Basics

Tax evasion is defined as a criminal act that involves intentionally avoiding the payment of taxes. There is no legal recourse for the minimization of tax payments as it is within the legal right of every United States citizen to lower the amount of taxes that they are required to pay as long as the minimization is done by legal means.

Schemes

There are several types of tax evasion schemes. Pyramiding is a scheme in which a business withholds taxes from employees but fails to send the withheld funds into the IRS. The business will frequently file for bankruptcy to escape having to repay any profited funds and the conspirators will start another business under another name in order to repeat their scam.

Employment leasing is another practice that can be utilized to evade taxes. Employment leasing companies are contracted by other businesses to handle personnel and payment functions. These employment leasing companies collect taxes that are supposed to be given to the IRS. These activities become illegal when the employment leasing company fails to hand over tax funds as the owners spend the money for personal pleasures.

Paying employees under the table in cash is a way in which taxes are evaded. This is possible due to the lack of a paper trail as no checks, receipts, or other incriminating evidence is available. Some individuals file false income taxes by underestimating the amount of income procured as well as writing off expenses that should not be tax exempt.

Statistics on Employment Tax Evasion

Statistics provided by the IRS show that employment tax evasion is on the rise. The number of investigations rose from 92 in 2002 to 104 in 2003 and then climbed to 113 in 2004. The number of persons sentenced rose from 41 in 2002 to 45 in 2003. In 2004, 51 cases resulted in sentencing of individuals. The average prison term for employment tax evasion in 2004 was 18 months.

Fraud Reports

Anyone can report tax fraud suspicions to the IRS. These reports can be made over the phone via the toll free number 1-800-829-0433, by mail, or by visiting an IRS taxpayer assistance center.