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Morality and Ethics in Accounting and Business
Edited by Dr Nicholas Koumbiadis, Dr John O. Okpara and Dr Ganesh M. Pandit
1 Introduction
Tax evasion is defined by IRS as an intentional misrepresentation of material fact, performed by the taxpayer (individual or corporate), with the specific purpose of evading a tax known or believed to be owed. Tax evasion as an act of compliance requires both: a tax due and owed; and fraudulent intent[1] . As such, it can be seen as an extreme position within the continuum of tax compliance. Since IRS' definition does not distinguish the type of tax owed, it applies to any type of tax owed in addition to federal income tax, such as contributions to social security, inheritance, or excise taxes. In analogy, the extension of the definition applies to state or local taxes, such as sales tax or any type of value added tax (VAT).
Tax avoidance (or reduction) should not be confused with tax evasion. Tax avoidance could be a series of legal economic actions taken helping individuals reduce their own tax liability. Avoidance is typically accomplished by designing and structuring legal economic transactions in an effort to minimize tax liability. In several cases, avoidance could be encouraged by tax legislation with favorable tax treatment, rewarding indirectly societal economic values, such as savings, financial planning, risk management and charity.
Not all types of denial to pay taxes are considered tax evasion. Tax protesters, a relatively long lived anti-government movement, believe that either federal income tax laws are invalid, or taxes do not apply to most citizens; therefore, having a legal right not to pay federal taxes. Tax resisters on the other hand, may accept the legal obligation to pay taxes, but choose not to comply and resist taxation in order to demonstrate disobedience and opposition to the tax imposing authority. Tax resistance has shaped global history since the time of Theseus. Tax resistance was his succeeded effort to kill Minotaur and free the Athenians from the Minoan suppression. An act of tax resistance was also the Boston Tea Party action, an integral part of the American Revolution leading to the creation of the USA.
Tax evasion as an economic phenomenon has been studied primarily by economists, within...