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TAX CRIMES HANDBOOK

Office of Chief Counsel

Criminal Tax Division

2009

PREFACE

The goal in developing this handbook was to provide a resource for

Criminal Tax Attorneys to use in the course of advising their client on criminal

tax matters, and in evaluating recommendations for prosecution.

This handbook is not intended to create or confer any rights, privileges, or

benefits on any person. It is not intended to have the force of law, or of a

statement of Internal Revenue Service policy. See, United States v. Caceres, 440

U.S. 741 (1979).

_________/s/______________

EDWARD F. CRONIN

Division Counsel/Associate Chief Counsel

(Criminal Tax)

Internal Revenue Service

This Page is Blank –

NO BORDER

CHAPTER 1

SECTION 1

TITLE 26 TAX VIOLATIONS

TAX EVASION - I.R.C. § 7201

1-1.01

Statutory Language

1-1.02

Generally

1-1.03

Evasion of Assessment

1-1.04

[1] Elements of the Offense

[2] The Attempt

[3] Additional Tax Due and Owing

[4] Willfulness

[5] Venue

[6] Statute of Limitations

Evasion of Payment

[1] Elements of the Offense

[2] The Attempt

[3] Additional Tax Due and Owing

[4] Willfulness

[5] Venue

[6] Statute of Limitations

1-1.05

Collateral Estoppel

1-1.06

Lesser Included Offenses

1-1.07

Table of Cases

CHAPTER 1

SECTION 2

TITLE 26 TAX VIOLATIONS

WILLFUL FAILURE TO COLLECT OR PAY OVER TAX

I.R.C. § 7202

1-2.01 Statutory Language

1-2.02 Generally

1-2.03 Elements of the Offense

[1] Duty to Collect and/or to Truthfully Account for and Pay Over

[2] Failure to Collect or Truthfully Account for and Pay Over

[3] Willfulness

1-2.04 Motor Fuel Excise Tax Prosecutions

1-2.05 Venue

1-2.06 Statute of Limitations

1-2.07 Table of Cases

CHAPTER 1

SECTION 3

TITLE 26 TAX VIOLATIONS

FAILURE TO FILE, SUPPLY INFORMATION OR PAY TAX

- I.R.C. § 7203

1-3.01

Statutory Language

1-3.02

Generally

1-3.03

Failure to Pay a Tax

1-3.04

Failure to File a Return

1-3.05

Failure to Keep Records

1-3.06

Failure to Supply Information

1-3.07

Venue

1-3.08

Statute of Limitations

1-3.09

Table of Cases

iii

CHAPTER 1

SECTION 4

TITLE 26 TAX VIOLATIONS

FRAUDULENT WITHHOLDING EXEMPTION OR

FAILURE TO SUPPLY INFORMATION - I.R.C. § 7205

1-4.01

Statutory Language

1-4.02

Generally

1-4.03

Section 7205(a) Offense

1-4.04

Section 7205(b) Offense

1-4.05

Venue

1-4.06

Statute of Limitations

1-4.07

Table of Cases

CHAPTER 1

SECTION 5

TITLE 26 TAX VIOLATIONS

FRAUD AND FALSE STATEMENTS - I.R.C. § 7206

1-5.01

Statutory Language

1-5.02

Generally

1-5.03

§ 7206(1) - Declaration under the Penalties of Perjury

1-5.04

1-5.05

[1] Elements of the Offense

[2] “Makes” (Files) any Return, Statement or Document

[3] Return, Statement or Other Document

[4] Signed Under Penalties of Perjury

[5] Did Not Believe the Document to be True and Correct

[6] Materiality

[7] Willfulness

§ 7206(2) - Aiding or Assisting the Preparation of a False or Fraudulent Document 71

[1] Elements of the Offense

[2] Aiding and Assisting

[3] Return, Affidavit, Claim, or Other Document

[4] Materiality

[5] Willfulness

§ 7206(4) - Removal or Concealment with Intent to Defraud

[1] Elements of the Offense

[2] Removes, Deposits, or Conceals

[3] Tax Imposed or Levy Authorized

[4] Willfulness

1-5.06

§ 7206(5) - Compromises and Closing Agreements

[1] Scope of section 7206(5)

[2] Willfulness

1-5.07

Venue

1-5.08

Statute of Limitations

1-5.09

Duplicity Considerations for Lesser Included Offenses

1-5.10

Table of Cases

CHAPTER 1

SECTION 6

TITLE 26 TAX VIOLATIONS

FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS

I.R.C. § 7207

1-6.01

Statutory Language

1-6.02

Elements of the Offense

1-6.03

Summary

1-6.04

Venue

1-6.05

Statute of Limitations

1-6.06

Table of Cases

vii

CHAPTER 1

SECTION 7

TITLE 26 TAX CRIMES

ATTEMPTS TO INTERFERE WITH ADMINISTRATION OF

INTERNAL REVENUE LAWS - I.R.C. § 7212

1-7.01

Statutory Language

1-7.02

Corrupt or Forcible Interference - I.R.C. § 7212(a)

1-7.03

[1] Generally

[2] Corrupt or Forcible Interference - Offense No. 1

[3] Corrupt Endeavors to Impede - “Omnibus Clause”

Offense No. 2

Forcible Rescue of Seized Property - I.R.C. § 7212(b)

[1] Elements of the Offense

[2] Summary

1-7.04

Venue

1-7.05

Statute of Limitations

1-7.06

Table of Cases

viii

CHAPTER 2

SECTION 1

RELATED TITLE 18 OFFENSES

AIDING AND ABETTING - 18 U.S.C. § 2

2-1.01

Statutory Language

102

2-1.02

Elements of the Offense

102

2-1.03

Summary

102

2-1.04

Venue

105

2-1.05

Statute of Limitations

105

2-1.06

Table of Cases

106

CHAPTER 2

SECTION 2

RELATED TITLE 18 OFFENSES

CONSPIRACY TO DEFRAUD THE GOVERNMENT WITH

RESPECT TO CLAIMS - 18 U.S.C. § 286

2-2.01

Statutory Language

109

2-2.02

Elements of the Offense

109

2-2.03

Summary

109

2-2.04

Venue

110

2-2.05

Statute of Limitations

110

2-2.06

Table of Cases

111

CHAPTER 2

SECTION 3

RELATED TITLE 18 OFFENSES

FALSE, FICTITIOUS, OR FRAUDULENT CLAIMS 18

U.S.C. § 287

2-3.01

Statutory Language

113

2-3.02

Elements of the Offense

113

2-3.03

Summary

114

2-3.04

Venue

118

2-3.05

Statute of Limitations

119

2-3.06

Table of Cases

120

CHAPTER 2

RELATED TITLE 18 OFFENSES

SECTION 4

CONSPIRACY TO COMMIT OFFENSE OR TO

DEFRAUD THE UNITED STATES - 18 U.S.C. § 371

2-4.01

Statutory Language

123

2-4.02

Generally

123

2-4.03

Elements of the Offense

124

2-4.04

Summary

125

[1] The Agreement

125

[2] Parties to the Conspiracy

126

[3] Nexus Required: Parties and the Agreement

128

[4] Overt Act

128

[5] Intent

130

[6] Conspiracy to Commit an Offense Against the United States

131

[7] Conspiracy to Defraud the United States

132

[8] Conspiracy to Impede, Obstruct or Impair the I.R.S. -Klein

Conspiracy

133

[9] Duration of the Conspiracy

136

2-4.05

Venue

137

2-4.06

Statute of Limitations

137

2-4.07

Use of § 371: Evidentiary Considerations

138

2-4.08

Table of Cases

141

xii

CHAPTER 2

SECTION 5

RELATED TITLE 18 OFFENSES

FICTIOUS OBLIGATIONS - 18 U.S.C. § 514

2-5.01

Statutory Language

151

2-5.02

Elements of the Offense

151

2-5.03

Summary

151

2-5.04

Venue

153

2-5.05

Statue of Limitations

153

2-5.06

Table of Cases

154

xiii

CHAPTER 2

RELATED TITLE 18 OFFENSES

SECTION 6

IDENTITY THEFT - 18 U.S.C. § 1028(a)(7)

2-6.01

Statutory Language

156

2-6.02

Elements of the Offense

156

2-6.03

Summary

156

[1] Means of Identification Documents

157

[2] Intent

157

[3] Interstate or Foreign Commerce

157

2-6.04

Venue

158

2-6.05

Statue of Limitations

158

2-6.06

Table of Cases

159

xiv

CHAPTER 1

SECTION 1

TITLE 26 TAX VIOLATIONS

TAX EVASION - I.R.C. § 7201

1-1.01

Statutory Language

1-1.02

Generally

1-1.03

Evasion of Assessment

1-1.04

[1] Elements of the Offense

[2] The Attempt

[3] Additional Tax Due and Owing

[4] Willfulness

[5] Venue

[6] Statute of Limitations

Evasion of Payment

[1] Elements of the Offense

[2] The Attempt

[3] Additional Tax Due and Owing

[4] Willfulness

[5] Venue

[6] Statute of Limitations

1-1.05

Collateral Estoppel

1-1.06

Lesser Included Offenses

1-1.07

Table of Cases

1-1.01 Statutory Language

I.R.C. § 7201 - ATTEMPT TO EVADE OR DEFEAT TAX

Any person who willfully attempts in any manner to evade or defeat any tax

imposed by this title or the payment thereof shall, in addition to other penalties

provided by law, 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 5 years, or both, together with the costs of prosecution.

* As to offenses committed after December 31, 1984, the Criminal Fine Enforcement Act

of 1984 (P.L. 92-596) enacted as 18 U.S.C. § 3571, increased the maximum permissible

fines for felony offenses set forth in section 7201. The maximum permissible fine is

$250,000 for individuals and $500,000 for corporations.

1-1.02 Generally

[1] Two kinds of tax evasion. Section 7201 creates two offenses: (a) the willful attempt to

evade or defeat the assessment of a tax, and (b) the willful attempt to evade or defeat the

payment of a tax. Sansone v. United States, 380 U.S. 343, 354 (1965). See also, United States v.

Shoppert, 362 F.3d 451, 454 (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Mal,

942 F. 2d 682, 687-88 (9th Cir. 1991) (if a defendant transfers assets to prevent the I.R.S. from

determining his true tax liability, he has attempted to evade assessment; if he does so after a tax

liability has become due and owing, he has attempted to evade payment).

[a] Evasion of assessment. 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.

[b] Evasion of payment. This offense 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. As

discussed in Section 1-1.04 below, 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).

Note: These two offenses share the same basic elements necessary to prove a violation of

I.R.C. § 7201. For purposes of clarity and practicality when using this Handbook as a

resource, these offenses are discussed separately.

[2] Persons Liable for Title 26 Violations.

[a] Statutory definition of "person."

1. The term "person," as defined by I.R.C. § 7343, includes an officer or

employee of a corporation, or a member or employee of a partnership, who is under a

duty to perform the act in respect of which the violation occurs. See also, United States v.

Miller, 545 F.2d 1204, 1216 (9th Cir. 1976); Lumetta v. United States, 362 F.2d 644, 647

(8th Cir. 1966); Locke v. United States, 166 F.2d 449, 450-51 (5th Cir. 1948); Currier v.

United States, 166 F.2d 346, 348 (1st Cir. 1948); United States v. Berger, 325 F. Supp.

1297, 1303-05 (S.D. N.Y. 1971), aff'd, 456 F.2d 1349 (2d Cir. 1972), cert. denied, 409

U.S. 892 (1972).

2. Guardians and Executors. A Section 7203 case interpreted the term “person”

to include a guardian or executor of estate. United States v. Jenning, 31 A.F.T.R.2d 73782 (9th Cir. 1973).

[b] Individuals. United States v. Sloan, 939 F.2d 499, 500-01 (7th Cir. 1991); United

States v. Condo, 741 F.2d 238, 239 (9th Cir. 1984); United States v. Rice, 659 F.2d 524, 528

(5th Cir. 1981).

[c] Return preparers. United States v. Donovan, 250 F. Supp. 463, 465-66 (W.D. Tex.

1966); United States v. Mesheski, 169 F. Supp. 372 (E.D. Wis. 1959), rev'd, 286 F.2d 345 (7th

Cir. 1961).

[d] Corporations. United States v. Knox Coal Co., 347 F.2d 33 (3d Cir.), cert. denied,

382 U.S. 904 (1965); United States v. American Stevedores, Inc., 310 F.2d 47, 48 (2d Cir.

1962), cert. denied, 371 U.S. 969 (1963); United States v. Lustig, 163 F.2d 85 (2d Cir. 1947),

cert. denied, 332 U.S. 775 (1947); Pankratz Lumber Co. v. United States, 50 F.2d 174 (9th

Cir. 1931).

[3] Scope - Evasion of another's tax. A person may be prosecuted under this statute for

willful evasion of another's tax. The offense of tax evasion is very broadly defined to include a

person's attempt "in any manner to evade or defeat any tax imposed by [Title 26] or payment

thereof." Thus, the statute permits prosecution of one party for the evasion of another party's

tax liability. See, United States v. Wilson, 118 F.3d 228, 236 (4th Cir. 1997); see also, United

States v. Trov, 293 U.S. 58 (1934); United States v. Frazier, 365 F.2d 316, 318 (6th Cir.

1966), cert. denied, 386 U.S. 971 (1967); Tinkoff v. United States, 86 F.2d 868, 876 (7th Cir.

1937).

1-1.03 Evasion of Assessment

[1] Elements of the Offense:

[a] An attempt to evade or defeat a tax or the payment of a tax;

[b] An additional tax due and owing; and,

[c] Willfulness.

