Tax Evasion – How much tax evasion is there in the United States?
Tax Evasion! How much tax evasion is there in the United States? Recently I was told by a friend that during her General Securities Representative Exam (Series 7) prep class, those students were told that the first felony a foreign alien typically commits is tax evasion. Whether its accurate or not, it is an interesting question.
The only “non-IRS” study known to this writer, a study done by economists Edgar Feige and Richard Cebula, calculated that in 2009, $390 to $537 billion in proper taxes remained uncollected. That amounted to a total of 18-23% of the reportable U.S. adjusted net income. According to their study, the occurrence of tax evasion goes up when unemployment goes up, when the average income tax rate goes up, when a larger segment of the economy comes from small, side or cash work, and when IRS audits decrease.
The IRS has its own, and typically secret, studies on the subject. Using that data, the IRS cross references various data, mining for potential tax evaders. In those cases, typically a criminal case does not immediately ensue unless the tax filer did not file and/or pay for 3 consecutive years; within a shorter time, he was found to provide knowingly false data which amounted to large tax losses; or within a shorter time, he was found to have concealed income amounting to a large tax loss.
Tax evasion is a federal crime found in Title 26 of the U. S. Code at Section 7201. It carries a maximum jail sentence of 5 years and a monetary fine of $100,000 for people or $500,000 for corporations. Lest a person think it doesn’t happen or couldn’t happen to him, the IRS has U.S. Attorney’s permanently assigned to this sort of crime. They typically go after the bigger fish. Nevertheless, the IRS has a very high conviction rate for cases it chooses. Another thought, tax problems accumulate over time as a person continues to abuse the law. Slowly, the frog cooks, as the metaphor goes.
However, criminal prosecution is not the only IRS remedy. Much more often, the IRS uses its exams section to audit people, then its collection division to civilly go after and collect those unpaid taxes, penalties and interest. According to Bob Brooks of “Prudent Money”, 2.1 million individuals owe the IRS over $25,000 in back taxes and 36% of individuals owing delinquent taxes have a balance over $5,000. With a total estimated delinquent tax debt reported to be $390 to $537 billion, that’s a lot to collect. As a result the IRS is clamoring for additional funding to go after this money and those people. Of course, the take away from this information should be to accurately and diligently maintain your financial records, then report it properly to the IRS. If you need help, seek out a tax professional.