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Comment by zeveb | Hacker News Reader

> recovery the IRS pays as a bounty for intelligence on tax avoidance scheme

Tax evasion. Tax avoidance is legal; evasion is illegal. The one is avoiding taxes by applying the law; the other is breaking the law in some fashion or another.

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The line between evasion and avoidance is really a matter of opinion (that we colloquially call 'case law'). It's hard to know what the delta actually is... I would argue that intent isn't really that different between the two.

The difference is very important because tax avoidance is completely legal and encouraged. Tax evasion is illegal.

Your statement below is false as written:

>the IRS pays as a bounty for intelligence on tax avoidance scheme

From the IRS' website: [1]

"The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe"

You can't fail to pay a tax that you legally avoid.

[1] https://www.irs.gov/uac/whistleblower-informant-award

Here is some more information on the difference between tax avoidance and tax evasion: http://www.investopedia.com/video/play/tax-avoidance-vs-tax-...

While it would be unconstitutional in the United States, keep in mind that in certain countries "ex post facto" making certain tax avoidance schemes retroactively unlawful is not unheard of, e.g. BN66 in the UK: https://en.wikipedia.org/wiki/BN66

The IRS sometimes does that. They'll decide in 2008 that some accounting rule is invalid, and oh by the way, that means you owe taxes back to 2002 when you started using it. They can't reverse a rule, but apparently rules can be clarified at any time, so if your loophole hasn't been affirmatively decided, it may retroactively disappear.

Could this happen to the backdoor Roth? I know they've clarified the "mega" backdoor Roth, making it perfectly valid, but AFAIK there hasn't been word on the backdoor Roth.

I think that's a legislative issue, so probably not.

I'm thinking of cases like tax credits for R&D, where a company claims the lab janitors salary because the lab isn't going to clean itself, but the IRS decides that salary doesn't count as a research cost. The law from congress doesn't usually spell such things out. Or it says "necessary personnel" but is a janitor necessary or not?

Intent is the big differentiator. In most jurisdictions, tax evasion is fraud. Fraud gets you in jail. Say you siphon off $1m by doing a deal somewhere, and you don't declare taxes on it. That's evasion.

Avoidance is making sure the proceeds of that deal, for example, end up in a foreign corporate entity with a lower tax rate, while not breaking any laws. Even if you end up paying (close to) nothing, the first will (possibly) land you in jail, the second won't.

The intent to defraud the government is very clear and easy to prove in the first example. In the second, you didn't actually break any laws, and even if the avoidance mechanism wouldn't hold up in court, you didn't actually defraud anyone -> you pay the normal tax rate / maybe some small penalty and some interest / you won't end up in jail.

tldr: don't break the law.. but you can have creative interpretations.

It is completely different. A freegan is a tax avoider.

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