Sansone v. United States, 380 U.S. 343, 351 (1965); Spies v. United States, 317 U.S. 492

(1943); United States v. Lavoie, 433 F.3d 95, 97-99 (1st Cir. 2005); United States v.

Farnsworth, 456 F.3d 394, 401-03 (3d Cir. 2006); United States v. Nolen, 472 F.3d 362, 37677 (5th Cir. 2006); United States v. Cor-Bon Custom Bullet Co., 287 F.3d 576, 579 (6th Cir.),

cert. denied, 537 U.S. 880 (2002); United States v. Daniels, 387 F.3d 636, 639 (7th Cir.), cert.

denied, 544 U.S. 911 (2004); United States v. Shoppert, 362 F.3d 451, 454 (8th Cir.), cert.

denied, 543 U.S. 911 (2004); United States v. Kayser, 488 F.3d 1070, 1073 (9th Cir. 2007);

United States v. Anderson, 319 F.3d 1218, 1219-20 (10th Cir. 2003); United States v.

Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert. denied, 530 U.S. 1230 (2000); United States

v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992); United States v. Masat, 896 F.2d 88, 97-99 (5th

Cir. 1990).

Each element must be proved beyond a reasonable doubt. United States v. Marashi, 913

F.2d 724, 735-36 (9th Cir. 1990); United States v. Williams, 875 F.2d 846, 849 (11th Cir.

1989).

[2] The Attempt

[a] Attempt to evade assessment. The taxpayer must undertake some action, that is,

engage in an affirmative act for the purpose of attempting to evade or defeat the assessment of a

tax. This element requires more than passive neglect of a statutory duty. A mere act of willful

omission does not satisfy the affirmative act requirement of I.R.C. § 7201. United States v.

Masat, 896 F.2d 88, 97-99 (5th Cir. 1990).

[b] Examples of affirmative acts include:

1. Filing of a false return. United States v. Habig, 390 U.S. 222, 223 (1968);

Sansone v. United States, 380 U.S. 343, 351-52 (1965); United States v. Coppola, 425

F.2d 660 (2d Cir. 1969); United States v. Gricco, 277 F.3d 339, 351-52 (3d Cir. 2002);

United States v. Boulware, 384 F.3d 794 (2004), 470 F.3d 931, 934 (9th Cir. 2006),

reversed on other grounds, 128 S. Ct. 1168, 1182 (2008).

2. Filing of a false amended return. United States v. Samara, 643 F.2d 701, 704

(10th Cir. 1981); Norwitt v. United States, 195 F.2d 127, 133-34 (9th Cir. 1952), cert.

denied, 344 U.S. 817 (1952).

3. Failure to file return coupled with an affirmative act of evasion is commonly

referred to as a "Spies evasion." Passive failure to file tax returns is not tax evasion. If the

taxpayer failed to file a return, an evasion case can be maintained only if the taxpayer

engaged in an affirmative act to conceal or mislead. Spies v. United States, 317 U.S. 492,

498-99 (1943). By way of illustration, and not by way of limitation, the Supreme Court in

Spies set out examples of conduct which can constitute affirmative acts of evasion:

(A) Keeping a double set of books.

(B) Making false or altered entries.

(D) Destruction of records.

(E) Concealing sources of income.

(F) Handling transactions to avoid usual records.

(G) Any other conduct likely to conceal or mislead.

See also, United States v. Brooks, 174 F.3d 950, 954-56 (8th Cir. 1999); United States v.

Meek, 998 F.2d 776, 779 (10th Cir. 1993).

4. Filing False W-4's plus Failure to file a Return Equals Evasion. Filing false

and fraudulent Forms W-4 claiming to be exempt from federal taxation in combination

with failure to file tax returns for each year can constitute an affirmative act of evasion.

See, United States v. Brooks, 174 F.3d 950, 954-56 (8th Cir. 1999); United States v.

King, 126 F.3d 987, 991-94 (7th Cir. 1997) (filing false forms W-4 is an affirmative act

despite the fact that those forms had expired); United States v. Willams, 928 F.2d 145,

147-49 (5th Cir.), cert. denied, 502 U.S. 811 (1991); United States v. Connor, 898 F.2d

942, 944-45 (3d Cir.), cert. denied, 497 U.S. 1029 (1990); United States v. Copeland, 786

F.2d 768, 770-71 (7th Cir. 1985); United States v. Willis, 277 F.3d 1026, 1031 (8th Cir.

2002).

5. False statements to Treasury agents relating to the fraud. United States v.

Beacon Brass Company, Inc., 344 U.S. 43, 45-46 (1952); United States v. Wilson, 118

F.3d 228, 236 (4th Cir. 1997); United States v. Winfield, 960 F.2d 970, 973-74 (11th Cir.

1992). But see, United States v. Romano, 938 F.2d 1569, 1573 (2d Cir. 1991)(equivocal

statements to officials do not constitute an affirmative act).

6. Corporate officer's diversion of corporate funds to pay personal expenses.

United States v. Boone, 951 F.2d 1526, 1540-41 (9th Cir. 1991); Katz v. United States,

321 F.2d 7, 10 (1st Cir.), cert. denied, 375 U.S. 903 (1963); United States v. American

Stevedores, Inc., 310 F.2d 47, 48 (2d Cir. 1962), cert. denied, 371 U.S. 969 (1963);

United States v. Brill, 270 F.2d 525, 526 (3d Cir. 1959).

7. Sluicing off corporate income to principal shareholders in the guise of

commissions or salaries out of proportion to the value of service rendered to the

corporate taxpayer. United States v. Ragen, 314 U.S. 513, 525-26 (1942); United States

v. Keenan, 267 F.2d 118, 123 (7th Cir.), cert. denied, 361 U.S. 863 (1959).

8. Consistent pattern of overstating deductions. Zacher v. United States, 227

F.2d 219, 224 (8th Cir. 1955), cert. denied, 350 U.S. 993 (1956); United States v.

Trevino, 394 F.3d 771, 777-78 (9th Cir. 2005), cert. denied, 547 U.S. 1022 (2006).

9. Concealment of bank accounts. United States v. Wilson, 118 F.3d 228, 236

(4th Cir. 1997); Paschen v. United States, 70 F.2d 491 (7th Cir. 1934). Using a false SSN

on bank accounts. United States v. Carlson, 235 F.3d 466, 469 (9th Cir. 2000), cert.

denied, 121 S.Ct. 1627 (2001).

10. Holding property in nominee names. United States v. Shoppert, 362 F.3d

451, 460 (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Wilson, 118 F.3d

228, 236 (4th Cir. 1997); United States v. Peterson, 338 F.2d 595, 597 (7th Cir. 1964),

cert. denied, 380 U.S. 911 (1965).

11. Representing political gratuities as gifts. Murray v. United States, 117 F.2d

40, 43-45 (8th Cir. 1941).

12. Doing business in diverse names and keeping large sums of cash in safe

deposit boxes in numerous banks. United States v. Zimmerman, 108 F.2d 370, 379 (7th

Cir. 1939).

13. Failure to file declaration of estimated tax, concealing or attempting to

conceal true income, failure to pay income tax due, and filing frivolous returns --a

purported income tax return (tax of $10.75) and an amended return (tax of $312.67).

United States v. Afflerbach, 547 F.2d 522 (10th Cir. 1976).

14. Structuring cash transactions to evade the filing of Bank Secrecy Act reports.

United States v. Mounkes, 204 F.3d 1024, 1030 (10th Cir.), cert. denied, 530 U.S. 1230

(2000).

[c] Affirmative acts pre-dating the date of deficiency. If the indictment mentions only the

date of deficiency as the date of the crime and fails to mention the predeficiency period, then

the government is precluded from relying on evidence of acts occurring in the predeficiency

period as evidence of affirmative acts of evasion. United States v. Voight, 89 F.3d 1050,

1089-90 (3d Cir.), cert. denied, 519 U.S. 1047 (1996).

[d] Affirmative acts serving purposes other than tax evasion. If tax evasion motive plays

any part in defendant’s conduct, the offense of tax evasion may be made out even though the

conduct may also serve purposes other than tax evasion. United States v. Voight, 89 F.3d

1050, 1090 (3d Cir.), cert. denied, 519 U.S. 1047 (1996).

[3] Additional Tax Due and Owing

[a] Generally. The government must demonstrate the existence of a tax due and owing, i.e., a

tax deficiency, to prove tax evasion. The government must prove the criminal tax adjustments

include evidence of criminal intent. Defense counsel will attack this element of the case if at all

possible. Therefore, it is important to verify that the income from which the tax deficiency

resulted was in fact taxable income. See, I.R.C. §§ 61, 62 and 63.

[b] Examples of taxable income not expressly specified in the Code, include:

1. Gambling. Garner v. United States, 501 F.2d 228 (9th Cir. 1974), aff'd on

other grounds, 424 U.S. 648 (1976); McClanahan v. United States, 292 F.2d 630, 631-32

(5th Cir.), cert. denied, 368 U.S. 913 (1961).

2. Campaign contributions used for personal purposes. United States v. Scott,

660 F.2d 1145, 1152 (7th Cir. 1981), cert. denied, 455 U.S. 907 (1982).

3. Embezzlement. James v. United States, 366 U.S. 213, 221-22 (1961); United

States v. Eaken, 17 F.3d 203 (7th Cir. 1994); United States v. Kleifgen, 557 F.2d 1293,

1298-99 (9th Cir. 1977).

4. Extortion Proceeds. Rutkin v. United States, 343 U.S. 130, 136-39 (1952);

United States v. Cody, 722 F.2d 1052 (2d Cir. 1983), cert. denied, 467 U.S. 1226 (1984).

5. Fraud Income. United States v. Dixon, 698 F.2d 445, 446 (11th Cir. 1983)

(gross income includes proceeds from investment fraud scheme); Moore v. United States,

412 F.2d 974, 978 (5th Cir. 1969)(income includes gains from illegal activities).

6. Loans received with no intent to repay. United States v. Curtis, 782 F.2d 593,

596 (6th Cir. 1986); United States v. Swallow, 511 F.2d 514, 519 (10th Cir.), cert.

denied, 423 U.S. 845 (1975); United States v. Rosenthal, 470 F.2d 837, 842 (2d Cir.

1972), cert. denied, 412 U.S. 909 (1973); United States v. Rochelle, 384 F.2d 748, 75152 (5th Cir. 1967), cert. denied, 390 U.S. 946 (1968).

7. Kickbacks. United States v. Sallee, 984 F.2d 643 (5th Cir. 1993); United States v.

Cody, 722 F.2d 1052 (2d Cir. 1983); United States v. Fogg, 652 F.2d 551, 555 (5th Cir. 1981),

cert. denied, 456 U.S. 905 (1982); United States v. Swallow, 511 F.2d 514, 519 (10th Cir.),

cert. denied, 423 U.S. 845 (1975); United States v. Wyss, 239 F.2d 658, 660 (7th Cir. 1957).

[c] Tax deficiency does not include interest and penalties if the violation is evasion of

assessment. United States v. Mal, 942 F. 2d 682, 687 (9th Cir. 1991).

[d] Evading another's tax liability. A tax deficiency may be predicated on taxable income

that was taxable either to the person charged or another person or entity. United States v. Trov,

293 U.S. 58 (1934); United States v. Aracri, 968 F.2d 1512, 1523 (2d Cir. 1992); United States

v. Frazier, 365 F.2d 316, 318 (6th Cir. 1966), cert. denied, 386 U.S. 971 (1967); Tinkoff v.

United States, 86 F.2d 868, 876 (7th Cir. 1937).

[e] Assessment and demand not required. If the prosecution theory is evasion of

assessment, there need not be a prior formal tax assessment or demand for payment. 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);

United States v. Dack, 747 F.2d 1172, 1174 (7th Cir. 1984).

[f] Amount of tax to be proven. The government need not prove a precise amount of tax

due and owing or prove its case to a mathematical certainty. United States v. Johnson, 319

U.S. 503, 517-18 (1943); United States v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert.

denied, 530 U.S. 1230 (2000); United States v. Bender, 606 F.2d 897, 898 (9th Cir. 1979);

United States v. Keller, 523 F.2d 1009, 1012 (9th Cir. 1975).

1. Most circuits require the government to show that a substantial tax deficiency

existed with respect to the years involved in the charge. United States v. Burkhart, 501 F.2d

993, 995 (6th Cir. 1974), cert. denied, 420 U.S. 946 (1975); United States v. Marcus, 401

F.2d 563, 565 (2d Cir. 1968), cert. denied, 393 U.S. 1023 (1969); Swallow v. United States,

307 F.2d 81, 83 (10th Cir. 1962), cert. denied, 371 U.S. 950 (1963); United States v. Alker,

260 F.2d 135, 140 (3d Cir. 1958), cert. denied, 59 U.S. 906 (1959).

2. In the Seventh and Ninth Circuits there is no statutory requirement of

substantiality, so showing some tax deficiency suffices. United States v. Daniels, 387 F.3d

636, 641 (7th Cir.), cert. denied, 544 U.S. 911 (2004); United States v. Marashi, 913 F.2d

724, 735-736 (9th Cir. 1990); United States v. Bender, 606 F.2d 897, 898 (9th Cir. 1979).

[g] Technical defenses.

1. Loss carryback or "Lucky Loser Argument" is no defense. Net operating

losses which occur after tax returns are required to be filed cannot be carried back to

eliminate a tax liability. Such carryback losses cannot be used to reduce or eliminate

misstatements of tax liability when fraudulently made. Willingham v. United States, 289 F.2d

283, 287-88 (5th Cir. 1961), cert. denied, 368 U.S. 826 (1961).

