Tax Avoidance vs Tax Evasion: A Comparative Analysis

Advanced corporate planning

Table of Contents
Introduction......................................................................................................................................3
Comparison between tax avoidance and tax evasion......................................................................3
Examples of tax evasion..................................................................................................................5
Examples of tax avoidance..............................................................................................................5
Analysis of if or if not the tax liability minimization falls under tax avoidance or tax evasion......5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

INTRODUCTION
Tax evasion and tax avoidance aspects are under great consideration for taxpayers as well as tax
authorities. Majority of the business generally go through the dilemma of when to adopt the legal
approach to tax planning (Braithwaite, 2017). By considering their aspects, initially, it is
required to differentiate the tax evasion, tax avoidance and tax minimization concepts. Further,
these particular concepts include a broad variety of measures that are aimed to reduce tax
burdens, yet the legal outcomes of each are not similar to each other.
COMPARISON BETWEEN TAX AVOIDANCE AND TAX EVASION
Tax avoidance is considered as a practice wherein assessee attempts to defeat the fundamental
law intention legally, by taking benefit of the shortcomings held in the legislature. In contrast to
this, tax evasion is an exercise of making a reduction in tax liability by illegal mechanisms that
are inflating expenditures or suppressing income or by reflecting reduced income (Dyreng,
Hanlon & Maydew, 2018).
Considering the same through a different picture, tax avoidance is said to be completely legal, as
only those measures are used with are lawful (Braithwaite, 2017). On the other hand, tax
evasion can be named as a breach or a crime; it is because it resorts to different sorts of
deliberate manipulations.
In the US, tax evasion is the illegal taxes evasion by a business person, trusts and companies.
Generally, tax evasion is engaged with the deliberate misinterpretation of true state of affairs by
the taxpayers to the taxation authorities to make reduction in their tax liability and cover
dishonest reporting of tax e.g. declaring lower income or profits than the actual earned amount or
overstatement of deductions (Armstrong, Blouin, Jagolinzer & Larcker, 2015).
Tax evasion is stated as an activity linked with the informal economy, one of the means of the
tax evasion extent is the amount by which income is unreported, which is the difference of the
income amount that is required to be reported to the taxation authorities and the reporting of the
actual amount. In contrary to this, tax avoidance is the legal employment of tax laws to
minimize tax burden (Payne & Raiborn, 2018).