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Tax Avoidance and Evasion

Tax evasion constitutes criminal activity without recourse to legal excuse, such as failing to report self-employment income or deliberately falsifying a return. Tax avoidance refers to taking actions or asserting claims that reduce taxes pursuant to an interpretation of the tax code. When one buys a tax-exempt municipal bond, for example, the tax benefits are both spelled out in the legislation and intended by Congress. Although buying a tax-exempt bond is typically characterized as a form of tax avoidance, the term also includes attempts to exploit gaps and imprecisions in the formal language of tax law so as to claim tax benefits that arguably were not intended by the taxing authority. This often means asserting a literal interpretation of a tax law in a way ...

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