2. Insufficient Earnings and Profits (E&P). Many tax schemes involve shareholders of

closely held C corporations (corporations that pay tax) diverting corporate receipts to themselves or

their family members, having the corporation pay their personal expenses, and other schemes where

the corporate funds are distributed to the shareholders without the shareholders reporting any gross

income and the corporation’s taxable income being understated. In United States v. Boulware, 128

S.Ct. 1168, 1182 (2008), the Supreme Court held that in determining the taxable amount of any such

corporate distributions to the shareholder the distribution rules of I.R.C. §§ 301 and 316 apply.

In general, the distribution rules of sections 301 and 316 provide that corporate distributions to

shareholders are paid first out of current E&P, second out of accumulated E&P, and third out of

capital (if the distribution exceeds current and accumulated E&P and the shareholder’s basis in the

stock of the corporation, then such excess is taxed as a capital gain). The defense is that the

corporation lacked current or accumulated E&P; therefore, any distributions by the corporation to

the shareholder are a non-taxable return of capital.

To overcome this defense, the government must prove the corporation had current or accumulated

E&P. To compute E&P, start with the taxable income of the corporation as corrected. A number

of technical adjustments are made to the taxable income, most of which would not be at issue in a

criminal tax case, so the amounts of these adjustments from the corporation’s records could be

used. Reduce the adjusted taxable income, by the tax due on the corrected taxable income to arrive

at E&P. Any distributions paid out of E&P are taxable (constructive) dividends to the shareholder.

In deciding Boulware, the Supreme Court adopted the holding of the Second Circuit Court of

Appeals in United States v. D’Agostino, 145 F.3d 69 (2d Cir. 1998), and rejected the following

circuit court decisions: United States v. Williams, 875 F.2d 846 (11th Cir. 1989); United States v.

Thetford, 676 F.2d 170 (5th Cir. 1982), cert. denied, 459 U.S. 1148 (1983); United States v. Miller,

545 F.2d 1204 (9th Cir. 1976), cert. denied, 430 U.S. 930 (1977); and Davis v. United States, 226

F.2d 331 (6th Cir. 1955), cert. denied, 350 U.S. 965 (1956).

3. Reclassify business expenses. In United States v. Kayser, 488 F.3d 1070,

1073 (9th Cir. 2007), a divided panel of the 9th Circuit overturned defendant’s conviction by

allowing him to reclassify previously claimed corporate business expenses as personal

business expenses which offset unreported income and resulted in no tax due and owing.

The court did not overrule United States v. Miller, 545 F. 2d 1204 (9th Cir. 1976), cert.

denied, 430 U. S. 930 (1977), which had held otherwise, but interpreted Miller’s holding as

being consistent with the court’s decision.

4. Different method of reporting or accounting. As a general rule, the

Government must use the taxpayer's method of accounting in computing the income. Fowler

v. United States, 352 F.2d 100, 103 (8th Cir. 1965), cert. denied, 383 U.S. 907 (1966); United

States v. Vardine, 305 F.2d 60, 64 (2d Cir. 1962); United States v. Hestnes, 492 F. Supp.

999, 1000-01 (W.D. Wis. 1980). If the taxpayer used a particular method of reporting

income, then the taxpayer is bound by that choice at trial. The taxpayer cannot report his

income on the cash method and then at trial, allege that on an accrual basis unreported

income would be a less than the Government proved on a cash basis. Clark v. United States,

211 F.2d 100, 105 (8th Cir. 1954), cert. denied, 348 U.S. 911 (1955). See also, United States

v. Helmsly, 941 F.2d 71, 86-87 (2d Cir. 1991)(defendant not free to re-calculate taxes

resorting to one of four depreciation methods to defend the charge by showing that another

depreciation method would have resulted in no tax liability); United States v. Hecht, 705 F.

2d 976, 977-78 (8th Cir. 1983).

5. A legitimate claim to a foreign tax credit is a defense. United States v. Cruz,

698 F.2d 1148, 1152 (11th Cir. 1983); United States v. Campbell, 351 F.2d 336, 338-39 (2d

Cir. 1965), cert. denied, 383 U.S. 907 (1966). Liability for the foreign tax credit must be fully

established as an amount owed to the foreign government.

[4] Willfulness

[a] Willfulness is defined as the "voluntary, intentional violation of a known legal duty."

Cheek v. United States, 498 U.S. 192, 200-01 (1991); United States v. Pomponio, 429 U.S. 10,

12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973); United States v. Pensyl, 387 F.3d

456, 458-59 (6th Cir. 2004); United States v. George, 420 F.3d 991, 999 (9th Cir. 2005).

[b] Subjective Test. A defendant's good faith belief that he is not violating the tax laws, no

matter how objectively unreasonable that belief may be, is a defense in a tax prosecution. Cheek

v. United States, 498 U.S. 192, 199-201 (1991). See also, United States v. Grunewald, 987 F.2d

531, 535-36 (8th Cir. 1993); United States v. Pensyl, 387 F.3d 456, 459 (6th Cir. 2004).

1. Erroneous beliefs. A defendant's erroneous belief that tax laws are

unconstitutional is no defense to tax evasion. Cheek v. United States, 498 U.S. 192,

205-06 (1991).

2. Law is vague or unsettled.

(A) Where the law is vague or unsettled as to whether a transaction has

generated taxable income, courts have found the defendant lacked willfulness. For

instance:

(i) Payments given by wealthy widower to mistresses where civil

tax cases had held such payments were gifts. United States v. Harris, 942

F.2d 1125, 1131 (7th Cir. 1991).

(ii) Prior Tax Court case accepting income reporting method

made it inappropriate to impose criminal liability for using that method.

United States v. Heller, 830 F. 2d 150, 154-55 (11th Cir. 1987).

(iii) Novel issue of tax treatment of money received from sale of

rare blood. United States v. Garber, 607 F.2d 92, 100 (5th Cir. 1979).

(iv) Business income on Indian reservation in light of conflict

among government branches on the issue. United States v. Critzer, 498

F.2d 1160, 1162 (4th Cir. 1974).

(B) The fact that an appellate court has not decided an issue does not

mean that the law is vague or unsettled if established principles of tax law clearly

delineate the scheme's illegality. See, e.g., United States v. Tranakos, 911 F.2d

1422, 1430-31 (10th Cir. 1990)(addressing use of sham transactions to avoid

taxation); United States v. Krall, 835 F.2d 711, 714 (8th Cir. 1987)(regarding use

of sham trusts to avoid taxation); United States v. Crooks, 804 F.2d 1441 (9th Cir.

1986) (concerning principle favoring tax treatment of substance over form);

United States v. George, 420 F. 3d 991, 995-96 (9th Cir. 2005)(concerning

allocation of receiver fees by a cash basis taxpayer).

defendant is not also subjectively uncertain of the law or if bad faith can be inferred

from the defendant’s conduct. Factual evidence of the defendant’s state of mind is

required to negate willfulness. United States v. Harris, 942 F.2d 1125, 1128-29 (7th Cir.

1991); United States v. Curtis, 782 F.2d 593, 598-600 (6th Cir. 1986)(rejecting defense

because it allows a finding that there was no willfulness even if defendant was unaware

of the legal uncertainty and because it distorts the roles of experts, judges, and juries

with respect to questions of law); United States v. MacKenzie, 777 F.2d 811, 816-17 (2d

Cir. 1985); United States v. Mallas, 762 F .2d 361, 363 (4th Cir. 1985); United States v.

Ingredient Technology, 698 F.2d 88, 96-97 (2d Cir.), cert. denied, 462 U.S. 1131

(1983).

3. Where the defendant concealed assets or covered up sources of income,

willfulness is present and good faith may not be used as a defense. United States v.

Brooks, 174 F.3d 950, 954-55 (8th Cir. 1999).

4. A willful blindness or deliberate indifference jury instruction permits a jury

to infer knowledge if it finds the defendant closed his eyes to what was obvious to him.

United States v. Willis, 277 F.3d 1026, 1031-32 (8th Cir. 2002); United States v. Dean,

487 F.3d 840, 851 (11th Cir. 2007).

[c] Absent an admission, confession or accomplice testimony, willfulness is rarely subject

to direct proof and generally must be inferred from the circumstances of the case. United

States v. Wilson, 118 F.3d 228, 236 (4th Cir. 1997); United States v. Ashfield, 735 F.2d 101,

105 (3d Cir.), cert. denied, 469 U.S. 858 (1984); United States v. Spinelli, 443 F.2d 2, 3 (9th

Cir. 1971); United States v. Magnus, 365 F.2d 1007, 1011-12 (2d Cir. 1966); Paschen v.

United States, 70 F.2d 491 (7th Cir. 1934).

[d] Willfulness may be inferred from "any conduct, the likely effect of which would be

to mislead or to conceal." Spies v. United States, 317 U.S. 492, 499 (1943). The following

are examples of conduct from which willfulness has been inferred:

1. Signing return knowing that the contents of that return understated income.

United States v. Olbres, 61 F.3d 967, 970-71 (1st Cir.), cert. denied, 516 U.S. 991 (1995).

2. Substantial understatement of income in successive years. United States v.

Lavoie, 433 F.3d 95, 98-99 (1st Cir. 2005); United States v. Kim, 884 F.2d 189, 192-93 (5th

Cir. 1989); United States v. Krzyske, 836 F.2d 1013, 1019-20 (6th Cir. 1988); United States

v. Skalicky, 615 F.2d 1117, 1120 (5th Cir.), cert. denied, 449 U.S. 832 (1980); United States

v. Larson, 612 F.2d 1301, 1305 (8th Cir.), cert. denied, 446 U.S. 936 (1980); United States v.

Gardner, 611 F.2d 770, 776 (9th Cir. 1980).

3. Prior and subsequent similar acts reasonably close to the prosecution years.

United States v. Johnson, 386 F.2d 630, 631 (3d Cir. 1967); United States v. Magnus, 365

F.2d 1007, 1011-12 (2d Cir. 1966); United States v. Alker, 260 F.2d 135, 156-57 (3d Cir.

1958), cert. denied, 359 U.S. 906 (1959).

4. Failure to supply an accountant with accurate and complete information. United

States v. Lavoie, 433 F.3d 95, 99 (1st Cir. 2005); United States v. Bishop, 291 F.3d 1100, 110608 (9th Cir. 2002), United States v. Olbres, 61 F.3d 967, 970-71 (1st Cir.), cert. denied, 516

U.S. 991 (1995); United States v. Brimberry, 961 F.2d 1286, 1290-91 (7th Cir. 1992); United

States v. Chesson, 933 F.2d 298, 304-05 (5th Cir. 1991); United States v. Michaud, 860 F.2d

495, 500 (1st Cir. 1988); United States v. Meyer, 808 F.2d 1304, 1306 (8th Cir. 1987); United

States v. Ashfield, 735 F.2d 101, 106-07 (3d Cir.), cert. denied, 469 U.S. 858 (1984); United

States v. Samara, 643 F.2d 701,703-04 (10th Cir.), cert. denied, 454 U.S. 829 (1981).

5. Making false exculpatory statements to agents or causing them to be made.

United States v. Chesson, 933 F.2d 298, 304-05 (5th Cir. 1991); United States v.

Frederickson, 846 F.2d 517, 520-21 (8th Cir. 1988); United States v. Walsh, 627 F.2d 88,

92 (7th Cir. 1980).

6. Destroying, throwing away, or "losing" books and records. United States v.

Chesson, 933 F. 2d 298, 304-05 (5th Cir. 1991); United States v. Walker, 896 F.2d 295

(8th Cir. 1990); United States v. Conforte, 624 F.2d 869, 875-76 (9th Cir.), cert. denied,

449 U.S. 1012 (1980); United States v. Garavaglia, 566 F.2d 1056, 1059-60 (6th Cir.

1977).

7. Making or using false documents, entries in books and records, or invoices.

United States v. Chesson, 933 F.2d 298, 304 (5th Cir. 1991); United States v. Walker,

896 F.2d 295, 297-300 (8th Cir. 1990). This includes backdating documents such as

receipts and contracts to gain a tax advantage. United States v. O'Keefe, 825 F.2d 314,

318 (11th Cir. 1987); United States v. Drape, 668 F.2d 22, 25-26 (1st Cir. 1982).

8. Keeping a double set of books. Spies v. United States, 317 U.S. 492, 499

(1943); United States v. Daniels, 617 F.2d 146, 148 (5th Cir. 1980).

9. Placing property or business in the name of another. United States v. Brooks,

174 F.3d 950, 954-55 (8th Cir. 1999); United States v. Daniel, 956 F.2d 540, 543 (6th

Cir. 1992); United States v. Peterson, 338 F.2d 595, 597 (7th Cir. 1964), cert. denied, 380

U.S. 911 (1965); United States v. Woodner, 317 F.2d 649, 650 (2d Cir.), cert. denied, 375

U. S. 903 (1963).

10. Extensively using currency and cashier's checks. United States v. Daniel, 956

F.2d 540, 543 (6th Cir. 1992); United States v. Holovachka, 314 F.2d 345, 357-58 (7th

Cir.), cert. denied, 374 U.S. 809 (1963); Schuermann v. United States, 174 F.2d 397, 398

(8th Cir.), cert. denied, 338 U.S. 831 (1949).

11. Spending large amounts of cash which could not be reconciled with reported

income or engaging in surreptitious transactions using cash, money orders, or cashier's

checks. United States v. Kim, 884 F.2d 189, 192-93 (5th Cir. 1989); United States v.

