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What Is Considered Federal Tax Evasion?

Definition

Tax evasion is the use of illegal schemes to illegally avoid paying tax. Examples of tax evasion include dealing in cash or using false documents to misrepresent income.

Strategies

The use of tax strategies to take advantage of deductions and credits, thereby reducing tax liability, does not constitute tax evasion.

Significance

America employs a pay-as-you-go tax system whereby all taxpayers are required to pay tax as they earn income. Taxpayers who willfully circumvent their responsibility to pay their fair share of tax based upon an accurate accounting of their income are guilty of tax evasion. The manipulation of tax code--the reading of the tax code in a way in which it wasn't intended for financial benefit--is also illegal.

Negligence

Math errors or other mistakes on income tax returns do not constitute tax evasion. However, the IRS can penalize you if you did not do your due diligence to ensure that the information listed on your return was correct.

Warning

Tax evasion is punishable by penalties, interest, fines and imprisonment.

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