Tax fraud is as old as the first fiscal system. First of all, people are not really willing to share the money they gained by their own blood and tears with something as abstract as the state for the purposes, which are not always clear. Secondly, there is no perfect system out there in the world (besides fundamental natural ones, I suppose), and fiscal systems are no exception. There is always room for maneuver, either legal or no; and that is the difference between tax avoidance and tax fraud.
Whatever the nature of the phenomenon might be, its influence on economy is obvious. Tax frauds result in inadequate payments to local and state budgets, the proliferating culture of tax evasion and using shadow economy along with the loopholes in legislation, the acceptability of unethical decisions for the sake of money, and, obviously, in otherwise decent people getting into jail. Without a doubt, tax fraud has to be eradicated.
According to the US legislation, tax fraud is a willful attempt to evade or defeat any tax or payment due in accordance to the law (“26 U.S. Code § 7201 – Attempt to evade or defeat tax”, 2017). The kinds of tax frauds are numerous and diverse; however, they can by classified into large groups with regard to the types of payment they are intended to avoid. Therefore, the most common types of tax fraud are those related to defrauding government by: not paying custom duties; messing up with value-added taxes; cheating with income taxation, mostly simply by non-declaring or underdeclaring the real income or overdeclaring the tax deductions you are entitled to, or even claiming entitlement to false tax deductions; the use of tax havens (although this type borders the legal tax avoidance); mixing up your personal and business expenses; cooking the books by any of the methods known; and by hiding or transferring assets and income (“Types of Fraudulent Activities – General Fraud”, 2017).
- 26 U.S. Code § 7201 – Attempt to evade or defeat tax. (2017). LII / Legal Information Institute. Retrieved 5 February 2017, from https://www.law.cornell.edu/uscode/text/26/7201
- Types of Fraudulent Activities – General Fraud. (2017). Irs.gov. Retrieved 5 February 2017, from https://www.irs.gov/uac/types-of-fraudulent-activities-general-fraud