Taxpayers have been trying to avoid paying taxes since humanity organized into social units and started collecting taxes to provide for the “common good.” (As Oliver Wendell Holmes said: “Taxes are what we pay for a civilized society.”)
Actually, there is nothing wrong with tax avoidance, as long as its done legally within the framework of the tax code. Companies can avoid paying taxes, for instance, by setting up factories in different countries.
Tax evasion is avoiding taxes by illegal means. There are undoubtedly hundreds of ways to evade taxes. Each evasion scheme carries a corresponding stiff penalty. Below are a few of the top scams:
Filing False and Misleading Forms
A taxpayer files a return claiming refunds to which they are not entitled. The taxpayer gets a big refund, plus many sleepless nights worrying about whether the IRS supercomputers, grinding away day and night, will notice.
Making stupid tax arguments
Taxpayers argue that the payment of taxes is unconstitutional or strictly voluntary. Some have argued that African Americans can take a special tax credit as reparations for slavery. Others claim that Federal Reserve Notes (i.e. money) is not income. I’ll discuss other ridiculous arguments in another blog. However, of all the tax scams, making frivolous arguments is the one that will make the IRS see red. Making a frivolous argument for not paying taxes is not free speech–you can expect to pay a $5000 penalty for the privilege.
Setting up “Charitable” organizations for uncharitable purposes
Charity doesn’t start at home, if it means lining your pockets with money people have given you that is intended for charitable purposes.
Placing an overinflated value of goods donated to charity, or maintaining control of the item after it has been “donated.” You can’t donate your car to a local church, take a deduction for the donation, and then require the church to allow you to drive it whenever you wish.