In the US, they are very specific, distinct things.
Tax Evasion[0] is not paying taxes you legally owe. Tax Avoidance[1] is finding ways to owe less tax. Evasion is considered illegal, but Avoidance can practically be considered encouraged, as it's perfectly legal and rewards practitioners with lower tax bills.
Wait a minute, there is a distinction between Tax Avoidance and Tax Evasion.
Tax Avoidance is perfectly legal and encouraged by the IRS. There are many exemptions and credits for anyone who is eligible to take advantage of. If you’ve ever seen “whichever is lower” on a tax preparation form, that’s an example of avoidance. Why pay more when the law says you don’t have to?
Tax Evasion is the illegal activity of not paying taxes you were supposed to pay. This is where fraud comes into play. People should absolutely be prosecuted for evasion, but they should not shamed for avoidance.
You're relying on the dictionary definitions for "avoidance" and "evasion" to make your argument, but "tax avoidance" and "tax evasion" are industry-accepted terms with clearly differentiated meanings to describe different behavior. Tax avoidance tells a truth that takes advantage of legal loopholes, and is therefore legal not to pay a higher amount of taxes. Tax evasion attempts to commit fraud on legal paperwork in order to not pay taxes which are legally required to be paid. They are not the same thing.
At least in the UK, these two words have entirely different meanings when applied to tax. Tax evasion is not paying tax which is due. Tax avoidance is arranging your activities to reduce or minimise the taxes which are due.
The difference is that tax avoidance is defined as legal and tax evasion defined as illegal (at least in the US). If it's a legal activity aimed at minimizing taxes, it's avoidance. Likewise, if it's avoidance, it's legal, and if it's not legal, it's not avoidance.
From the IRS manual, section 25.1.1.2.4 .1 & .2 [0] [1]
Avoidance of tax is not a criminal offense. Taxpayers have the right to reduce, avoid, or minimize their taxes by legitimate means. One who avoids tax does not conceal or misrepresent, but shapes and preplans events to reduce or eliminate tax liability within the parameters of the law.
Evasion involves some affirmative act to evade or defeat a tax, or payment of tax. Examples of affirmative acts are deceit, subterfuge, camouflage, concealment, attempts to color or obscure events, or make things seem other than they are.
If I move to Florida or Texas to escape paying state income tax on my earnings, that's avoidance. If I earned the money in Massachusetts and simply decide to not declare and pay tax on it, that's evasion.
What's happening to some of the multi-nationals is that their attempts at structuring their affairs are being judged on the wrong side of the line. While it may not be being called evasion legally in all cases, it's exceeded the bounds of avoidance, resulting in settlements.
the IRS is on record as telling people that they should practice tax avoidance.
Tax evasion is about lying to the government so you don't have to pay the taxes you should. Tax avoidance is about changing your behavior in order to reduce your tax burden based on what the government has chosen to incentivize.
The terms of art may be important here. Tax evasion is literally a crime, and different from tax avoidance, which is reducing your taxes by legal means. http://en.wikipedia.org/wiki/Tax_evasion
It's not semantic, or a legal definition. It's a very explicit and important difference – 'evasion' is illegally avoiding taxation, and 'avoidance' is legally avoiding taxation.
Messing these two different concepts up helps nobody and just muddles the two issues further. Avoidance is a problem that must be tackled on a global scale; but first, we have to be honest about what it is.
Tax avoidance refers to using legal means to reduce your tax bill.
Tax evasion means illegally not paying your taxes.
reply