Tax evasion is the deliberate non-payment or incomplete payment of taxes through a false declaration report to the tax authorities. Overstating losses and declaring fewer profits than the actual figures is criminal activity and could result in severe penalties. Some common examples of tax evasion are outlined below.
Hiding money in offshore accounts
Individuals sometimes hide their money from the federal government through offshore accounts. When filing taxes, some people do not report the assets in their foreign bank accounts. This results in a false report. The IRS has been trying to tirelessly pursue this since implementing the Foreign Account Compliance Act (FATCA).
Not declaring all income
Individuals may evade taxes by deliberately leaving out details about their income and assets. A person may also artificially lower withdrawals, deposits and transfers to a point where the bank cannot report them as an attempt to conceal their actual income. Additionally, a person may claim deductions even if they are not qualified or even claim higher deductions than they are entitled to.
Forging records
People may also deliberately file tax returns that contain inaccurate information as a strategy to evade tax. They may decide to lie by filling out the questionnaire incorrectly in order to lie about their true identity or address.
Assigning money to another party
Individuals may claim that accumulated wealth is not theirs and that they are just holding it on someone else’s behalf. A good example is assigning some of your income to a relative not as a gift or a reward, but as a strategy to reduce your tax rate. This act can result in felony tax evasion chanrges.
Underpaying taxes deliberately
Perhaps you do not want to remit the actual amount that your tax preparer compiled. You may then deliberately file less than the exact figure you owe to the IRS. Or, you might divert some of your money in an overseas account to a third party so that there is less or no income to report. The IRS can easily find out what has happened and you may be charged with tax evasion.
Smuggling goods
Taxes must be paid when moving certain goods from one location to another, especially across international and state borders. However, some individuals may try to use backdoor methods of transporting these goods to avoid paying taxes.