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A Common Case of Tax Evasion

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A Common Case of Tax Evasion: Tax evasion can occur, even in cases where you may not consider that you are committing a crime. Tax evasion usually starts with taxpayers who do not file a required tax return or who misreport deductions, income, or credits on their tax return. 

Here you will read the hypothetical story of Linda, who was recently caught up in a tax prosecution case. We will provide the backstory, where Linda made a mistake, and what she had to do to sort out the incident. 

A Common Case of Tax Evasion

Linda, the Waitress

Linda is a waitress at a local bistro. She works thirty hours a week but cannot pick up any more shifts. In her additional time, she crochets clothing and sells them to her friends and some local boutiques. With the combined income, Linda does well for herself. 

When Linda sells her craftwork, the transactions are mostly cash. She keeps this money on hand and deposits her waitress income into her bank account. At the end of the month, she may deposit some of the side-money into a savings account. 

When it comes to doing her taxes, Linda files her income according to her waitress’s wages and tips. While Linda may earn some extra money with her art, she does not consider it work. She decides to leave it out of her tax return. 

About a year later, Linda receives an audit letter for her previous tax return. She speaks with an auditor, and he asks her about her income. Linda tells him that she is a waitress and talks about the job a little. She asks if there was a problem with the way that she reported her tips. 

The auditor seems to be more interested in what she does outside of work. She told him she likes to hike in her spare time, and she often goes to book club with her friends. 

Where She Went Wrong

What Linda is not aware of, is that a local boutique filled out a report of their expenses, including the transaction that they made for Linda’s crocheted crop-tops. 

When the auditor asks about Linda’s savings account, he asks for her statements. The auditor begins to question the $25,000 deposited into the account. At this point, Linda knew that she had made a mistake. 

What She Needs to Do

While she did not know she was committing a crime, Linda may be guilty of tax fraud. At this point, she should visit the website of a good tax lawyer. It can be extremely nerve-wracking to handle a pending investigation into tax fraud. Legal support can help Linda and protect her interests. 

The Verdict

Tax evasion is something that you are guilty if you ignore the requirement to report all of your streams of income. For some people, they may not even consider a stream of income as their ‘job’ per se, so they do not report it on their tax return. This is a mistake that will require them to get a lawyer and deal with a headache of bureaucracy.