What constitutes tax evasion?

Tax evasion is characterized by illegal actions aimed at reducing tax liability. It typically involves practices such as failing to report income earned, underreporting revenue, or inflating deductions without proper justification. These actions are designed to deceive tax authorities and evade the payment of taxes owed.

When a taxpayer chooses not to report certain income or claims deductions that they are not entitled to, they are intentionally engaging in deceptive practices to reduce their tax burden. This goes beyond simply taking advantage of legal tax deductions or credits, as those actions are permissible under tax law when done correctly and within legal frameworks.

In contrast, minimizing tax liability through legitimate deductions or credits is considered legal tax planning and falls within the rules established by tax legislation. Additionally, using tax shelters and miscalculating tax filings—whether accidentally or through oversight—does not inherently constitute tax evasion, as they may lack the intentional fraud component that defines evasion. Thus, the correct understanding of tax evasion involves the intentional act of deceit against tax obligations, which aligns with the definition provided in the correct answer.