The Negative Consequences of Tax Evasion

Tax evasion, while seeming harmless to the person cheating on his or her taxes, can have a great and lasting effect on all of us.

Tax evasion is a problem that affects all of us in the long run. Tax evasion is defined in section 7201 of the Internal Revenue Tax Code. It is a Federal crime or offense for anyone to willfully attempt to evade or defeat the payment of federal income taxes. In the U.S. an individual is required to file an income-tax return if his gross income is greater than the statutory minimum.

For Federal tax purposes, the term gross income includes salaries, wages, and other compensation for personal or professional services; gains from trade, business, and dealings in property and securities; interest, dividends, and rent; and income from any other source. Many people dont understand the concept of taxation; they feel like not paying their taxes doesnt hurt anyone. But all of the countrys revenue must be made somehow and that means the rest of us must pay to make up for those who dont.

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Taxes seem like a burden to most of us, most of the time, but they are needed to effectively and efficiently run the society in which we live.

Those of us who pay our taxes on time and proficiently must also make up for those who do not. The government must have enough revenue from taxes to run our country, so what ever is not paid by people evading taxes must be made up by law-abiding tax paying citizens.

Many people who evade taxes are not caught, but those who do get caught are punished severely. Punishments include heavy fines and even jail sentences. Tax evaders can be prosecuted just as severely as for any other criminal offense. The jail sentences become a catch twenty-two for those who pay their taxes.

They pay taxes that evaders dont, and then those tax dollars must go to help pay for jails for the tax evaders. A lot of tax money will also be used for court costs and other related prosecution costs. There are even rewards for turning in people that are not paying their taxes. Many people who are caught are turned in by people that they know. The government offers rewards for helping to prosecute tax evaders. The government knows that people are always greedy and will turn in anybody for money, and they also know the paying of rewards is far less then the revenue they lose in tax money from those who cheat on their taxes. Many people believe that tax evasion is a victimless crime, but when you think about it in these terms I think you can see that there certainly are victims, namely, taxpayers.

There are several different ways which people evade taxes. The first and most common, is when filing their tax returns, they dont claim as much income as they should. There are also many loopholes in the U.S. tax code because of the complexity of the system. The Tax Foundation, a Washington-based group, estimates the cost of complying with the federal income tax will reach $140 billion this year. That includes the value of the time it takes to understand the law, fill out forms, keep the records and take other compliance steps. The laws and regulations that make up the income tax code grew from 744,000 words in 1955 to 5.6 million words in 1994. These complex tax codes may give some people the incentive to cheat, because they dont want to take the time to learn all the different tax laws. If the tax code were easier it would serve two major purposes.

It would help to make it easier to understand and leave less chance to make a mistake. It would also make it much easier to tell if someone were cheating on his or her taxes. Many people may be evading taxes without even knowing it; it is not difficult to make mistakes while filing a tax form. Another way people evade taxes is much more obvious. Many people who work under the table or who collect tips dont claim this as income for tax purposes. I think many of these people are young and dont even realize what they are doing is wrong. Many are high school kids collecting tips for being a waiter or waitress. These are just a few of the hundreds of ways to deceive the government on a tax return.

Over the years there have been many famous tax evaders, including; Darryl Strawberry, Don King, Al Capone (along with most others in the mob), and even the 39th vice president of the United States, Spiro Agnew, along with countless others; many of whom are professional athletes. Spiro Agnew was the vice president to Richard M. Nixon from 1969 to 1973. Agnew came under investigation for allegedly receiving payoffs from engineers seeking contracts when Agnew was Baltimore county executive and governor of Maryland. Agnew said that he was innocent, but then resigned from the vice presidency on October 10, 1973, and pleaded no contest to a single charge that he failed to report $29,500 of income received in 1967. He was fined $10,000 and put on three years probation. So you can see that tax evasion is not just a problem with the average guy, it is a problem with the rich and famous as well.

Tax evasion is a serious matter. Misrepresenting your income or failing to pay appropriate taxes can carry heavy penalties including fines, jail sentences, and felony convictions. Information on fraudulent tax activity is relayed to the I.R.S. in the following ways. Most often, the Criminal Investigation Division of the I.R.S. will uncover suspicious activities while prosecuting guilty tax offenders. Informants hoping to gain financial reward will often notify the I.R.S. of friends and colleagues falsifying tax returns. Banks are also obligated to notify the Internal Revenue Service of certain questionable transactions. Regardless of how the crime is discovered, there are substantial legal and financial penalties if you are caught in criminal tax activities. The I.R.S. is not prosecuting as many people as they used to, but still wins more than 91% of their cases. Of those cases 81% are sentenced to jail. The I.R.S. indicted 2,469 people in fiscal 2000, down 22.3% from 1998, and won 2,249 convictions. Those that are convicted but not sentenced to jail are forced to pay heavy fines, in most cases those evading taxes would have been much better off just paying their taxes.

The benefits of tax evasion are with those who evade their taxes. If they dont get caught then they can save a substantial amount of money. Along with saving money they dont have to worry about the burdens that face all of us during tax time. Society has no foreseeable benefit from tax evasion.

I believe that the penalties for tax evasion should be much greater, especially for those who willingly and knowingly evade their taxes. If we would dramatically increase the length of the jail sentences we would have much less tax evasion. I know for myself that if I had to pay a little fine for evading taxes that it may be worth the risk. If I knew that I would be going to prison for twenty years however, I would think twice about evading my taxes. Some crimes are punished for a long time and they dont even affect all of the society. Tax evasion is a crime that will affect all of us in one way or another and we must do what ever it takes to eliminate the problem or reduce it immensely.

The cost of tax evasion is high for everyone not just those who evade taxes. Those who do evade their civil duty can be put in jail and be fined, but the greater cost is to society. Society must pay for all the mistakes, whether they are accidental or intentional, of those people who dont pay. There in lies the externality; the people evading their taxes think that they are only hurting themselves if they get caught, but in reality they are hurting everyone whether they are caught or not. Tax evasion costs society tens of millions of dollars every year and it is in our best interest to try and stop as quickly as we can.