Google search showing confusion over Tax Avoidance & Evasion

IRS - Lesson 3: The Taxpayer's Responsibilities

TheTaxAttorney.org discussion over Tax Avoidance & Evasion

Deductible Expenses and Deductible Trading Losses are not "tax shelters" in the sense used here.  A Trader's business activity is 100% hands-on (not merely a passive investment) his tax deductions result only from real, true economic disbursements of real cash money.

"Tax Shelters" on the other hand create losses for taxpayers without a full outlay of actual cash by using "non-recourse debt" for example.  Often then expenses are paid to a related party and the purported business ventures themselves never have a snow-ball's chance of being viable or returning a profit on the invested cash.

It is therefore important to be on the alert, to document with good books and records, your properly structured business operations.  If entities or other related parties are involved, treat them fairly at arm's length.

That way your perfectly legitimate, legal "Tax Avoidance" plans can clearly be distinguishable from what the IRS is looking for: tax shelter schemes and tax evasion that are sometimes inappropriately called "tax avoidance transactions" rather than "tax evasion schemes".
 

United States Supreme Court Justice George Sutherland in Gregory v. Helvering (1934-5) 293 U.S. 465,460 said:  "The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted."
http://www.oscn.net/applications/oscn/deliverdocument.asp?citeid=422631
 

Judge Learned Hand  (1872-1961), Judge, U. S. Court of Appeals
Source: in the case of Helvering v. Gregory, 69F.2d 809

"Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes.  Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands."
 

Tax evasion is the general term for efforts by individuals, firms, trusts and other entities to evade the payment of taxes by breaking the law. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as underdeclaring income, profits or gains; or overstating deductions).

By contrast tax avoidance is the legal exploitation of the tax regime to one's own advantage, to attempt to reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure of the material information to the tax authorities.

Tax avoidance may be considered as either the amoral dodging of one's duties to society or the right of every citizen to find all the legal ways to avoid paying too much tax. Tax evasion, on the other hand, is a crime in almost all countries and subjects the guilty party to fines or even imprisonment. Switzerland is one notable exception: Tax fraud (forging documents, for example) is considered a crime, tax evasion (like underdeclaring assets) is not.

Some tax evaders see their efforts to evade taxation as based upon some novel legal theory: these individuals and groups are sometimes called tax protesters. U.S. tax protesters are an example of this kind of approach to tax evasion that has generally ended in failure for those making such claims. True tax protesters strongly deny tax evasion: they are openly refusing to pay the tax rather than attempting to deceive the tax authorities. Some donate their unpaid taxes to charity, while others (at least in the US) take creative "deductions" such as not paying a percentage of tax equal to the defense budget.
http://encyclopedia.laborlawtalk.com/tax_avoidance
http://www.absoluteastronomy.com/encyclopedia/t/ta/tax_evasion.htm

IRS Tax Seizure Auction website: http://www.treas.gov/auctions/irs/

Finally, the rules modify the definition of "principal purpose." A transaction will have the principal purpose of avoidance or evasion of tax if the avoidance or evasion of tax exceeds any other purpose.  A transaction structured to claim tax benefits in a manner intended by the code and Congress will not be deemed to have the principal purpose of avoiding or evading tax. This definition of principal purpose is similar to the Reg. §1.6662-4(g)(2) definition. The rules also clarify that a transaction may have a significant purpose of avoiding or evading tax, even though that is not the principal purpose.






 

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