Tax crimes include activities ranging from simple omissions like failure to keep tax records to complex acts like deliberate failure to file tax returns and declare taxable incomes. Failure to declare taxable income is an offense that can have serious consequences, including hefty fines and jail time.
The taxpayer’s duty to declare taxable incomes
Official I.R.S Statistics show that approximately $3 billion worth of revenue is lost to intentional tax crimes and unintentional tax-related errors like failures to declare taxable income. Taxable income is sums of money withheld by or payable to the state as either corporate or personal income taxes. This can include:
- Employee compensation and benefits
- Investment and business income
- Other deductibles like insurance benefits or social security incomes
Taxpayers have a duty to declare taxable income, and failure to do so attracts fines. Declaring taxable income involves paying estimated income tax, filing returns and keeping records. The case of United States v. Tucker established that taxpayers have a duty to declare taxable income.
The fine line between taxable and non-taxable income
It is key to note that not all income, whether corporate or personal, is taxable. This essentially means that certain income is exempted from income taxation. This includes:
- Welfare benefits
- Proceeds from child support
- Capital gains
This position was pronounced in the seminal case of Eisner v Macomber where a stock dividend was not included in the definition of what amounts to income. In this case, it was established that an understanding of the legal definition of taxable income was key in determining the types of income to declare as taxable. Income tax was defined as gains derived from capital, labor or both and includes profits made from sales or conversion of capital. Therefore, mere growth or rise in the value of capital is not income and is not taxable.
Thus, there is a need for the taxpayer to be able to distinguish between income that is deemed by law as taxable in order to avoid the legal sanctions and resultant inconveniences of failure to declare taxable income.
Avoiding the pitfalls
Failure to declare certain taxable income can occur when taxpayers are constrained by time and forced to hastily prepare complex tax returns. This presents the possibility of erroneously omitting some taxable income declarations. Declare all taxable incomes early to eliminate the risk of being faced with income tax claims of a failure to declare taxable income or other related tax crimes.