Skalicky, 615 F.2d 1117, 1120 (5th Cir.), cert. denied, 449 U.S. 832 (1980); United

States v. Holladay, 566 F.2d 1018, 1020 (5th Cir.), cert. denied, 439 U.S. 831 (1978);

United States v. Mortiner, 343 F.2d 500 (7th Cir.), cert. denied, 382 U.S. 842 (1965).

12. Holding bank accounts under fictitious names. United States v. Ratner, 464

F.2d 101, 105 (9th Cir. 1972); Elwert v. United States, 231 F.2d 928, 936 (9th Cir. 1956).

13. Handling one's affairs to avoid making the usual records required for such

transactions. United States v. Dowell, 446 F.2d 145, 147-48 (10th Cir.), cert. denied, 404

U. S. 984 (1971); Gariepy v. United States, 189 F.2d 459, 461-63 (6th Cir. 1951).

14. General educational background and experience may be considered as

bearing on a taxpayer's ability to form a willful intent. United States v. Smith, 890 F.2d

711, 715 (5th Cir. 1989)(entrepreneurial experience); United States v. Segal, 867 F.2d

1173, 1179 (8th Cir. 1989)(successful and sophisticated businessman). See also, United

States v. Tarwater, 308 F.3d 494, 506-07 (6th Cir. 2002); United States v. Coblentz, 453

F.2d 503, 505 (2d Cir. 1972); United States v. Ostendorff, 371 F.2d 729, 731 (4th Cir.),

cert. denied, 386 U.S. 982 (1967).

15. The defendant's attitude toward the reporting and payment of taxes generally.

United States v. Hogan, 861 F.2d 312, 316 (1st Cir. 1988); United States v. Stein, 437

F.2d 775 (7th Cir.), cert. denied, 403 U.S. 905 (1971); United States v. O'Connor, 433

F.2d 752, 754-755 (1st Cir. 1970), cert. denied, 401 U.S. 911 (1971).

16. Ignorance of law and claims that tax laws are not constitutional. Cheek v.

United States, 498 U.S. 192, 199-201 (1991); United States v. Pensyl, 387 F. 3d 456,

458-60 (6th Cir. 2004), and United States v. Hancock, 231 F. 3d 557, 561-62 (9th Cir.

2000).

[5] Venue

[a] Under the Constitution, venue lies in the judicial district where the crime has been

committed. U.S. Const. art. II, § 2, cl. 3; U.S. Const. amend. VI.

[b] Unless otherwise permitted by statute or rule, criminal prosecution must take place

"in a district in which the offense was committed." Fed. R. Crim. P. 18.

[c] Venue is appropriate in any judicial district where the return was:

1. made;

2. subscribed; or

3. filed.

See, e.g., United States v. Marchant, 774 F.2d 888, 891-92 (8th Cir. 1985), cert. denied, 475

U.S. 1012 (1986)(venue appropriate where accountant prepared return); United States v.

King, 563 F.2d 559, 562 (2d Cir. 1977), cert. denied, 435 U.S. 918 (1978)(prepared and

signed); United States v. Gross, 276 F.2d 816, 819 (2d Cir.), cert. denied, 363 U.S. 831

(1960) (prepared); United States v. Albanese, 224 F.2d 879, 882 (2d Cir.), cert. denied, 350

U.S. 845 (1955)(prepared and mailed).

[d] Venue is also appropriate in any district where any act of the offense was begun,

continued, or completed. United States v. Rooney, 866 F.2d 28, 31-32 (2d Cir. 1989).

[e] For offenses begun in one district and completed in another, or committed in more

than one district, venue lies in each district in which such offense was begun, continued, or

completed. 18 U.S.C. § 3237(a).

[f] General considerations in recommending venue:

1. The underlying basis for venue is the taxpayer's Sixth Amendment right to

trial in the judicial district where the crime was committed.

2. Bringing prosecution in taxpayer's home judicial district obviates motion by

defendant to change venue. Publicity more likely in defendant's home district.

3. Proof of venue is by a preponderance of the evidence. United States v.

Maldonado-Rivera, 922 F.2d 934, 968 (2d Cir. 1990), cert. denied, 501 U.S. 1210 (1991);

United States v. Griley, 814 F.2d 967, 973 (4th Cir. 1987). It is enough if the testimony

justifies the reasonable inference that the violation occurred at the place alleged in the

indictment. United States v. Mendell, 447 F.2d 639, 641 (7th Cir.), cert. denied, 404 U.S.

991 (1971).

4. Improper venue may be waived by a defendant. United States v. Netz, 758

F.2d 1308, 1311 (8th Cir. 1985); United States v. Powell, 498 F.2d 890, 891 (9th Cir.

1974). See also, Fed R. Crim. P. 58(c)(2).

[6] Statute of Limitations

[a] There is a six (6) year limitation period for the offense of willfully attempting to

evade or defeat any tax. I.R.C. § 6531(2).

[b] The general rule is that the limitation period begins to run 6 years from the date of the

last affirmative act that took place or the statutory due date of the return, whichever is

later. Specific applications of the rule are:

1. Statutory due date where no return is filed or where the return is filed early.

United States v. Butler, 297 F.3d 505, 511 (6th Cir. 2002), cert. denied, 123 S.Ct. 2074

(2003); United States v. Williams, 928 F.2d 145, 149 (5th Cir.), cert. denied, 502 U.S.

811 (1991); United States v. Myerson, 368 F.2d 393, 395 (2d Cir. 1966), cert. denied,

386 U.S. 991 (1967).

2. Actual filing date where the tax return is filed late. United States v. Habig,

390 U.S. 222, 225-27 (1968); United States v. Daniels, 387 F.3d 636, 641-42 (7th Cir.),

cert. denied, 544 U.S. 911 (2004).

3. Date of the last affirmative act of evasion where acts of evasion occur after the

due date. United States v. Beacon Brass, 344 U.S. 43, 45-46 (1952); United States v.

Anderson, 319 F.3d 1218, 1219-20 (10th Cir. 2003); United States v. Carlson, 235 F.3d

466, 470-71 (9th Cir. 2000), cert. denied, 532 U.S. 983 (2001); United States v. Winfield,

960 F.2d 970, 973 (11th Cir. 1992); United States v. DiPetto, 936 F.2d 96, 98 (2d Cir.),

cert. denied, 502 U.S. 866 (1991); United States v. Ferris, 807 F.2d 269, 271-72 (1st Cir.

1986). Contra, United States v. Uscinski, 369 F.3d 1243, 1247 (11th Cir. 2004)(the filing

of a false income tax return completes the offense of tax evasion).

Note: This can be problematic if act does not relate to evasion but, rather may be viewed

as a separate coverup.

[c] Tolling, Suspension, and Extension of Statute

1. Tolling. Under I.R.C. § 6531, the statute of limitations is tolled while a person

who has committed tax code violations is outside the United States or is a fugitive from

justice.

(A) "Outside the United States" has been interpreted to mean "whenever

[such persons] cannot be served criminal process within the jurisdiction of the

United States under Fed. R. Crim. P. 4(d)(2)." United States v. Marchant, 774

F.2d 888, 891-92 (8th Cir. 1985), cert. denied, 475 U.S. 1012 (1986).

(B) This includes ordinary business or pleasure trips outside U.S.

jurisdiction. United States v. Myerson, 368 F.2d 393, 395 (2d Cir. 1966), cert.

denied, 386 U.S. 991 (1967).

2. Suspension. Under I.R.C. § 7609(e)(1), the statute of limitations is suspended

in certain types of summons enforcement proceedings. Generally, where an intervener in

a summons enforcement proceeding is the person with respect to whose liability the

summons is issued, the running of any period of limitations under section 6531(relating

to criminal prosecutions) with respect to such person shall be suspended for the period

during which such a proceeding, and appeals therein, with respect to the enforcement of

such summons is pending.

3. Time Extension. Under I.R.C. § 6531, the statute of limitations may be

extended. When an adequate complaint is instituted before a commissioner of the United

States within the prescribed limitation period, the period is extended 9 months from the

date of the complaint. This extension of time is not meant to allow the government

additional time to develop its case, but rather is designed for use when the grand jury

would not be able to return an indictment within the statutory time because of its

schedule. See, Jaben v. United States, 381 U.S. 214, 219-20 (1964).

1-1.04 Evasion of Payment

[1] Elements of the Offense:

[a] An attempt to evade or defeat the payment of a tax;

[b] An additional tax due and owing; and,

[c] Willfulness.

Sansone v. United States, 380 U.S. 343, 351 (1965); Spies v. United States, 317 U.S. 492, 49394 (1943); United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992); United States v. Masat,

948 F.2d 923, 931 (5th Cir. 1991).

[2] The Attempt

[a] Attempt to evade payment. Affirmative acts of evasion of payment almost always

involve some form of concealment of money or assets with which the tax could be paid or the

removal of assets from the reach of the I.R.S. Merely failing to pay assessed taxes, without

more, does not constitute evasion of payment (though it may constitute willful failure to pay

taxes under § 7203). Thus, in the absence of an affirmative act, obstinate refusal to pay taxes

due and the possession of the funds needed to pay the taxes is insufficient for an evasion

charge.

[b] Affirmative acts of evasion of payment generally involve schemes to deal in currency,

place assets in the names of others, transfer assets abroad or omit assets on a Form 433-A,

Collection Information Statement. Examples include:

1. Concealing assets by using bank accounts of family members and coworkers.

United States v. Shoppert, 362 F.3d 451, 460 (8th Cir.), cert. denied, 543 U.S. 911

(2004); United States v. McGill, 964 F.2d 222, 233 (3d Cir. 1992).

2. Making expenditures extensively by cash and through the use of third parties'

credit cards and placing assets in the names of third parties. United States v. Shoppert,

362 F.3d 451 (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Daniel, 956

F.2d 540, 543 (6th Cir. 1992).

3. Taxpayer's false statement to I.R.S. agent that she owned no real estate and

had no other assets with which to pay tax. United States v. Shoppert, 362 F.3d 451, 460

(8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Brimberry, 961 F.2d 1286,

1290-91 (7th Cir. 1992).

4. Maintaining a cash lifestyle by conducting all personal and professional

business in cash, possessing no credit cards, bank accounts, or accounting records and

never acquiring any attachable assets. United States v. Shorter, 809 F.2d 54, 56-57 (D.C.

Cir.), cert. denied, 484 U.S. 817 (1987).

5. Bankruptcy fraud. A legitimate goal of a bankruptcy petitioner may be

immediate protection from I.R.S. collection activities (stay of collection and removal of

levies). While the act of voluntarily filing a petition for bankruptcy may not constitute an

affirmative act in and of itself, if it can be shown through other affirmative acts (e.g.,

predicating the petition on false or fraudulent obligations) that the petitioner's purpose in

filing the bankruptcy petition was to prevent or delay I.R.S. collection efforts, the act of

filing may constitute an affirmative act of evasion. See, e.g., United States v. Huebner, 48

F.3d 376, 379-80 (9th Cir. 1994)(the defendant, having created false loan documents and

then filed for bankruptcy, was successfully prosecuted for evasion of payment.).

6. See also, United States v. Hook, 781 F.2d 1166, 1169 (6th Cir.), cert. denied,

479 U.S. 882 (1986); United States v. Lamp, 779 F.2d 1088, 1092-93 (5th Cir. 1986);

United States v. Swallow, 511 F.2d 514, 521 (10th Cir.), cert. denied, 423 U.S. 845

(1975); United States v. Trownsell, 367 F.2d 815, 816 (7th Cir. 1966); Cohen v. United

States, 297 F.2d 760, 762 (9th Cir.), cert. denied, 369 U.S. 865 (1962); United States v.

Mollet, 290 F. 2d 273, 274-75 (2d Cir. 1961), for additional examples of acts to evade

payment.

[c] Evasion of payment may involve a single affirmative act intended to evade the payment of

several years of tax due. In this situation, it is permissible to charge multiple years of evasion in one

count. United States v. Shorter, 809 F.2d 54, 56-57 (D.C. Cir.), cert. denied, 484 U.S. 817

(1987)(upholding use of a single count of tax evasion covering twelve years of evasion of payment

where the underlying basis of the count is an allegedly consistent, long-term pattern of conduct directed

at the evasion of payment of taxes for those years). See also, United States v. Hook, 781 F.2d 1166,

1169 (6th Cir.), cert. denied, 479 U. S. 882 (1986).

[3] Additional Tax Due and Owing

[a] Generally. The government must demonstrate the existence of a tax due and owing,

i.e., a tax deficiency, to prove tax evasion. For further information see discussion of this

element in the evasion of assessment section above.

[b] It is not essential that the I.R.S. have made a formal assessment of taxes owed and a

demand for payment in order to bring tax evasion charges on an evasion of payment theory. Tax

deficiency can arise by operation of law when there is a failure to file and the government later

determines the tax liability. See, United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992);

United States v. Hogan, 861 F.2d 312, 315-16 (1st Cir. 1988).

The law is not so clear in the Third Circuit. See the discussion in United States v.

Farnsworth, 456 F.3d 394, 402-03 (3d Cir. 2006), where the court stated that no assessment is

required but noted that United States v. McGill, 964 F.2d 222, 233 (3d Cir. 1992), suggested

otherwise.

[c] Right of defendant to dispute assessment. Although an assessment is prima facie proof of a

tax deficiency, the defendant has a constitutional right to present rebuttal evidence and have the jury

decide his guilt on each element of the crime. United States v. Silkman, 156 F.3d 833, 835 (8th Cir.

1998).

