Revisiting the Difference Between Tax Avoidance and Tax Evasion

Aug 14th 2017
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In an article that appeared in 2016, I distilled the difference between evasion and avoidance. Whereas the former is a criminal offense, the latter is legal; I’ve noted that in many of more than 200 articles for AccountingWEB.

Avoidance received this often-cited blessing from Supreme Court Justice George Sutherland: “The legal right of a taxpayer to decrease his taxes or to altogether avoid them by means which the law permits cannot be doubted.”

Segue to another 2016 column. In it, I recounted the tax travails of Leona Helmsley, who was indifferent to the difference between evasion and avoidance. The New York hotelier was overheard by her housekeeper to say, "We don't pay taxes. Only the little people pay taxes."

The housekeeper's testimony about the Queen of Mean's indiscreet remark helped Uncle Sam convict Leona on evasion charges. The mogul received a four-year sentence and was ordered to report to prison on April 15, 1992. (She actually served 19 months.) And, per custom, the media-savvy feds selected the 1040 filing deadline as the date to announce her imprisonment.

So, people, where did Leona get the idea that only the little people pay taxes? From her tax accountants, no doubt, answered former House Majority Leader Dick Armey in his book, "The Flat Tax: A Citizen's Guide to the Facts," which attacks the current system on the grounds that it leads to political corruption and is tilted toward those with resources and inside knowledge of the several-million-word tax code.

My homily for accountants whose clients gravitate to them because they presume that their advisers possess that “inside knowledge” on how to avoid pitfalls while taking maximum advantage of opportunities: To help retain those clients, show them how to choose and implement IRS-blessed strategies that lessen what they lose to taxes for 2017and provide a head start for 2018.

For instance, just reminding them of the calendar is a long-standing way to lower taxes to the legal minimum. Suppose a client anticipates that her tax bracket will be higher for this year than next.

It would be wise for her to accelerate payments of business expenses, charitable contributions and other deductibles into this year, because those write-offs will generate a greater tax savings in the higher-bracket year, or to postpone the receipt of income, where possible, until next year, because less will get siphoned off by the IRS.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 180 and counting).

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