Tax evasion is the intentional failure to pay taxes by underreporting, reporting inaccurately, not reporting taxes at all or claiming fraudulent deductions.
Tax evasion is a federal crime governed under federal rule 26 USC § 7201. In order to convict someone of tax evasion the government has to prove beyond a reasonable doubt that 1.) there is in fact a tax deficiency (the tax payer did not pay the taxes or did not pay enough taxes) 2.) that the taxpayer committed an act that constituted tax evasion or attempted tax evasion 3. ) that the act was willful conduct.
“Willful” conduct in this context applies to intentional and voluntary acts on part of the tax payer. “Willfulness” is the most essential element of the crime of tax evasion. If a tax payer’s actions are due to negligence, inadvertence or a good faith misunderstanding of the requirements of tax law the willfulness requirement is not satisfied and the tax payer has a viable defense.
Efforts to minimize tax liabilities are allowed as long as they do not violate existing tax laws. It is for example lawful to take applicable deductions like deducting charitable contributions from one’s taxes. As long as the efforts to minimize taxes stay within legally allowed bounds it is not considered a crime.
Tax evasion is considered a felony and carries a fine of up to $100,000 ( $500,000 in case of a corporation) and a maximum sentence of five years in prison or both. It is also the tax evader’s responsibility to bare the costs of prosecution.
According to the US Senate approximately $100 billion is lost yearly due to individual and corporate tax evaders. The Swiss banking corporation UBS AG has been accused of helping US taxpayers evade $20 billion in taxes. The bank settled the criminal investigation for $780 million in February of 2009.