[4] Willfulness

[a] Willfulness is defined as the "voluntary, intentional violation of a known legal duty."

Cheek v. United States, 498 U.S. 192, 201 (1991); United States v. Pomponio, 429 U.S. 10, 12

(1976); United States v. Bishop, 412 U.S. 346, 360 (1973). See discussion of this element in the

evasion of assessment section above.

[b] Willfulness is subjectively measured. A defendant's good faith belief that he is not

violating the tax laws, no matter how objectively unreasonable that belief may be, is a defense

in a tax prosecution. Cheek v. United States, 498 U.S. 192, 199-201 (1991). See also, United

States v. Grunewald, 987 F.2d 531, 535-36 (8th Cir. 1993).

[c] Indirect proof of willfulness is the typical means of establishing the element.

Willfulness may be inferred from "any conduct the likely effect of which would be to mislead

or to conceal." Spies v. United States, 317 U.S. 492, 499 (1943).

[d] Conduct from which the willful evasion of payment can be inferred includes conduct

designed to place assets beyond the government's reach after a tax liability has been assessed.

United States v. Mal, 942 F. 2d 682, 687 (9th Cir. 1991); United States v. Dunkel, 900 F.2d

105, 107 (7th Cir. 1990); United States v. Masat, 896 F.2d 88, 97-99 (5th Cir. 1990).

[e] Paying taxes due after the criminal investigation commenced does not negate

willfulness. United States v. Pang, 362 F.3d 1187, 1194 (9th Cir.), cert. denied, 543 U.S. 943

(2004).

[5] Venue

[a] Venue is appropriate in any judicial district where the return was:

1. made;

2. subscribed; or

3. filed.

See, e.g., United States v. Marchant, 774 F.2d 888, 891-92 (8th Cir. 1985), cert. denied, 475

U.S. 1012 (1986) (venue appropriate where accountant prepared return); United States v. King,

563 F.2d 559, 562 (2d Cir. 1977), cert. denied, 435 U.S. 918 (1978) (prepared and signed);

United States v. Gross, 276 F.2d 816, 819-20 (2d Cir.), cert. denied, 363 U.S. 831 (1960)

(prepared); United States v. Albanese, 224 F.2d 879, 882 (2d Cir.), cert. denied, 350 U.S. 845

(1955)(prepared and mailed).

[b] Venue is also appropriate in any district where any act of the offense was begun,

continued, or completed. United States v. Rooney, 866 F.2d 28, 31-32 (2d Cir. 1989).

[c] For offenses begun in one district and completed in another, or committed in more

than one district, venue lies in each district in which such offense was begun, continued, or

completed. 18 U.S.C. § 3237(a).

[6] Statute of Limitations

To determine whether the statute of limitations is open for evasion of payment cases,

begin with the present date, and inquire whether affirmative acts in furtherance of the crime

were committed in the preceding 6 years. United States v. Shorter, 809 F.2d 54 (D.C. Cir.),

aff’g 608 F. Supp. 871, 873-74, and cert. denied, 484 U.S. 817 (1987); United States v. Hook,

781 F.2d 1166, 1171-73 (6th Cir. 1986). For example, in United States v. Voorhies, 658 F. 2d

710 (9th Cir. 1981), the defendant committed five affirmative acts of evading payment within

six years prior to the date he was indicted.

1-1.05 Collateral Estoppel

I.R.C. § 7201 is a broad provision and carries the most severe penalty of the criminal tax

offenses. Since criminal convictions are founded on the beyond a reasonable doubt standard, a

conviction for tax evasion will collaterally estop denial of the civil fraud penalty under I.R.C. §

6663 for the same taxpayer, tax year, and type of tax. See Wright v. Commissioner, 84 T.C. 636

(1985); Amos v. Commissioner, 43 T.C. 50 (1964).

1-1.06 Lesser Included Offenses

[1] Lesser included offenses are offenses whose statutory elements comprise part of the

elements needed to prove another offense, i.e., they are a subset of a "greater" or "major"

offense. For example, filing a false return or failing to file a return are each substantive tax

offenses which under certain circumstances could be a lesser included offense of tax evasion.

Filing a false return may constitute an affirmative act of tax evasion, and when coupled with a

tax deficiency, could form the basis for an evasion charge. Similarly, failing to file a return,

when coupled with the requisite affirmative act(s) of evasion and a tax deficiency, also may

support an evasion charge. Accordingly, such offenses are considered lesser included offenses

of the major offense of tax evasion.

[2] Congress, in fixing varying penalties for offenses of attempting to evade federal income tax

and for willfully making and subscribing a tax return not believed to be correct, did not intend

to pyramid penalties and authorize a separate penalty for a lesser included offense, which arose

out of the same transaction and which would be established by proof of guilt of the greater

offense of attempting to evade income tax. United States v. Lodwick, 410 F.2d 1202, 1206 (8th

Cir.), cert. denied, 396 U.S. 841 (1969). See also, United States v. Dale, 991 F.2d 819, 858-59

(D.C. Cir. 1993); United States v. Kaiser, 893 F.2d 1300, 1307 (11th Cir. 1990); United States

v. Citron, 783 F.2d 307, 312-14 (2d Cir. 1986). Thus, in cases where a § 7203 or § 7206(1)

violation is a predicate offense to a § 7201 violation, the § 7203 or § 7206(1) violation would

be considered a lesser included offense in the § 7201 offense.

[3] The Department of Justice, Tax Division, has adopted the so-called "elements" test for

lesser included offenses from Schmuck v. United States, 489 U.S. 705, 709-10 (1989). The

standard is whether the statutory elements of the lesser offense are a subset of the elements of

the greater offense. Schmuck, 489 U.S. at 709-10.

[4] One result of this policy is that an instruction of failure to file is not automatic in a Spies

evasion case involving failure to file, failure to pay, and an affirmative act of evasion. If there is

any doubt as to the strength of evidence on any section 7201 element, charging a section 7203

violation should also be considered.

[5] Similarly, charging both sections 7201 and 7206(1) should be considered in evasion cases

where filing a false return can be established, but the evidence supporting a tax deficiency may

not be strong enough for an evasion conviction.

1-1.07 Table of Cases

Afflerbach, United States v., 547 F.2d 522 (10th Cir. 1976) ....................................................................6

Albanese, United States v., 224 F.2d 879 (2d Cir.), cert. denied, 350 U.S. 845 (1955).....................13, 18

Alker, United States v., 260 F.2d 135 (3d Cir. 1958), cert. denied, 359 U.S. 906 (1959)....................8, 11

American Stevedores, Inc., United States v., 310 F.2d 47 (2d Cir. 1962), cert. denied, 371 U.S. 969

(1963) .............................................................................................................................................3, 5

Amos v. Commissioner, 43 T.C. 50 (1964) ...........................................................................................19

Anderson, United States v., 319 F.3d 1218 (10th Cir. 2003)..............................................................4, 14

Aracri, United States v., 968 F.2d 1512 (2d Cir. 1992) ........................................................................... 7

Ashfield, United States v., 735 F.2d 101 (3d Cir.), cert. denied, 469 U.S. 858 (1984)............................11

Beacon Brass Company, Inc., United States v., 344 U.S. 43 (1952)...................................................5, 14

Bender, United States v., 606 F.2d 897 (9th Cir. 1979) ...........................................................................8

Berger, United States v., 325 F. Supp. 1297 (S.D. N.Y. 1971), aff'd, 456 F.2d 1349 (2d Cir. 1972), cert.

denied, 409 U.S. 892 (1972)................................................................................................................3

Bishop, United States v., 291 F.3d 1100 (9th Cir. 2002)........................................................................11

Bishop, United States v., 412 U.S. 346 (1973)...................................................................................9, 17

Boone, United States v., 951 F.2d 1526 (9th Cir. 1991)...........................................................................5

Boulware, United States v., 384 F.3d 794 (2004), 470 F.3d 931 (9th Cir. 2006), reversed on other

grounds, 128 S. Ct. 1168 (2008)......................................................................................................4, 8

Brill, United States v., 270 F.2d 525 (3d Cir. 1959).................................................................................5

Brimberry, United States v., 961 F.2d 1286 (7th Cir. 1992).............................................................11, 16

Brooks, United States v., 174 F.3d 950 (8th Cir. 1999) ............................................................... 5, 11, 12

Burkhart, United States v., 501 F.2d 993 (6th Cir. 1974), cert. denied, 420 U.S. 946 (1975)....................8

Butler, United States v., 297 F.3d 505 (6th Cir. 2002), cert. denied, 123 S.Ct. 2074(2003)....................14

Campbell, United States v., 351 F.2d 336 (2d Cir. 1965), cert. denied, 383 U.S. 907 (1966) ...................9

Carlson, United States v., 235 F.3d 466 (9th Cir. 2000), cert. denied, 532 U.S. 983 (2001) ..............6, 14

Cheek v. United States, 498 U.S. 192 (1991)......................................................................... 9, 10, 13, 17

Chesson, United States v., 933 F.2d 298 (5th Cir. 1991)..................................................................11, 12

Citron, United States v., 783 F.2d 307 (2d Cir. 1986)............................................................................19

Clark v. United States, 211 F.2d 100 (8th Cir. 1954), cert. denied, 348 U.S. 911 (1955)..........................9

Coblentz, United States v., 453 F.2d 503 (2d Cir. 1972)........................................................................13

Cody, United States v., 722 F.2d 1052 (2d Cir. 1983) .............................................................................7

Cohen v. United States, 297 F.2d 760 (9th Cir.), cert. denied, 369 U.S. 865 (1962)...............................16

Condo, United States v., 741 F.2d 238 (9th Cir. 1984) ............................................................................3

Conforte, United States v., 624 F.2d 869 (9th Cir.), cert. denied, 449 U.S. 1012 (1980) ........................12

Connor, United States v., 898 F.2d 942 (3d Cir.), cert. denied, 497 U.S. 1029 (1990)..............................5

Copeland, United States v., 786 F.2d 768 (7th Cir. 1985)........................................................................5

Coppola, United States v., 425 F.2d 660 (2d Cir. 1969)...........................................................................4

Cor-Bon Custom Bullet Co., United States v., 287 F.3d 576 (6th Cir.), cert. denied, 537 U.S. 880 (2002)

...........................................................................................................................................................4

Critzer, United States v., 498 F.2d 1160 (4th Cir. 1974) ........................................................................10

Crooks, United States v., 804 F.2d 1441 (9th Cir. 1986)........................................................................10

Cruz, United States v., 698 F.2d 1148 (11th Cir. 1983) ...........................................................................9

Currier v. United States, 166 F.2d 346 (1st Cir. 1948).............................................................................3

Curtis, United States v., 782 F.2d 593 (6th Cir. 1986) .......................................................................7, 10

D’Agostino, United States v., 145 F.3d 69 (2d Cir. 1998) .......................................................................9

Dack, United States v., 747 F.2d 1172 (7th Cir. 1984).............................................................................8

Dale, United States v., 991 F.2d 819 (D.C. Cir. 1993) ...........................................................................19

Daniel, United States v., 956 F.2d 540 (6th Cir. 1992) .............................................2, 4, 8, 12, 15, 16, 17

Daniels, United States v., 387 F.3d 636 (7th Cir.), cert. denied, 544 U.S. 911 (2004) ....................4, 8, 14

Daniels, United States v., 617 F.2d 146 (5th Cir. 1980).........................................................................12

Davis v. United States, 226 F.2d 331 (6th Cir. 1955), cert. denied, 350 U.S. 965 (1956). ........................9

Dean, United States v., 487 F.3d 840 (11th Cir. 2007)...........................................................................11

DiPetto, United States v., 936 F.2d 96 (2d Cir.), cert. denied, 502 U.S. 866 (1991) ...............................14

Dixon, United States v., 698 F.2d 445 (11th Cir. 1983) ...........................................................................7

Donovan, United States v., 250 F. Supp. 463 (W.D. Tex. 1966) ..............................................................3

Dowell, United States v., 446 F.2d 145 (10th Cir.), cert. denied, 404 U. S. 984 (1971)..........................12

Drape, United States v., 668 F.2d 22 (1st Cir. 1982)..............................................................................12

Dunkel, United States v., 900 F.2d 105 (7th Cir. 1990) .........................................................................18

Eaken, United States v., 17 F.3d 203 (7th Cir. 1994)...............................................................................7

Elwert v. United States, 231 F.2d 928 (9th Cir. 1956) ...........................................................................12

Farnsworth, United States v., 456 F. 3d 394 (3d Cir. 2006) ...............................................................4, 17

Ferris, United States v., 807 F.2d 269 (1st Cir. 1986) ............................................................................14

Fogg, United States v., 652 F.2d 551 (5th Cir. 1981), cert. denied, 456 U.S. 905 (1982) .........................7

Fowler v. United States, 352 F.2d 100 (8th Cir. 1965), cert. denied, 383 U.S. 907 (1966) .......................9

Frazier, United States v., 365 F.2d 316 (6th Cir. 1966), cert. denied, 386 U.S. 971 (1967) ..................3, 7

Frederickson, United States v., 846 F.2d 517 (8th Cir. 1988) ................................................................12

Garavaglia, United States v., 566 F.2d 1056 (6th Cir. 1977)..................................................................12

Garber, United States v., 607 F.2d 92 (5th Cir. 1979)............................................................................10

Gardner, United States v., 611 F.2d 770 (9th Cir. 1980) ........................................................................11

Gariepy v. United States, 189 F.2d 459 (6th Cir. 1951) .........................................................................12

Garner v. United States, 501 F.2d 228 (9th Cir. 1974), aff'd on other grounds, 424 U.S. 648 (1976)........7

