In basic terms, tax fraud is the willful attempt to defeat or circumvent the tax law in order to reduce one’s tax liability. Income tax fraud is also sometimes referred to as tax evasion.
Tax fraud is set forth in 26 U.S.C. § 7206 is usually a much more serious offense than tax evasion. While both have serious consequences, tax fraud is usually a felony with serious consequences, including prison, criminal penalties and civil penalties.
Tax evasion is the broad term for actions by individuals, firms, trusts, and other entities to evade the payment of tax liabilities by breaking the law . Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting (such as under-declaring income, profits or gains; or overstating deductions).
Tax minimization, on the other hand is not income tax fraud. Every legal taxpayer has the right to legitimately reduce the amount of their taxes owed.