page_title: Tax noncompliance
section_title: United States
hierarchical_section_title: Tax noncompliance / Difference between avoidance and evasion / United States
caption_attribution_description: English: Ten countries that have the largest absolute amount of tax evasion bar graph.
context_page_description: Tax noncompliance is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of tax liabilities. The use of the term 'noncompliance' is used differently by different authors. Its most general use describes non-compliant behaviors with respect to different institutional rules resulting in what Edgar L. Feige calls unobserved economies. Non-compliance with fiscal rules of taxation gives rise to unreported income and a tax gap that Feige estimates to be in the neighborhood of $500 billion annually for the United States.
  In the United States, the use of the term 'noncompliance' often refers only to illegal misreporting. Laws known as a General Anti-Avoidance Rule statutes which prohibit "tax aggressive" avoidance have been passed in several developed countries including the United States, Canada, Australia, New Zealand, South Africa, Norway and Hong Kong. In addition, judicial doctrines have accomplished the similar purpose, notably in the United States through the "business purpose" and "economic substance" doctrines established in Gregory v.
context_section_description: In the United States "tax evasion" is evading the assessment or payment of a tax that is already legally owed at the time of the criminal conduct. Tax evasion is criminal, and has no effect on the amount of tax actually owed, although it may give rise to substantial monetary penalties.
  By contrast, the term "tax avoidance" describes lawful conduct, the purpose of which is to avoid the creation of a tax liability in the first place. Whereas an evaded tax remains a tax legally owed, an avoided tax is a tax liability that has never existed.
  For example, consider two businesses, each of which have a particular asset (in this case, a piece of real estate) that is worth far more than its purchase price.
  Business One (or an individual) sells the property and underreports its gain. In this instance, tax is legally due. Business One has engaged in tax evasion, which is criminal.
  Business Two (or an individual) consults with a tax advisor and discovers that the business can structure a sale as a "like-kind exchange" (formally known as a 1031 exchange, named after the Code section) for other real estate that the business can use. In this instance, no tax is due of the provisions of section 1031 of the Internal Revenue Code. Business Two has engaged in tax avoidance (or tax mitigation), which is completely within the law.
  In the above example, tax may or may not eventually be due when the second property is sold. Whether and how much tax will be due will depend on circumstances and the state of the law at the time.
caption: Tax campaigner Richard Murphy's estimate of the ten countries with the largest absolute levels of tax evasion. He estimated that global tax evasion amounts to 5 percent of the global economy.[17]
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