Section 7206(1): False Tax Returns and Statements
Section 7206 establishes, among other crimes, the federal tax crime of making false or fraudulent statements to the IRS, and aiding or assisting a taxpayer in making such statements. Common violations of section 7206 include falsely inflating deductions or underreporting income. However, unlike a number of other federal tax crimes, section 7206 does not technically require that the government prove an actual tax deficiency. This post focuses on violations of section 7206(1).
The statute provides as follows:
I.R.C. § 7206 – FRAUD AND FALSE STATEMENTS
Any person who-
(1) DECLARATION UNDER PENALTIES OF PERJURY.–Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or
(2) AID OR ASSISTANCE.–Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document;
(4) REMOVAL OR CONCEALMENT WITH INTENT TO DEFRAUD.-Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection or any tax imposed by this title;
(5) COMPROMISES AND CLOSING AGREEMENTS.–In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully–
(A) Concealment of property. Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or
(B) Withholding, falsifying, and destroying records. Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, related to the estate or financial condition of the taxpayer or other person liable in respect of tax;
shall be guilty of a felony and, upon conviction thereof, shall be fined* not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.
Declaration under the Penalties of Perjury – Section 7206(1)
In order to establish a violation of section 7206(1), the government must establish the following four elements beyond a reasonable doubt:
[a] Making and subscribing a return, statement, or other document which was false as to a material matter;
[b] The return, statement, or other document contained a written declaration that it was made under the penalties of perjury;
[c] The maker did not believe the return, statement, or other document to be true and correct as to every material matter; and,
[d] The maker falsely subscribed to the return, statement, or other document willfully, with the specific intent to violate the law.
United States v. Loe, 262 F.3d 427, 435 (5th Cir. 2001); United States v. Mann, 161 F.3d 840, 848 (5th Cir. 1998).
“Makes” (Files) any Return, Statement or Document
I.R.C. § 7206(1) applies to “any return, statement, or other document” signed under penalties of perjury. This statute, by its express terms, applies to “other documents.” The government has prosecuted violations of section 7206(1) based on the filing of a number of “other documents,” including the following:
- I.R.S. Collection Information Statements, Form 433-AB and Form 433-A.
- Financial information statement submitted to the I.R.S. for settlement purposes.
- Offer-in-compromise form (Form 656).
- Application for extension of time to file a return.
- Schedule C.
- Schedule B.
- Form W-2.
Signed Under Penalties of Perjury
I.R.C. § 6064 creates a rebuttable presumption that the taxpayer actually signed the document. That is, under section 6064, the mere fact that an individual’s signed name appears on the return is prima facie evidence that he actually signed the return. United States v. Kim, 884 F.2d 189, 195 (5th Cir. 1989). Moreover, courts have found that where a person is authorized to sign another’s name, this may be sufficient even though the taxpayer did not actually sign the document.
Did Not Believe the Document to be True and Correct
This element may be satisfied through evidence of willfulness.
Federal courts have developed a number of tests to determine whether a statement is material. Some courts have merely looked to whether the falsely reported item must be reported correctly in order for the taxpayer to compute his or her tax correctly. Other courts, however, have looked to whether the taxpayer falsely stated an item that would have a tendency to influence the IRS and processing of the return. Other courts have held that an omitted item may be material if it should have been reported on the return, and still other courts look to whether the items constitute affirmative false injuries that have a direct bearing on income figures.
For more Insights and resources on tax crimes, see our prior posts on The Crime of Tax Evasion, Tax Evasion: Attempting to Evade the Assessment of Taxes, Tax Evasion: Evading the Payment of Tax, Tax Crimes and the Statute of Limitations, and The Cheek Defense to Federal Tax Crimes.