Ever heard of the saying “nothing is certain but death and taxes”? Evidently, there are still a lot of people who try to evade the taxes part of the adage. According to the IRS, the United States saw 1,598 tax crime investigations over 2020, and 593 people were sentenced for tax crimes. The volume of unpaid taxes is equivalent to about three-quarters of the entire annual federal budget deficit, and this is how much the US misses out each and every year through unpaid taxes. Across the pond, the UK government has estimated tax losses of £35bn.
So, how does this compare to some of the biggest companies in the US? Taking data from the Institute of Taxation and Economic Policy, 55 corporations have been revealed to have paid nothing tax on their 2020 annual profits. These companies paid zero taxes on their annual income in 2020, and yet still received tax rebates. Tax rebates refer to the relief individuals and companies can claim to reduce their income tax burden.
During the 2020 financial year, the IRS issued almost 34 million penalties against individual and estate and trust income taxes, generating $14 billion in tax income. So, what are the most common penalties individuals and estate and trusts receive from the IRS?
Over the 2020 financial year the IRS issued almost 20 million penalties against individuals and trust and estates for a failure to pay their taxes. This penalty is given if you don’t pay the tax that you report on your tax return, either by the due date or an approved extended due date. The Failure to Pay Penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, up to a maximum of 25%. That’s pretty steep. From the almost 20 million penalties issued, the IRS generated $7 billion in income taxes.
The Estimated Tax Penalty applies if you don't pay enough estimated tax on your income or you pay it late. The penalty you must pay is a percentage of the taxes you didn’t pay. On top of the penalty, the IRS also charges interest on all penalties, increasing the amount you owe until you pay up in full. The IRS issued 10.7 million of these over the 2020 financial year, pulling in $2.5 billion in income taxes.
Failure to file specific forms is known as delinquency, and the IRS charges different amounts for different types of forms, but can reach a maximum of $100,000 for each individual return not filed. The IRS generated over $3 billion in income tax from 2.4 million delinquency penalties over 2020. For certain forms, the IRS can add delinquency charges for every month the failure continues, beginning 90 days after the taxpayer is notified. These types of penalties can really add up if you leave them too long.
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The IRS issued over 587,511 penalties for corporations during the 2020 financial year, coming to a tax revenue of $1.4 billion, significantly less than the income from penalties from individuals and estate and trusts.
The IRS issued a total of 286,725 penalties for failure to pay for US corporations during the 2020 financial year. This is significantly less than the figure for individuals and estates and trusts, which stands at over 19 million. Such penalties for corporations created a $500 million income for the IRS, over $6.5 million less than the income from individuals and estates and trusts.
With a total of 235,454 penalties for estimated tax failures the IRS made $395 million in income from corporations, compared to $2.5 billion in income from the same penalties from individuals and trusts over the 2020 financial year.
For delinquency, the IRS issued just 51,682 penalties for this offence against corporations over the 2020 financial year, raking in $356 million in income. For individuals and estates and trusts, the IRS pulled in $3 billion in income from 2 million delinquency penalties.
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Pre-tax income
Charter Communications, the American telecommunications and mass media company, didn’t pay a cent on its massive $3.6 billion income in 2020, and instead enjoyed a tax rebate of $7 million.
Pre-tax income
The world-famous American sports apparel company, most known for its footwear, paid zero in taxes on a huge $2.8 billion pre-tax income and received a rebate of $109 million.
Pre-tax income
The Californian cloud-based software company, Salesforce, made $2.6 billion in pre-tax income over 2020, paying nothing in federal income tax and enjoying a $12 million tax rebate that year.
Pre-tax income
Dish Network, the American television provider, paid zero federal income tax on a massive $2.5 billion pre-tax income in 2020. Dish Network also benefited from a $231 million tax rebate.
Pre-tax income
American Electric Power delivers electricity to more than five million customers across 11 states and enjoys paying zero tax on their astounding $2.1 billion pretax income and receiving a $138 million rebate.
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In 2020, research was done to investigate which countries in the world lost the most to tax abuse, based on 2016 OECD data. So which countries lose out the most income from tax abuse?
Losses to tax abuse as % of total tax revenue collected
With a shockingly high figure of 22.26%, Ireland is our country with the biggest losses in tax income as a result of tax abuse. This is largely due to tax havens, of which Ireland is a notable facilitator of itself.
Losses to tax abuse as % of total tax revenue collected
For Colombia, the estimated losses resulting from corporate tax abuse and private tax evasion is around 18.2% of its total annual tax revenue, another strikingly high figure.
Losses to tax abuse as % of total tax revenue collected
Rounding off our top three is Singapore, with a high figure of 10.73%. This is a massive amount of lost tax revenue which happens each year and significantly impacts Singapore's total tax revenue.
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Ever thought of doing your own tax avoidance scheme? Be warned, tax fraud conviction could cost you up to $100,000 in fines and a stint in jail. Single payments in excess of $10,000 face an even higher penalty of $250,000 and up to five years jail time. These monetary penalties are in addition to paying back any taxes that you owe, plus interest, so it is never worth the risk. The best way to keep clear of the IRS is to stay compliant and reduce risk, and make sure you pay your taxes. The IRS reports that the average jail time for tax evasion is between 3-5 years.
So, what are some famous cases of tax evasion in recent years? We explored the internet to locate some of the biggest high-profile tax evasion cases alongside the individuals who accrued the biggest tax avoidance debts in history.
@forbes
Debt
Dubbed the biggest criminal tax fraud in history, Paul Daugerdas, former US attorney, was slapped with a 15-year prison sentence when convicted of creating fraudulent tax shelters to help his clients avoid paying taxes. The fraudulent shelter was designed to create fake losses so the ultra-wealthy could reduce their tax bills. It is estimated that the shelter caused $1.6 billion in lost tax revenue during its operation.
@gapnews
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Called the largest tax evasion scam in US history, Walter Anderson was convicted of evading over $200 million in federal taxes. Some figures suggest that the American entrepreneur paid as little as $495 in taxes on an annual income of over $67,000, while in reality he made around $126 million and hid the money in offshore corporations. Anderson received a sentence of nine years in prison.
@willienelsonofficial
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Towards the end of the 1990s, American musician, actor, and activist Willie Nelson had federal agents seize most of his property due to an alleged $32 million tax debt. Many believe that Nelson’s accountant hid money in fraudulent tax shelters which caused Nelson’s alleged debt. Nelson was able to negotiate a settlement with the IRS, eventually paying off his debt as his career picked up in later years.
@officialgarybarlow
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In 2014, the multimillionaire Take That singer Gary Barlow was accused of being involved in a tax avoidance scheme when it was revealed that he and his band had invested money into fraudulent investment schemes. The HMRC eventually ordered Barlow, his band manager, and his bandmates Howard Donald and Mark Owen, to repay £20 million in taxes, equivalent to $26 million.
@liltunechi
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Dwayne Carter Jr., more popularly known as Lil Wayne, has had the IRS place numerous tax liens against him over the years dating back to 2002. It is estimated the liens totaled $14 million before the rapper finally settled his outstanding tax debt in 2019.
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Data for the biggest corporations which paid $0 in taxes was recorded from the Institute of Taxation and Economic Policy. Their report was based on their analysis of annual financial reports filed by some of the largest U.S. - based corporations. This data came from the income tax notes of these reports.
Data for individuals were taken from multiple online sources. US tax evasion statistics were taken from the IRS website.
