Illegal Income

It is interesting to note that in the United States, the Supreme Court has determined that illegal income (such as monies obtained from embezzlement, theft, drug trafficking, illegal gambling, etc.) are still subject to tax law and must be reported as taxable income when filing annual tax returns. However, reporting of illegal income rarely occurs because doing so would be an admission of the original crime. Therefore, the person who fails to report illegal income can then be prosecuted for tax evasion in addition to—or sometimes, in cases of lack of evidence, instead of—the original crime.

Customs Duties

Another typical area of tax evasion is the attempt to evade customs duties. Typically, importers try to evade customs duties by either under-invoicing (reporting that less items were ordered than actually were), or by changing the product description (changing it to a description of a product that has a lower rate of duty). Of course, the ultimate evasion of taxes and customs duties would be smuggling—the importing or exporting of products through an unauthorized route.

Employment Tax

Unscrupulous employers may try to evade paying employment taxes. Most often, this is done by intentionally failing to remit to the IRS the employment taxes it collected from its employees. After a certain amount of time, the employer would then dissolve the company or claim bankruptcy, leaving the employment taxes unpaid. Some other methods of employment tax evasion are: paying employees in cash; filing false payroll tax returns; or failing to file payroll tax returns.