If there’s anything about tax law that the average person is confused about, its the difference between tax avoidance and tax evasion and the related question of how the I.R.S. decides whom to prosecute. The confusion isn’t surprising when you consider how confused even so-called authorities are about the difference between the two.
Although the concepts “tax avoidance” and “tax evasion” have profoundly different meanings and consequences, not infrequently the two are used interchangeably and by people who should know better. For example, when Franklin Delano Roosevelt delivered his 1937 message to Congress requesting legislation to close what he saw as flagrant loopholes in the federal tax laws, FDR referred to a Treasury Department report in the following way: “This report reveals effort at avoidance and evasion of tax liability so widespread and so amazing both in their boldness and their ingenuity that further action without delay seems imperative.”
One knowledgeable legal writer once began a chapter entitled “Prevention of Tax Evasion and Avoidance” [!] by saying: the term evasion does not, as it sometimes does, connote any act to which criminal or civil penalties might apply.”
This interchangeable use of importantly different concepts has not been limited to presidents and scholars. Even the courts have used “tax avoidance” and “tax evasion” interchangeably. . . .Even worse, the Internal Revenue Code itself sometimes fails to distinguish between “tax avoidance” and “tax evasion.”
For example:
If. . . the principal purpose for which such acquisition was made is evasion or avoidance of Federal income tax. ... . if it is established. . . to the satisfaction of the Secretary. . . that such corporation is not formed. . . for the purpose of evading or avoiding United States income taxes. more
