Even though tax evasion is illegal, but there are plenty of tactics corporations use to reduce their tax liability to zero. One such method is known as tax inversion. Providing excessive bonuses to employees and showing these as legitimate expenditures are another. Loopholes in the tax code provide opportunities for companies to evade taxes legally. These activities have the potential to spread because there is no threat of legal action.

Preventing legal tax evasion may require closing loopholes in the tax code, but that in itself is a difficult and complex process. Even though there have been instances where a few tax rules were changed to prevent a specific kind of legal tax evasion, this approach will not affect legal tax evasion on a large scale.

President Obama said in a press conference that, “We can’t solve the entire problem administratively, but what we are doing is examining, are there elements to how existing statutes are interpreted by rule or by regulation or tradition or practice that can at least discourage some of the folks who may be trying to take advantage of this loophole?

“We don’t want to see this trend grow. We don’t want companies who have up until now been playing by the rules suddenly looking over their shoulder and saying, you know what, some of our competitors are gaming the system and we need to do it too.”

Now that the problem has been identified, there is debate on an appropriate solution to prevent prolonged damage to the economy.