Tax Law Attorney in Tampa, Florida

Tax Avoidance or Evasion?

I am often asked the question, what is the difference between tax avoidance and tax evasion? The answer I give is quite simple: one strategy is legal and one strategy is not.

"Tax avoidance" is a strategy which involves employing legal tax strategies to place the taxpayer in the best financial position. For example, a preparer might recommend opening an IRA as a way to reduce taxable income to the taxpayer. Perhaps it might be suggested the taxpayer would be better off itemizing as opposed to using the standard deduction.

On the other hand, “tax evasion” is not legal. Tax evasion may be defined as fraud, misrepresentation, underreporting of income, and much more. Indeed, one element of tax evasion under 26 U.S.C. section 7201 is "the existence of a tax deficiency." Punishment for tax evasion can include not only financial penalties but also prison time. Numerous celebrities have experienced these repercussions recently. News of tax evasion and other schemes seem to make headlines almost weekly. In fact, the Internal Revenue Service publishes examples of evasion, fraud, and schemes on its website. The simple way to fall into the tax evasion trap is to fail to file tax returns when required to do so and a debt is due or failure to report all required income.

Since enforcement and collection efforts by "the largest debt collection agency" have increased recently, my advice to any taxpayer would be to employ those strategies that are legal and steer clear of those that are not.