Tax evasion is defined as the illegal non-payment or underpayment of tax. Though this definition can be expansive, it is also simplistic. Tax evasion is conducted through various legal and illegal methods, including hiding income overseas, through tax inversions, understating income and by hiding funds in fake trusts and organizations.

Tax evasion is not always conducted through illegal means. Practices conducted through legal methods follow all tax laws, but uses loopholes in the tax code to avoid or minimize certain liabilities. Because loopholes are technically within the letter of the law, entities that exploit them cannot be punished or charged with a crime.

Illegal tax evasion, on the other hand, uses fraud or other illegal activities to avoid paying taxes. A common form of illegal tax evasion is hiding money in tax havens. This allows the defaulter to keep the entire amount of income without paying any taxes on it. Such practices, if discovered by authorities, come with serious penalties and even imprisonment in certain instances.