Tax Evasion

Tax Evasion is the general term for efforts by individuals, firms, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as declaring less income, profits or gains than actually earned; or overstating deductions).
Tax evasion is a crime in almost all countries and subjects the guilty party to fines or imprisonment.

Switzerland is a partial exception. Many acts that would amount to criminal tax evasion in other countries are treated as civil matters in Switzerland. Even dishonestly misreporting income in a tax return is not necessarily considered a crime. Such matters are dealt with in the Swiss tax courts, not the criminal courts. However even in Switzerland, some fraudulent tax conduct is criminal, for example, deliberate falsification of records. Moreover civil tax transgressions may give rise to penalties. So the difference between Switzerland and other countries, while significant, is limited.

In the United States, persons subject to the Internal Revenue Code who earn income by illegal means (gambling, theft, drug trafficking etc.) are required to report unlawful gains as income when filing annual tax returns (see e.g., James v. United States), but they often do not do so, because doing so could serve as an admission of guilt. Suspected lawbreakers, most famously Al Capone, have been charged with tax evasion when there is insufficient evidence to try them for their non-tax related crimes. By contrast: In the UK law enforcement agencies do not generally have access to tax returns and so illegal earnings can supposedly be safely declared but in practice those carrying on criminal activities generally prefer not to do so, and so can sometimes be prosecuted for tax evasion rather than for other crimes.

There is always the possibility of the attempt to evade tax criminal penalties. This charge is a felony and can carry the sentence of 5 years in prison and a fine of $100,000.00 for an individual and $500,000 for a corporation. This charge can be applied to a failure to file case if additional steps are taken in conjunction with a failure to file that demonstrates an attempt to evade the payment of tax. Examples of these steps are as follows: keeping double books, false entries or alterations to books, false documents or invoices, destruction of documents or books, concealing assets, covering up sources of income, transactions that avoid book entries, conduct likely to mislead. It is important to realize that the I.R.S. decides when actions are considered reason to initiate criminal investigations and the taxpayer is not warned. It is very important that a trained professional be the one in communication with the I.R.S. as soon as a conflict arises.