What Is Tax Evasion? | Explanation & Examples

In this article, we’re answering β€œWhat is tax evasion?” This is an important topic for anyone who is considering international investments or establishing ties with foreign banks as an individual.

This will include a breakdown of the consequences of tax evasion, a comparison of evasion and avoidance, and answers to common questions on the topic.

This article is part of our free series on opening an offshore personal account online, which expats and members of the mobile affluent often find helpful in managing their cross-border banking needs.

Feel free to use the table of contents to jump ahead to the sections most relevant to you.

Table of Contents

  1. What Is Tax Evasion?
  2. Consequences of Tax Evasion
  3. Frequently Asked Questions
  4. Do You Want Help Opening Bank Accounts?

What Is Tax Evasion?

Tax evasion is the illegal failure to pay or deliberate underpayment of taxes by an individual or entity. This tax evasion definition is purposely broad, capturing activities ranging from criminal proceeds to the underreporting of seemingly innocent sources of income like pet-sitting and babysitting.

Of course, there are consequences to evading taxes. In the United States, tax evasion penalties can include monetary penalties and jail time. Similar legal implications of evasion exist in other countries as well.

Additionally, in most countries, governments encourage the reporting of tax evasion by providing monetary rewards to anyone who shares information that leads to a tax evasion investigation and conviction.

In addition to preventing tax evasion locally, governments are also working hard to fight international tax evasion. One way that governments combat evasion abroad is through information-sharing agreements, the automatic exchange of information, and common reporting standards for expat and non-resident financial accounts.

So, in short, tax evasion is illegal and can result in severe penalties for anyone who deliberately underreports their income. Additionally, thanks to coordinated international information-sharing agreements governments receive information on financial accounts and transactions from banks around the world.

Consequences of Tax Evasion

The consequences of tax evasion vary depending on the country where a person is convicted. However, in most cases, the minimum penalty is a monetary penalty while other countries like the United States can place both monetary penalties and jail time on people convicted.

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Frequently Asked Questions

Below are a few of the most common questions we receive from people looking into this topic. If you have further questions you would like to ask our team, don’t hesitate to get in touch.

Is Tax Evasion Legal?

No, tax evasion is not legal. Instead, it is illegal and can result in both monetary penalties and jail time for individuals convicted.

What Is the Difference Between Tax Avoidance and Tax Evasion?

The main difference between tax avoidance and tax evasion is that tax avoidance refers to taking legal steps to minimize taxes while tax evasion refers to illegally underreporting taxable income and underpaying taxes.

How Does the CRA Know Your Income?

The CRA is able to assess the income of Canadian residents through various means depending on the type of income they have. For example, the CRA is able to confirm a person’s salary through employer reporting like a T4 slip. On the other hand, the CRA knows about a person’s income from certain investments through the T5 slip. Self-employed individuals are required to report their income directly to the CRA. And there are other methods that the CRA can use as well.

How Does the IRS Catch Tax Evaders?

The IRS catches tax evaders through audits, investigations, whistleblower programs, information matching systems, and information-sharing agreements. In other words, the IRS uses every tool available to them in order to identify individuals who are engaging in fraudulent activity and underreporting their income.

Do You Want Help Opening Bank Accounts?

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GlobalBanks Team
GlobalBanks Team

The GlobalBanks editorial team comprises a group of subject-matter experts from across the banking world, including former bankers, analysts, investors, and entrepreneurs. All have in-depth knowledge and experience in various aspects of international banking. In particular, they have expertise in banking for foreigners, non-residents, and both foreign and offshore companies.

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