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May 22, 2012


Tax Avoidance and Tax Evasion Are Very Different

Words matter. In human terms, it’s as simple as that. There is a very real and clear difference between tax evasion, on the one hand, and perfectly legal tax avoidance on the other.

The confusion between the terms can be cleared up with proper definitions. Tax evasion is an improper and unlawful activity subject to criminal charges. Tax evasion can include underreporting or failing to report income, and various types of tax fraud.

In contrast, tax avoidance is a lawful financial strategy designed to minimize tax liabilities within the law.

Federal tax law provides that American businesses can defer taxes on profits by investing overseas. As a result, many businesses invest and keep assets in foreign jurisdictions with minimal income taxes. In doing so, the directors and officers of these businesses are following their legal duty to maximize returns to shareholders -in this case, by reducing, or at least deferring, federal taxes.

The U.S. Department of Justice and the Internal Revenue Service have access to any Cayman accounts tied to criminal activity and money laundering. In fact, anti-money laundering laws require disclosure of the names of directors and shareholders of every Cayman account.

Investing and depositing money overseas is an entirely legal and proper activity. Taxpayers in Texas act within the law when they adopt such tax avoidance strategies. Taxpayers are exercising their legal rights when they proactively protect assets and reduce tax liabilities with the help of experienced legal, tax and accounting professionals.

Source: “Tax Evasion vs. Avoidance, as Seen From the Caymans,” New York Times, 5-13-12

Tax Crimes