George, United States v., 420 F. 3d 991 (9th Cir. 2005) ....................................................................9, 10

Gricco, United States v., 277 F.3d 339 (3d Cir. 2002) .............................................................................4

Griley, United States v., 814 F.2d 967 (4th Cir. 1987)...........................................................................14

Gross, United States v., 276 F.2d 816 (2d Cir.), cert. denied, 363 U.S. 831 (1960) ..........................13, 18

Grunewald, United States v., 987 F.2d 531 (8th Cir. 1993).............................................................10, 17

Habig, United States v., 390 U.S. 222 (1968) ....................................................................................4, 14

Hancock, United States v., 231 F. 3d 557 (9th Cir. 2000) ......................................................................13

Harris, United States v., 942 F.2d 1125 (7th Cir. 1991) .........................................................................10

Hecht, United States v., 705 F. 2d 976 (8th Cir. 1983) ............................................................................9

Heller, United States v., 830 F. 2d 150 (11th Cir. 1987) ........................................................................10

Helmsly, United States v., 941 F.2d 71 (2d Cir. 1991).............................................................................9

Hestnes, United States v., 492 F Supp. 999 (W.D. Wis. 1980).................................................................9

Hogan, United States v., 861 F.2d 312 (1st Cir. 1988).....................................................................13, 17

Holladay, United States v., 566 F.2d 1018 (5th Cir.), cert. denied, 439 U.S. 831 (1978) ........................12

Holovachka, United States v., 314 F.2d 345 (7th Cir.), cert. denied, 374 U.S. 809 (1963) .....................12

Hook, United States v., 781 F.2d 1166 (6th Cir.), cert. denied, 479 U.S. 882 (1986) ............... ..16, 17, 18

Huebner, United States v., 48 F.3d 376 (9th Cir. 1994) .........................................................................16

Ingredient Technology, United States v., 698 F. 2d 88 (2d Cir.), cert. denied, 462 U.S. 1131 (1983) ....11

Jaben v. United States, 381 U.S. 214 (1964)..........................................................................................15

James v. United States, 366 U.S. 213 (1961) ...........................................................................................7

Jenning, United States v., 31 A.F.T.R.2d 73-782 (9th Cir. 1973).............................................................3

Johnson, United States v., 319 U.S. 503 (1943).......................................................................................8

Johnson, United States v., 386 F.2d 630 (3d Cir. 1967) .........................................................................11

Kaiser, United States v., 893 F.2d 1300 (11th Cir. 1990).......................................................................19

Katz v. United States, 321 F.2d 7 (1st Cir.), cert. denied, 375 U.S. 903 (1963)........................................5

Kayser, United States v., 488 F.3d 1070 (9th Cir. 2007)......................................................................4, 9

Keenan, United States v., 267 F.2d 118 (7th Cir.), cert. denied, 361 U.S. 863 (1959) ..............................6

Keller, United States v., 523 F.2d 1009 (9th Cir. 1975) ...........................................................................8

Kim, United States v., 884 F.2d 189 (5th Cir. 1989)........................................................................11, 12

King, United States v., 126 F.3d 987 (7th Cir. 1997)...............................................................................5

King, United States v., 563 F.2d 559 (2d Cir. 1977), cert. denied, 435 U.S. 918 (1978)...................13, 18

Kleifgen, United States v., 557 F.2d 1293 (9th Cir. 1977) .......................................................................7

Knox Coal Co., United States v., 347 F.2d 33 (3d Cir.), cert. denied, 382 U.S. 904 (1965)......................3

Krall, United States v., 835 F.2d 711 (8th Cir. 1987).............................................................................10

Krzyske, United States v., 836 F.2d 1013 (6th Cir. 1988)......................................................................11

Lamp, United States v., 779 F.2d 1088 (5th Cir. 1986)..........................................................................16

Larson, United States v., 612 F.2d 1301 (8th Cir.), cert. denied, 446 U.S. 936 (1980) ...........................11

Lavoie, United States v., 433 F.3d 95 (1st Cir. 2005) .......................................................................4, 11

Locke v. United States, 166 F.2d 449 (5th Cir. 1948) ..............................................................................3

Lodwick, United States v., 410 F.2d 1202 (8th Cir.), cert. denied, 396 U.S. 841 (1969) ........................19

Lumetta v. United States, 362 F.2d 644 (8th Cir. 1966)...........................................................................3

Lustig, United States v., 163 F.2d 85 (2d Cir. 1947), cert. denied, 332 U.S. 775 (1947)...........................3

MacKenzie, United States v., 777 F.2d 811 (2d Cir. 1985)....................................................................10

Magnus, United States v., 365 F.2d 1007 (2d Cir. 1966) .......................................................................11

Mal, United States v., 942 F. 2d 682 (9th Cir. 1991) .....................................................................2, 7, 18

Maldonado-Rivera, United States v., 922 F.2d 934 (2d Cir. 1990), cert. denied, 501 U.S. 1210 (1991) .14

Mallas, United States v., 762 F .2d 361 (4th Cir. 1985) .........................................................................11

Marashi, United States v., 913 F.2d 724 (9th Cir. 1990) ......................................................................4, 8

Marchant, United States v., 774 F.2d 888 (8th Cir. 1985), cert. denied, 475 U.S. 1012 (1986)... 13, 15, 18

Marcus, United States v., 401 F.2d 563 (2d Cir. 1968), cert. denied, 393 U.S. 1023 (1969).....................8

Masat, United States v., 896 F.2d 88 (5th Cir. 1990) .........................................................................4, 18

Masat, United States v., 948 F.2d 923 (5th Cir. 1991) ...........................................................................15

McClanahan v. United States, 292 F.2d 630 (5th Cir.), cert. denied, 368 U.S. 913 (1961) .......................7

McGill, United States v., 964 F.2d 222 (3d Cir. 1992).....................................................................16, 17

Meek, United States v., 998 F.2d 776 (10th Cir. 1993) ............................................................................5

Mendell, United States v., 447 F.2d 639 (7th Cir.), cert. denied, 404 U.S. 991 (1971) ...........................14

Mesheski, United States v., 169 F. Supp. 372 (E.D. Wis. 1959), rev'd, 286 F.2d 345 (7th Cir. 1961).......3

Meyer, United States v., 808 F.2d 1304 (8th Cir. 1987).........................................................................11

Michaud, United States v., 860 F.2d 495 (1st Cir. 1988) .......................................................................11

Miller, United States v., 545 F.2d 1204 (9th Cir. 1976), cert. denied, 430 U.S. 930 (1977)..................3, 9

Mollet, United States v., 290 F. 2d 273 (2d Circ. 1961).........................................................................17

Moore v. United States, 412 F.2d 974 (5th Cir. 1969) .............................................................................7

Mortiner, United States v., 343 F.2d 500 (7th Cir.), cert. denied, 382 U.S. 842 (1965) ..........................12

Mounkes, United States v., 204 F.3d 1024 (10th Cir.), cert. denied, 530 U.S. 1230 (2000)..............4, 6, 8

Murray v. United States, 117 F.2d 40 (8th Cir. 1941) ..............................................................................6

Myerson, United States v., 368 F.2d 393 (2d Cir. 1966), cert. denied, 386 U.S. 991 (1967).............14, 15

Netz, United States v., 758 F.2d 1308 (8th Cir. 1985) ...........................................................................14

Nolen, United States v., 472 F.3d 362 (5th Cir. 2006) .............................................................................4

Norwitt v. United States, 195 F.2d 127 (9th Cir. 1952), cert. denied, 344 U.S. 817 (1952) ......................4

O'Connor, United States v., 433 F.2d 752 (1st Cir. 1970), cert. denied, 401 U.S. 911 (1971).................13

O'Keefe, United States v., 825 F.2d 314 (11th Cir. 1987) ......................................................................12

Olbres, United States v., 61 F.3d 967 (1st Cir.), cert. denied, 516 U.S. 991 (1995) ................................11

Ostendorff, United States v., 371 F.2d 729 (4th Cir.), cert. denied, 386 U.S. 982 (1967) .......................13

Paschen v. United States, 70 F.2d 491 (7th Cir. 1934).......................................................................6, 11

Pang, United States v., 362 F.3d 1187 (9th Cir.), cert. denied, 543 U.S. 943 (2004) ..............................18

Pankratz Lumber Co. v. United States, 50 F.2d 174 (9th Cir. 1931)………………………………...……3

Pensyl, United States v., 387 F.3d 456 (6th Cir. 2004) ................................................................ 9, 10, 13

Peterson, United States v., 338 F.2d 595 (7th Cir. 1964), cert. denied, 380 U.S. 911 (1965) ..............6, 12

Pomponio, United States v., 429 U.S. 10 (1976)................................................................................9, 17

Powell, United States v., 498 F.2d 890 (9th Cir. 1974) ..........................................................................14

Ragen, United States v., 314 U.S. 513 (1942)..........................................................................................6

Ratner, United States v., 464 F.2d 101 (9th Cir. 1972) ..........................................................................12

Rice, United States v., 659 F.2d 524 (5th Cir. 1981)................................................................................3

Rochelle, United States v., 384 F.2d 748 (5th Cir. 1967), cert. denied, 390 U.S. 946 (1968)....................7

Romano, United States v., 938 F.2d 1569 (2d Cir. 1991).........................................................................5

Rooney, United States v., 866 F.2d 28 (2d Cir. 1989)......................................................................13, 18

Rosenthal, United States v., 470 F.2d 837 (2d Cir. 1972), cert. denied, 412 U.S. 909 (1973) ...................7

Rutkin v. United States, 343 U.S. 130 (1952)..........................................................................................7

Sallee, United States v., 984 F.2d 643 (5th Cir. 1993) .............................................................................7

Samara, United States v., 643 F.2d 701 (10th Cir.), cert. denied, 454 U.S. 829 (1981).......................4, 11

Sansone v. United States, 380 U.S. 343 (1965)..............................................................................2, 4, 15

Schmuck v. United States, 489 U.S. 705 (1989) ....................................................................................19

Schuermann v. United States, 174 F.2d 397 (8th Cir.), cert. denied, 338 U.S. 831 (1949)......................12

Scott, United States v., 660 F.2d 1145 (7th Cir. 1981), cert. denied, 455 U.S. 907 (1982)........................7

Segal, United States v., 867 F.2d 1173 (8th Cir. 1989) ..........................................................................12

Shoppert, United States v., 362 F.3d 451 (8th Cir.), cert. denied, 543 U.S. 911 (2004) .............. 2, 4, 6, 16

Shorter, United States v., 809 F.2d 54 (D.C. Cir.), cert. denied, 484 U.S. 817 (1987) ................ 16, 17, 18

Silkman, United States v., 156 F.3d 833 (8th Cir. 1998)........................................................................17

Skalicky, United States v., 615 F.2d 1117 (5th Cir.), cert. denied, 449 U.S. 832 (1980)...................11, 12

Sloan, United States v., 939 F.2d 499 (7th Cir. 1991)..............................................................................3

Smith, United States v., 890 F.2d 711 (5th Cir. 1989) ...........................................................................12

Spies v. United States, 317 U.S. 492 (1943) .................................................................4, 5, 11, 12, 15, 18

Spinelli, United States v., 443 F.2d 2 (9th Cir. 1971) ............................................................................11

Stein, United States v., 437 F.2d 775 (7th Cir.), cert. denied, 403 U.S. 905 (1971) ................................13

Swallow v. United States, 307 F.2d 81 (10th Cir. 1962), cert. denied, 371 U.S. 950 (1963).....................8

Swallow, United States v., 511 F.2d 514 (10th Cir.), cert. denied, 423 U.S. 845 (1975).....................7, 16

Tarwater, United States v., 308 F.3d 494 (6th Cir. 2002).......................................................................13

Thetford, United States v., 676 F.2d 170 (5th Cir. 1982) .........................................................................9

Tinkoff v. United States, 86 F.2d 868 (7th Cir. 1937)..........................................................................3, 7

Tranakos, United States v., 911 F.2d 1422 (10th Cir. 1990) ..................................................................10

Trevino, United States v., 394 F.3d 771 (9th Cir. 2005), cert. denied, 547 U.S. 1022 (2006) ...................6

Trov, United States v., 293 U.S. 58 (1934)..........................................................................................3, 7

Trownsell, United States v., 367 F.2d 815 (7th Cir. 1966) .....................................................................16

Uscinski, United States v., 369 F.3d 1243 (11th Cir. 2004) ...................................................................14

Vardine, United States v., 305 F.2d 60, 64 (2d Cir. 1962) .......................................................................9

Voight, United States v., 89 F.3d 1050 (3d Cir.), cert. denied, 519 U.S. 1047 (1996) ..............................6

Voorhies, United States v., 658 F. 2d 710 (9th Cir. 1981)......................................................................18

Walker, United States v., 896 F.2d 295 (8th Cir. 1990) .........................................................................12

Walsh, United States v., 627 F.2d 88 (7th Cir. 1980).............................................................................12

Williams, United States v., 875 F.2d 846 (11th Cir. 1989)...................................................................4, 9

Williams, United States v., 928 F.2d 145 (5th Cir.), cert. denied, 502 U.S. 811 (1991)......................5, 14

Willingham v. United States, 289 F.2d 283 (5th Cir. 1961), cert. denied, 368 U.S. 826 (1961)................8

Willis, United States v., 277 F.3d 1026 (8th Cir. 2002) .....................................................................5, 11

Wilson, United States v., 118 F.3d 228 (4th Cir. 1997) ............................................................. 3, 5, 6, 11

Winfield, United States v., 960 F.2d 970 (11th Cir. 1992) .................................................................5, 14

Woodner, United States v., 317 F.2d 649 (2d Cir.), cert. denied, 375 U. S. 903 (1963)..........................12

Wright v. Commissioner, 84 T.C. 636 (1985)........................................................................................19

Wyss, United States v., 239 F.2d 658 (7th Cir. 1957) ..............................................................................7

Zacher v. United States, 227 F.2d 219 (8th Cir. 1955), cert. denied, 350 U.S. 993 (1956)........................6

Zimmerman, United States v., 108 F.2d 370 (7th Cir.1939).....................................................................6

CHAPTER 1

SECTION 2

TITLE 26 TAX VIOLATIONS

WILLFUL FAILURE TO COLLECT OR PAY OVER TAX

I.R.C. § 7202

1-2.01 Statutory Language

1-2.02 Generally

1-2.03 Elements of the Offense

[1] Duty to Collect and/or to Truthfully Account for and Pay Over

[2] Failure to Collect or Truthfully Account for and Pay Over

[3] Willfulness

1-2.04 Motor Fuel Excise Tax Prosecutions

1-2.05 Venue

1-2.06 Statute of Limitations

1-2.07 Table of Cases

1-2.01 Statutory Language

I.R.C. § 7202 - WILLFUL FAILURE TO COLLECT OR PAY OVER TAX

Any person required under this title to collect, account for, and pay over any tax

imposed by this title who willfully fails to collect or truthfully account for and pay

over such tax shall, in addition to other penalties provided by law, be guilty of a

felony and, upon conviction thereof, be fined* not more than $10,000, or imprisoned

not more than fie years, or both, together with the costs of prosecution.

