Tax evasion is the use of illegal means to avoid paying taxes. Typically, tax evasion schemes involve an individual or corporation misrepresenting their income to the Internal Revenue Service. Misrepresentation may take the form either of under-reporting income, inflating deductions or hiding money and its interest altogether in offshore accounts. The IRS updated tax gap projections for 2020 and 2021, which are estimated at $688 billion dollars.
Individuals involved in illegal enterprises often engage in tax evasion because reporting their true personal incomes would serve as an admission of guilt and could result in criminal charges. Individuals who try to report these earnings as coming from a legitimate source can face money laundering charges.
In the United States, tax evasion constitutes a crime that may give rise to substantial monetary penalties, imprisonment, or both. Section 7201 of the Internal Revenue Code reads, “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.”
[Last updated in June of 2024 by the Wex Definitions Team]