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A Blog written by the Tax Attorneys for Individuals and Businesses

The Fine Line between Tax Evasion and Tax Avoidance

The Fine Line between Tax Evasion and Tax Avoidance

Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

~ Judge Learned Hand in Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

Tax resistance has existed throughout history – it has inspired revolutions and caused the downfall of empires.  The more common manifestation of tax resistance is protecting your wealth through tax avoidance,a legal and strategic tax method to maximize your income.

Tax Avoidance: a legal and strategic tax method

Many individuals and businesses are facing legal and public scrutiny for aggressive tax practices. Although many aggressive tax planning practices are legitimate, the government is working hard to close many tax loopholes and it is important to consult with a lawyer experienced in federal tax evasion law before embarking on any new tax-saving ventures.  

Tax avoidance entails the utilization of legitimate, IRS-approved methods to minimize your tax debt, such as:

·         Applying all legitimate deductions

·         Sheltering income through employee retirement plans

·         Use of overseas tax havens legally

Legitimate tax avoidance vehicles and arrangements come under fire when they are used not as intended or anticipated, obscuring the fine line between legitimate tax avoidance and the exploitation, abuse and outright violation of U.S. tax laws.  For example, Catarpillar Inc., a U.S. manufacturer of construction equipment, is currently the subject of a Senate investigation on multinational corporations who have been accused of hiding global profits from U.S. taxation – the company has apparently shifted billions of dollars in profits to Switzerland to evade $2.4 billion in taxes. Such practices run the risk of crossing the line into tax evasion and fraud.

Tax Evasion or Fraud: a federal crime with serious consequences

Tax evasion pushes the idea of tax avoidance across legally permissible boundaries. This crime involves a purposeful attempt to evade an assessment or payment of taxes. Typical violations leading to tax evasion or fraud include:


·         Failure to report income from cash receipts, barter or offshore accounts

·         Underreporting income

·         Misrepresenting income

·         Inflating deductions

·         Taking unsubstantiated deductions, such as charitable contributions not made


The IRS has identified small businesses and sole proprietors as the largest group committing tax fraud, particularly since it is difficult and cost prohibitive for the IRS to identify skimming practices and the failure to report income. Tax evasion is a felony, punishable by up to 5 years in prison or fines up to $100,000 ($500,000 if a corporation is the culprit).  Civil tax fraud penalties may also be imposed.

Experienced tax professionals advice to guide your tax avoidance methods


Moskowitz LLP has over thirty years of experience defending its clients against the government in criminal tax cases.  If you have questions about tax planning, have unfiled tax returns, or currently face charges of tax evasion or fraud, contact our experienced professionals to learn your rights and how to protect yourself.   The results we have obtained in criminal tax crime matters are significant.   

Reporting Gifts and Inheritances Received from Abroad

Many people make the mistake of failing to report gifts or bequests from abroad on tax returns, because they do not think gifts are “income”. This can be a costly mistake, however, subjecting the recipient to hefty tax penalties which could easily have been avoided with some qualified tax advice.

The little publicized tax rule with big financial consequences

The tax rules regarding gifts and inheritances received from individuals outside the U.S. aren’t well-publicized – but failure to comply with them can be costly.  If you are a U.S. Citizen or resident, you are not only responsible for reporting your foreign income, accounts and overseas property on your annual tax return -- you must also report to the IRS if you receive:

·         A gift or inheritance from a nonresident alien or a foreign estate (including foreign persons related to that nonresident alien or foreign estate) that exceeds $100,000, or

·         A gift of $15,102 or more from a foreign corporation or foreign partnership (including foreign persons related to such foreign corporations or foreign partnerships).

If for any reason you are concerned that the IRS might view a gift or bequest of a smaller amount as foreign income, you may wish to report it regardless of the current thresholds.

Penalties for not filing

An increasing number of foreign account holders are being caught for failing to file returns, filing false returns and for various other types of tax evasion. Although the news is filled with stories of the IRS inspecting foreign accounts and assets – know that gifts and inheritances are being scrutinized as well. In addition to the annual FBAR filing, taxpayers need to be vigilant about other tax issues and general compliance. 

All gifts and bequests received from abroad must be reported on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.  Under Internal Revenue Code § 6677, the initial penalty for not filing a Form 3520, or for providing incomplete or incorrect information on the return, is equal to the greater of $10,000 or 35% of the gross value of the amount received. For late returns, the penalty is 5% of the value of the gift for each month that the gift is not reported, capped at 25%. Additional penalties are imposed for continued noncompliance following the expiration of a 90-day grace period provided in the IRS Notice of Noncompliance – those penalties amount to $10,000 per 30-day period (or fraction thereof).   Note there are defenses to penalty assessments.  As such, you should have a tax attorney review the penalty if it has already been assessed.   

Ensure that you are complaint with U.S. tax laws

The experienced representation of tax professionals is vital in making such a case with the IRS. For more than 30 years, Moskowitz LLP has successfully represented U.S. citizens and residents with financial interests outside the country. The firm’s clients includes individuals, professionals and closely-held businesses from throughout California, the United States, and across the globe.   The international tax section of our website has an incredible amount of information written for taxpayers with overseas assets and interests.