While some citizens try to evade taxes illegally, others find loopholes in the tax code to legally minimize their tax bill. Many companies and individual citizens evade taxes by hiding money in tax havens. This unaccounted money totals to billions of dollars of lost tax revenue each year. Even though the IRS has been trying to curb tax evasion for decades, it was only this year that they made agreements with other countries under the Foreign Account Tax Compliance Act (FATCA) to introduce and increase transparency in financial activities of U.S. taxpayers overseas.
Tax laws are only effective if they are properly implemented. The punishment for tax evasion is heavy penalty and/or imprisonment. To provide flexibility to taxpayers that want to get back into compliance, the IRS has again opened the Offshore Voluntary Disclosure Program (OVDP). Under the program, taxpayers pay a reduced penalty, avoid the possibility of imprisonment, and get current with their taxes.
Although the cases of illegally evading taxes are fairly straightforward, cases of legally evading taxes using loopholes in the tax code are more difficult to handle because they can only be prevented by altering the tax code. The IRS’s present efforts will only reduce illegal tax evasion. To decrease legal tax evasion, the combined efforts of both Congress and the IRS will be required.