* For offenses committed after December 31, 1984, the Criminal Fine Enforcement Act of

1984 (P.L. 98-596) enacted 18 U.S.C. § 3623, which increased the maximum permissible

fines for misdemeanors and felonies. Where 18 U.S.C. § 36231 is applicable, the

maximum fine under section 7202 for offenses committed after December 31, 1984, would

be at least $250,000 for individuals and $500,000 for corporations. Alternatively, if any

person derives pecuniary gain from the offense, or if the offense results in a pecuniary loss

to a person other than the defendant, the defendant may be fined not more than the greater

of twice the gross gain or twice the gross loss.

1-2.02 Generally

[1] This statute describes two offenses: (1) a willful failure to collect; and (2) a willful failure to

truthfully account for and pay over tax. It was designed primarily to assure compliance by third

parties obligated to collect excise 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. The withheld sums are commonly referred to

as “trust fund taxes.” See Slodov v. United States, 436 U.S. 238, 242-249 (1978); United States

v. Simkanin, 420 F.3d 397, 404-08 (5th Cir. 2005), cert. denied, 547 U.S. 1111 (2006); United

States v. H.J.K. Theatre Corporation, 236 F.2d 502, 504-06 (2d Cir. 1956), cert. denied, 352

U.S. 969 (1957). The legislative history of the statute prior to 1975 is discussed in United States

v. Poll, 521 F.2d 329, 333-34 n.2 (9th Cir. 1975). See also, United States v. Poll, 538 F.2d 845,

847-48 (9th Cir.), cert. denied, 429 U.S. 977 (1976).

1-2.03 § 7202 - Elements of the Offense

To establish a violation of I.R.C. § 7202, the following elements must be proved beyond a

reasonable doubt:

[1] Duty to collect, and/or to truthfully account for and pay over;

[2] Failure to collect, or truthfully account for and pay over; and

[3] Willfulness.

Changed to 18 U.S.C. 3571, commencing November 1, 1986.

[1] Duty to collect, and/or to truthfully account for and pay over taxes. The duty of employers

to truthfully account for and pay over is created by I.R.C. §§ 3102(s), 3111(a), and 3402 (1986).

See United States v. Porth, 426 F.2d 519, 522 (10th Cir.), cert. denied, 400 U.S. 824 (1970).

Specifically, it is the individual with the duty to truthfully account for and pay over who is

culpable when there is a failure to perform this duty. For an example of the criteria used to

determine the individual with the duty to truthfully account for and pay over, see Datlof v.

United States, 252 F. Supp. 11, 32 (E.D. Pa.), aff’d., 370 F.2d 655, 656 (3d Cir. 1966), cert.

denied, 387 U.S. 906 (1967), involving a civil penalty under 26 U.S.C. § 6672 for unpaid federal

withholding and employment taxes.

[2] Failure to collect, or truthfully account for and pay over. The Department of Justice Tax

Division’s position historically has been that a willful failure to truthfully to account for and pay

over is a “breach of an inseparable dual obligation.” 2008 Criminal Tax Manual, United States

Department of Justice, Tax Division, Criminal Section, p. 9-4. Under this theory, a willful failure

to pay after a truthful accounting is made, by filing a return, would still leave “the duty as a

whole unfulfilled and the responsible person subject to prosecution.”

Some defendants have argued § 7202 is a conjunctive statute requiring the government to

prove both a failure to account for and a failure to pay withholding tax to establish a violation of

the statute. See also United States v. Thayer, 201 F.3d 214, 219-22 (3d Cir. 1999), cert. denied,

530 U.S. 1244 (2000); United States v. Evangelista, 122 F.3d 112, 120-22 (2d Cir. 1997); United

States v. Brennick, 908 F. Supp. 1004, 1011 (D. Mass. 1995). In Evangelista, the Second Circuit

held a violation of § 7202 can result from either a failure to account for withholding taxes and

FICA contributions or a failure to pay over such taxes, but the statute does not require both to

sustain a conviction. See United States v. Thayer, 201 F.3d 214, 219-22 (3d Cir. 1999), cert.

denied, 530 U.S. 1244 (2000)); United States v. Brennick, 908 F. Supp. 1004, 1007 (D. Mass.

1995). In Thayer, the defendant argued the statute was conjunctive; therefore, if both

requirements of § 7202 were not met, he could not be convicted. The Third Circuit disagreed and

relied on the decision in Brennick: “A conjunctive interpretation of § 7202 would result in a

greater penalty for one who simply failed to collect trust fund taxes than for one who collected

them. . . [t]hat Congress intended to make such a distinction is simply inconceivable.” United

States v. Brennick, 908 F. Supp. 1004, 1017 (D. Mass. 1995). The Third Circuit affirmed

Thayer’s conviction, stating the defendant’s argument did not convincingly answer the Brennick

court’s Congressional intent analysis. In United States v. Gilbert, 266 F.3d 1180, 1183-85 (9th

Cir. 2001), the Ninth Circuit relied on the decisions in Evangelista and Thayer in arriving at the

same holding.

[3] Willfulness. The requisite element of willfulness under section 7202 is the same as in other

offenses under Title 26. It must be shown that a defendant voluntarily and intentionally acted in

violation of a known legal duty. Cheek v. United States, 498 U.S. 192, 201 (1991); United

States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973);

United States v. Simkanin, 420 F.3d 397, 404 (5th Cir. 2005), cert. denied, 547 U.S. 1111

(2006).

The question of proving available funds to pay the taxes is found in United States v. Poll,

521 F.2d 329, 332-33 (9th Cir. 1975). In Poll, the parties stipulated that the amount of taxes

which should have been withheld was correctly shown on the corporate books but that the

defendant knowingly signed and filed false returns (Forms 941), which did not correctly reflect

the amount withheld from wages. In reversing the conviction, the Ninth Circuit held that to

establish a willful failure to truthfully account for and pay over taxes, both the failure to

truthfully account for and the failure to pay over must be willful. As the Ninth Circuit viewed it,

in addition to establishing a willful failure to truthfully account for taxes required to be withheld:

[t]he Government must establish beyond a reasonable doubt that at the time payment was

due the taxpayer possessed sufficient funds to enable him to meet his obligation or that the

lack of sufficient funds on such date was created by (or was the result of) a voluntary and

intentional act without justification in view of all the financial circumstances of the

taxpayer.

Poll, 521 F.2d at 333.

The Poll court also concluded that it was error not to allow the defendant to introduce

evidence that the corporation lacked the money to pay the full amount of the taxes and that the

defendant intended to make up the deficiencies later. This view ignores the fact that the duty

imposed is not simply the duty to pay taxes, but also includes the duty to truthfully account for

taxes, and that defendant Poll admittedly filed false returns. Contrary to the Poll decision, an

inability to pay does not excuse the duty to truthfully account for the taxes that are due.2

Where there is a willful failure to truthfully account for withheld taxes and some

additional burden is imposed by the court, as suggested by Poll, the government can meet that

burden with testimony by employees or suppliers that other creditors were paid during the

period in question and that any lack of funds to pay was voluntary and intentional. 3

In United States v. Gilbert, 266 F.3d 1180, 1185 (9th Cir. 2001), without overruling

Poll, the Ninth Circuit held that paying employees while not remitting employment taxes to the

government was a willful act despite a claim of lack of funds. For a successful conviction under

section 7202, see United States v. Scharf, 558 F.2d 498, 501 (8th Cir. 1977), where the court

held that evidence the defendant had altered records was admissible for the purpose of showing,

For cases holding that in a prosecution under 26 U.S.C. 7203, the government need not prove that at the time the

defendant filed his returns, he possessed readily available funds. with which to pay his taxes, see United States v. Ausmus,

774 F.2d 722, 725 (6th Cir. 1985), and United States v. Tucker, 686 F.2d 230, 233 (5th Cir. 1982). Ausmus and Tucker

rejected United States v. Andros, 484 F.2d 531, 533-34 (9th Cir. 1973), a case in which the Ninth Circuit stated, in dicta, that

to establish a willful failure to pay under section 7203, the government must prove that the taxpayer possessed sufficient

funds to meet his tax obligations and that the taxpayer voluntarily and intentionally did not pay the tax due.

It should be noted that Poll did not go free. Following the reversal of Poll’s conviction, the government promptly secured a

new indictment that did not charge him with a section 7202 violations, but with filing a false return in violation of section

7206(1). His conviction was affirmed on appeal. United States v. Poll, 538 F. 2d 845, 848 (9th Cir.), cert. denied, 429 U.S.

977 (1976).

“motive, intent, and willfulness.” Scharf, 558 F.2d at 501. For a case in which the court had no

difficulty in concluding that defendant’s conduct was willful in a section 7202 prosecution, see

United States v. Bailey, 789 F. Supp. 788, 814 (N.D. Tex. 1992) (failure to pay over taxes

withheld from employees’ paychecks for almost a decade found to be willful).

1-2.04 § 7202 - Motor Fuel Excise Tax Prosecutions

Care must be exercised to ensure that section 7202 is applied to those who have the duty

to pay the tax at issue. Section 7202 applies to a person who is not the taxpayer but is under a

duty to collect the tax from the taxpayer and then to truthfully account for the collected tax to

the government and pay it over. Often, the one responsible for the tax will pass it on to another,

as, for example, by including it as part of the price of goods. But the fact that the taxpayer

“collects” the tax from another in this sense does not mean that he is responsible under the law

for collecting the tax and, thus, potentially subject to prosecution under section 7202.

1-2.05 Venue

If a statute does not indicate where Congress considers the place of committing a crime to

be, “the locus delicti must be determined from the nature of the crime alleged and the location of

the act or acts constituting it.” United States v. Anderson, 328 U.S. 699, 703 (1946). Although no

venue cases have been found, venue would appear to be proper in a section 7202 prosecution in

the judicial district in which the defendant was required to collect or pay over the tax.

1-2.06 Statute of Limitations

In § 7202 prosecutions, the statute of limitations is six years. See United States v. Adam,

296 F.3d 327, 330-31 (5th Cir. 2002); United States v. Gilbert, 266 F.3d 1180, 1185-86 (9th Cir.

2001); United States v. Musacchia, 900 F.2d 493, 499-500 (2d Cir. 1990), vacated in part on

other grounds, 955 F.2d 3, 4 (2d Cir.), cert. denied, 501 U.S. 1250 (1991); United States v. Porth,

426 F.2d 519, 522 (10th Cir.), cert. denied, 400 U.S. 824 (1970); United States v. Anglin, 999 F.

Supp. 1378, 1379-80 (D. Haw. 1998). Be aware, however, that two district courts have

concluded that the statute of limitations for section 7202 prosecutions is three years. United

States v. Brennick, 908 F. Supp. 1004, 1018-19 (D. Mass. 1995); United States v. Block, 497 F.

Supp. 629, 630-32 (N.D. Ga.), aff’d, 660 F.2d 1086 (5th Cir. 1980).

In the Block court’s view, the omission of the language “collect, account for, and pay

over” from the subsections of 26 U.S.C. § 6531, which establish the longer six-year period of

limitations, demonstrates that Congress did not intend to make the failure to “pay over” third

party taxes subject to the six-year statute of limitations. Block, 497 F. Supp. at 631-32. The

Block court also noted that section 6531(4) was not directed at a class of offenses but rather to

“the offense of willfully failing to pay any tax.” The court reasoned that it was “quite clear” that

failure to pay over third-party taxes was substantively different from a failure to pay taxes,

Block, at 632; thus, the exception contained in section 6531(4) was found not to apply to the

failure to pay over third-party taxes. See United States v. Brennick, 908 F. Supp. 1004, 1018-19

(D. Mass. 1995)(§ 6531(4) providing a six-year statute of limitations for the offense of willfully

failing to pay and tax or make any return . . .refers only to the offense described under § 7203

and not to that under § 7202). But see Wilson v. United States, 250 F.2d 312, 320 (9th Cir.

1958).

