'Tax Fraud' is, in essence, theft from the government, in fact from the Sovereign people, and is often enough conducted on a titanic scale. There is no real reason why it ought not be punished in the same manner as any other theft. Just like blackmail. which turns information into a weapon to extort funds, 'tax fraud' essentially turns well-crafted lies into a weapon with which to rob the Treasury.
Two things seem worth noting.
First, the people who engage in theft by falsely stating their tax liability are far more deterrable sorts than your run-of-the-mill street thug. Most violent crime is committed by people who for whatever reason lack much impulse control, or possess much in the way of future orientation. They don't think much about what they do, and if you are not looking at things with a mind able to sensibly consider 'if this is done, what comes next?' deterrence is just not on the cards. Little but the most immediate prospect of success will be considered.
This is far from the case with a businessman who cheats on his taxes. He knows he is engaged in sharp practice, just like he knows he is unlikely to suffer any adverse consequences for doing so. There will not be hard time in stir should he get caught. There may be some money fine, but compared to catching five to ten, even in a 'Club Fed', that's a trifle. On the existing mores and practices, criminal evasion of taxes is a reasonable, rational action, that people who feel above and apart from society at large are given no reason not to engage in. People imagine a stiff jail term will deter the unthinking street thug, which it will not, and seem to think kid gloves will not encourage calculated, well-planned, and profitable theft by fountain pen.
Second, the fact that is difficult to jail tax cheats has more to do with who writes the laws than with any difficulty in actually discerning when cheating has occurred. For most crimes, the act demonstrates the intent. If someone menaces another and demands money, no inquiry is made into whether the former knew he acted against the law, and intended to act against the law. Why this should not be the case for someone who understates income, or exaggerates costs, or bleeds income off into shells and trusts is unclear to me. The best explanation seems to be that the class of people who construct the laws regarding tax fraud regard people who engage in it as folks of 'our sort', and accordingly approach the business in a spirit of 'there but for the grace of God go I' rather than one of 'well, we'll soon put a stop to the shenanigans these reprobates get up to'. Legislators don't see themselves reflected in an armed robber. Many legislators are tax cheats. Nobody wants to catch themselves out in crime. And so the laws are drawn to be evaded, an industry grows up to give advice on how to do it while preserving some pretense no fraud was really or knowingly intended.
It's very rare that plausible deniability actually is plausible....
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