic models would help to accurately describe the predicament as well as predict future trends, but without precise information, the models are not effective.

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.

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.

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.