Criminal Tax Defense

There are a variety of different crimes that can be alleged related to a taxpayer’s conduct.  Some are more pure tax crimes, while other related crimes may be alleged against taxpayers that are found in other areas of the United States Code.

What can be described as pure tax crimes include the following crimes described in the Internal Revenue Code (Title 26):

1. Tax Evasion or Evasion of Assessment under 26 U.S.C. §7201;
2. Willful Failure to Collect or Pay Over Tax under 26 U.S.C. §7202;
3. Willful failure to file a return under 26 U.S.C. §7203;
4. Fraudulent Withholding Exemption or Failure to Supply Information under 26 U.S.C. §7205;
5. Fraud and False Statements under 26 U.S.C. §7206;
6. Fraudulent Returns, Statements, or Other Documents under 26 U.S.C. §7207; and
7. Interference with the Administration of Internal Revenue Laws under 26 U.S.C. §7212.

A few other crimes that could come into play as it relates to tax matters, including:

1. Aiding and Abetting under 18 U.S.C. §2;
2. Conspiracy to Defraud the Government with Respect to Claims under 18 U.S.C. §286;
3. False, Fictitious or Fraudulent Claims under 18 U.S.C. § 287;
4. Conspiracy to Commit Offense or to Defraud the United States under 18 U.S.C. §371;
5. Fictitious Obligations under 18 U.S.C. §514; and finally
6. Identify Theft under 18 U.S.C. § 1028(a)(7).

The most common attempt to evade or defeat a tax is the affirmative act of filing a false return that omits income and/or claims deductions to which the taxpayer is not entitled. The tax reported on the return is falsely understated and creates a deficiency. Consequently, such willful under reporting constitutes an attempt to evade or defeat tax by evading the correct assessment of the tax.

Evasion of payment generally occurs after the existence of a tax due and owing has been established (either by the taxpayer reporting the amount of tax or by the I.R.S. assessing the amount of tax deemed to be due and owing) and almost always involves an affirmative act of concealment of money or assets from which the tax could be paid. It has been held that it is not essential that the I.R.S. have made a formal assessment of taxes owed and a demand for payment in order for tax evasion charges to be brought. Tax deficiency can arise by operation of law when there is a failure to file and the government later determines the tax liability. United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992).

The Internal Revenue Code defines “persons” subject to §7201 broadly to include obviously individual taxpayers, but also an officer or employee of a corporation; a partner or employee of a partnership; a guardian or executor of an estate; and even return preparers.

The section is broad enough to such that a person may be prosecuted under this statute for willful evasion of someone else’s taxes.

There is generally a six (6) year limitation period for the offense of willfully attempting to evade or defeat any tax. I.R.C. §6531(2).

However, under I.R.C. §6531, the statute of limitations is tolled while a person who has committed the crime is outside the United States or is a fugitive from justice.

Generally, this statute describes 2 offenses:

• A willful failure to collect; and
• A willful failure to truthfully account for and pay over tax.

These crimes are designed primarily to assure compliance by third parties obligated to collect taxes and to deduct from wages paid to employees the employees’ share of Federal Insurance Contribution Act (FICA) taxes and the withholding tax on wages applicable to individual income taxes (i.e., Trust fund taxes). This of course is in addition to the civil Trust Fund Recovery Penalty that can be in addition to or instead of criminal liability.

• 7203 is not tax evasion (§7201), and it’s not failure to pay over tax (§7202).  Instead, a violation under
• §7203 is simply a failure to file a return, supply information, or pay a tax.

There are 4 separate crimes described in §7203, all of which are only misdemeanors:

• Failure to pay a tax or an estimated tax;
  • In the case of a failure topay the tax, there is a strict necessity that the IRS establish an ability to pay on the part of the TP in order to establish the necessary willfulness.
• Failure to file a return
• Failure to keep records; and
• Failure to supply information

There are generally 2 crimes described in §7205:

• Those described in §7205(a) related to Form W‐4 (which is what you fill out when you first start a job where you claim the number of withholding exemptions you are entitled to); and
• Those described in §7205(b) related to what is known as “Backup withholding.”

The §7205(a) crimes are much more common. Common fact patters include:

• An employee falsely claims exemption from withholding, certifying no tax liability incurred for preceding year and none anticipated for current year; or
• An employee falsely inflates the number of “allowances” claimed, thereby reducing or eliminating taxes withheld.

One point on this one: it is the IRS’s burden to show that the alleged violator was, in fact, an employee. Because if a TP can establish that he/she was not an employee, then there was no duty to start with.

7206 makes it a felony to engage in a variety of fraud/false statements. There appears to be some overlap with §7201, but §7206 is broader and encompasses conduct of third parties, including those “willfully aiding or assisting” fraudulent or false returns.

The most commonly committed offenses under this section are those committed in violation of I.R.C. §§ 7206(1) and (2). These subsections address false or fraudulent statements made by a taxpayer to the I.R.S. and those who aid or assist the taxpayer in making such statements. These violations typically result from a taxpayer falsely inflating deductions or under reporting income on federal income tax returns to reduce or avoid his or her tax burden.

7207 imposes a fine and imprisonment for anyone who “willfully delivers or discloses to the Secretary any list, return, account, statement, or other document, known by him to be fraudulent or to be false as to any material matter.”

These cases typically involve false, altered or fictitious documents presented by taxpayers under audit in response to requests for substantiation of claimed itemized deductions or other deductions or credits on the return.

There are generally three crimes described in §7212:

• Corrupt or forcible interference
• Obstruction or impeding of the tax laws
• Forcible Rescue of Seized Property

The first prohibits threats or forcible endeavors to interfere with any officer or employee of the United States who is acting in an official capacity pursuant to Title 26.

These cases typically involve attempts to disrupt, intimidate or impede I.R.S. employees (Special Agents, Revenue Officers and Revenue Agents) while performing investigative, examination or collection activities.

Obstruction or impeding of tax laws, commonly referred to as “omnibus clause,” prohibits any act which obstructs or impedes, or endeavors to obstruct or impede, the due administration of the tax laws.  Some of the examples of acts where this provision has been used to prosecute relate to someone’s filing some fake documents, such as:

• In one case, a taxpayer filed a fake bankruptcy petition for the IRS agent that was auditing them;
• Another taxpayer filed a fraudulent lien on an IRS agent’s property
• Yet another sent multiple invoices for a variety of services to an IRS agent
• Finally, in one case, a defendant filed false Forms 1099 with the I.R.S. for the purpose of causing the I.R.S. to initiate an investigation of his creditors in order to harass the creditors

Forcible Rescue of Seized Property – the 3rd crime set forth in §7212(b) is Forcible Rescue of Seized Property.