The Second Circuit, in Musacchia, considered the Block decision but concluded that the

Block “court’s analysis is not convincing.” Musacchia, 900 F.2d at 499-500. The Musacchia

court found that although 26 U.S.C. § 6531(4) does not track the language of section 7202

exactly, the terms “pay” and “pay over” were used interchangeably by the Supreme Court in

deciding Slodov v. United States, 436 U.S. 238, 249 (1978) and thus the fact that section 6531(4)

uses the term “pay” rather than “pay over” is not dispositive.

Instead, the Musacchia court found persuasive the government’s argument that “it would

be inconsistent for Congress to have prescribed a six-year limitations period for the misdemeanor

offense defined in 26 U.S.C. § 7203. . . while providing only a three-year limitation period for

the felony offense defined in Section 7202.” Musacchia, 900 F.2d at 500. The court also noted

the language of section 6531(4) supports the conclusion that the six-year limitations period

applies in a section 7202 prosecution. Musacchia, 900 F.2d at 500.

The court in United States v. Gollapudi, 130 F. 3d 66, 68-71 (3d Cir. 1997) concluded the

court’s rationale in Musacchia was more persuasive than the court in Block, and held that

violations of 26 U.S.C. § 7202 are subject to a six-year statute of limitations. Since no court in

the Third Circuit had yet addressed the issue, the Gollapudi court reviewed the Second and Tenth

Circuits which had applied § 6531(4) to § 7202 offenses, as well as the opposite holdings of two

district courts, and agreed with the Musacchia court. See also United States v. Anglin, 999 F.

Supp. 1378, 1379-80 (D. Haw. 1998) (despite the disagreement among courts as to whether the

three-year or six-year statute of limitations applies to § 7202 offenses, the failure to pay thirdparty taxes as covered by § 7202 constitutes failure to pay ‘any tax,’ and thus is subject to the

six-year statute of limitations under § 6531(4)).

The other question is does the statute of limitations begin to run (1) on the due date of

the return and payment (30 days after the end of the quarter for Forms 941) or (2) on April 15 of

the year following the year for which the employment taxes are due? The more conservative

view of the due date of the Form 941 (for filing and paying) was adopted by the Northern

District of Illinois since the payment due date was the date on which the crime of not paying over

the withheld taxes was committed. United States v. Creamer, 370 F. Supp. 2d 715, 727-28 (N.D.

Ill. 2005), reversed in an uncontested motion for reconsideration, 2006 WL 2037326 (N.D. Ill.).

1-2.07 Table of Cases

Adam, United States v., 296 F.3d 327 (5th Cir. 2002) ...........................................................................33

Anderson, United States v., 328 U.S. 699 (1946) ..................................................................................33

Andros, United States v., 484 F.2d 531 (9th Cir. 1973) .........................................................................32

Anglin, United States v., 999 F. Supp. 1378 (D. Haw. 1998)...........................................................33, 34

Ausmus, United States v., 774 F.2d (6th Cir. 1985)...............................................................................32

Bailey, United States v., 789 F. Supp. 788 (N.D. Tex. 1992) .................................................................33

Bishop, United States v., 412 U.S. 346 (1973).......................................................................................31

Block, United States v., 497 F. Supp. 629 (N.D. Ga.), aff’d, 660 F.2d 1086 (5th Cir. 1980) ............33, 34

Brennick, United States v., 908 F. Supp. 1004 (D. Mass. 1995).......................................................31, 33

Cheek v. United States, 498 U.S. 192 (1991).........................................................................................31

Creamer, United States v., 370 F. Supp. 2d 715 (N.D. Ill. 2005)............................................................34

Datlof v. United States, 252 F. Supp. 11 (E.D. Pa.), aff’d., 370 F.2d 655 (3d Cir. 1966), cert. denied, 387

U.S. 906 (1967).................................................................................................................................31

Evangelista, United States v., 122 F.3d 112 (2d Cir. 1997)....................................................................31

Gilbert, United States v., 266 F.3d 1180 (9th Cir. 2001)........................................................... 31, 32, 33

Gollapudi, United States v., 130 F. 3d 66 (3d Cir. 1997) .......................................................................34

H.J.K. Theatre Corporation, United States v., 236 F.2d 502 (2d Cir. 1956), cert. denied, 352 U.S. 969

(1957) ...............................................................................................................................................30

Musacchia, United States v., 900 F.2d 493 (2d Cir. 1990) ...............................................................33, 34

Poll, United States v., 521 F.2d 329 (9th Cir. 1975) .........................................................................30,32

Poll, United States v., 538 F.2d 845 (9th Cir.), cert. denied, 429 U.S. 977 (1976)............................30, 32

Pomponio, United States v., 429 U.S. 10 (1976)....................................................................................31

Porth, United States v., 426 F.2d 519 (10th Cir.), cert. denied, 400 U.S. 824 (1970)........................31, 33

Scharf, United States v., 558 F.2d 498 (8th Cir. 1977)...........................................................................32

Simkanin, United States v., 420 F.3d 397 (5th Cir. 2005), cert. denied, 547 U.S. 1111 (2006).........30, 31

Slodov v. United States, 436 U.S. 238 (1978) .................................................................................30, 34

Thayer, United States v., 201 F.3d 214 (3d Cir. 1999), cert. denied, 530 U. S. 1244 (2000).................. 31

Tucker, United States v., 686 F.2d 230 (5th Cir. 1982), cert. denied, 530 U. S. 1244 (2000)................ 32

Wilson v. United States, 250 F.2d 312 (9th Cir. 1958) ..........................................................................34

CHAPTER 1

SECTION 3

TITLE 26 TAX VIOLATIONS

FAILURE TO FILE, SUPPLY INFORMATION OR PAY TAX

- I.R.C. § 7203

1-3.01

Statutory Language

1-3.02

Generally

1-3.03

Failure to Pay a Tax

1-3.04

Failure to File a Return

1-3.05

Failure to Keep Records

1-3.06

Failure to Supply Information

1-3.07

Venue

1-3.08

Statute of Limitations

1-3.09

Table of Cases

1-3.01 Statutory Language

I.R.C. § 7203 - FAILURE TO FILE RETURN, SUPPLY INFORMATION, OR PAY TAX

Any person required under this title to pay any estimated tax or tax, or required by

this title or by regulations made under authority thereof to make a return, keep any

records, or supply any information, who willfully fails to pay such estimated tax or

tax, make such return, keep such records, or supply such information, at the time or

times required by law or regulations, shall, in addition to other penalties provided by

law, be guilty of a misdemeanor and, upon conviction, thereof, shall be fined not

more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more

than 1 year, or both, together with the costs of prosecution. In the case of any person

with respect to whom there is a failure to pay any estimated tax, this section shall not

apply to such person with respect to such failure if there is no addition to tax under

section 6654 or 6655 with respect to such failure. In the case of a willful violation of

any provision of section 6050I, the first sentence of this section shall be applied by

substituting "5 years" for "1 year."

(Emphasis added.)

* Added by section 7601(a)(2)(B), 1988 Anti-Drug Abuse Act (P.L. 100-690) 11-18-88.

* For offenses committed after December 31, 1984, the Criminal Fine Enforcement Act of

1984 (P.L. 98-596) enacted 18 U.S.C. § 3623 (changed to 18 U.S.C. § 3571, commencing

Nov. 1, 1986) increased the maximum permissible fines for both misdemeanors and

felonies.

Note: For the misdemeanor offenses set forth in § 7203, the maximum permissible fine for

offenses committed after December 31, 1984 is at least $100,000 in the case of

individuals. As to corporations, the maximum permissible fine is at least $200,000. 18

U.S.C. § 3571(b).

For felony offenses of § 7203 involving willful violations of § 6050I, the maximum

permissible fine is at least $250,000 for individuals and $500,000 for corporations. 18

U.S.C. § 3571(c). Alternatively, if any person derives pecuniary gain from the offense, or

if the offense results in pecuniary loss to a person other than the defendant, the defendant

may be fined not more than the greater of twice the gross gain or twice the gross loss. 18

U.S.C. § 3571(e).

1-3.02 Generally

[1] There are four separate offenses described in I.R.C. § 7203:

[a] Failure to pay an estimated tax or tax;

[b] Failure to make (file) a return;

[c] Failure to keep records; and,

[d] Failure to supply information.

1-3.03 Failure to Pay a Tax - Offense #1

[1] Elements of the offense:

[a] Person required by law to pay a tax;

[b] A failure to pay a tax at the time required by law; and,

[c] Willfulness.

United States v. Tucker, 686 F.2d 230, 232 (5th Cir.), cert. denied, 459 U.S. 1071 (1982).

[2] Required by law to pay

[a] This element is predicated on the requirement imposed on taxpayers under I.R.C.

§ 6151(a) that:

Except as otherwise provided in this subchapter, when a return of tax is required under this

title or regulations, the person required to make such return shall, without assessment or

notice and demand from the Secretary, pay such tax to the internal revenue officer with

whom the return is filed, and shall pay such tax at the time and place fixed for filing the

return ....

See, United States v. Drefke, 707 F.2d 978, 981 (8th Cir.), cert. denied, 464 U.S. 359 (1983).

[b] While most failure to pay cases involve a factual situation in which the taxpayer filed a

return but did not pay the self-assessed tax declared thereon, one circuit has apparently upheld a

conviction for both failure to file a tax return and failure to pay for the same year. United States

v. Lewis, 651 F.2d 1163, 1165 (6th Cir. 1981).

[c] The difference between an attempted evasion of payment in violation of I.R.C. § 7201 and a

failure to pay a tax in violation of I.R.C. § 7203 is the existence of an affirmative act required to make

out the evasion of payment offense, e.g., the concealment of assets or use of nominees.

1. Obstinately refusing to pay taxes due, failure to file a tax return, or possession of

the funds needed to pay the taxes, without more, merely constitute a willful failure to file

returns or pay taxes and does not constitute tax evasion even though done willfully.

2. If the taxpayer failed to file a tax return, an evasion case can be maintained

only if the taxpayer also willfully engaged in affirmative acts to conceal or mislead.

United States v. McGill, 964 F.2d 222, 231 (3d Cir. 1992).

[3] Failure to pay a tax

Proof of a taxpayer's failure to pay is established with a certified transcript of account or a

certificate of assessments and payments. Such documents routinely withstand hearsay and

Confrontation Clause challenges because the documents are admissible under a hearsay

exception and because the documents are not the inherently unreliable out-of-court statements at

which the Confrontation Clause was directed. See, Federal Rules of Evidence, Rule 803(10);

United States v. Neff, 615 F.2d 1235, 1241-42 (9th Cir. 1980). It is important to note, however,

that where the Service has granted the taxpayer an extension of time, the tax due would not have

to be paid until the extended date. See, United States v. Voorhies, 658 F.2d 710, 713 (9th Cir.

1981).

[4] Willfulness (See generally, discussion in Section 1-1.03[4])

[a] Willfulness in misdemeanor failure to pay cases is the same as in the felony hierarchy

of tax offenses. Willfulness in this context simply means a voluntary, intentional violation of a

known legal duty. Cheek v. United States, 498 U.S. 192, 201 (1991); United States v. Powell,

955 F.2d 1206, 1210 (9th Cir. 1992).

[b] There is a strict necessity as a part of showing willfulness to establish an ability to pay,

thereby avoiding imprisonment for debt. Spies v. United States, 317 U.S. 492, 498 (1943). A

claim that the taxpayer lacks liquid assets to pay the tax where the taxpayer has been living high

and spending freely will not prevent a showing of willfulness. United States v. Tucker, 686 F.2d

230, 233-34 (5th Cir.), cert. denied, 459 U.S. 1071 (1982).

[c] The mere fact that the defendant lives in luxury, while of some probative value, is not

enough, in and of itself, to establish that the taxpayer willfully failed to pay. Palermo v. United

States, 259 F.2d 872, 880-82 (3d Cir. 1958). Taxpayer’s professional success, financial security,

ability to raise three children, and habit of always paying other obligations on time was

probative. United States v. McCaffrey, 181 F.3d 854, 856 (7th Cir. 1999).

1-3.04 Failure to File a Return - Offense #2

[1] Elements of the offense:

[a] Person required by law to file a return for the taxable period [I.R.C. § 6012];

[b] A failure to file a return at the time required by law [I.R.C. § 6072]; and,

[c] Willfulness.

See, United States v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992), cert. denied, 507 U.S. 996

(1993); United States v. Harting, 879 F.2d 765, 766-67 (10th Cir. 1989); United States v.

Williams, 875 F.2d 846, 849 (11th Cir. 1989); United States v. Gleason, 726 F.2d 385, 388

(8th Cir. 1984); United States v. Matosky, 421 F.2d 410, 412-13 (7th Cir. 1970), cert. denied,

398 U.S. 904 (1970); United States v. Ostendorff, 371 F.2d 729, 730 (4th Cir.), cert. denied,

386 U.S. 982 (1967); United States v. McCormick, 67 F.2d 867, 868 (2d Cir. 1933), cert.

denied, 291 U.S. 662 (1934).

[2] Required by law to file a return

[a] Various Code provisions (and regulations thereunder) specify the events which trigger

the obligation to file a return. I.R.C. § 6012 lists the persons and entities required to make returns

with respect to income taxes.

[b] The government need not prove that any taxes are due, but only that gross income

requirements have been met so as to trigger the filing requirement. United States v. Bell, 734

F.2d 1315, 1316 (8th Cir. 1984); United States v. Wade, 585 F.2d 573, 574 (5th Cir. 1978), cert.

denied, 440 U.S. 928 (1979). But proof of taxes due will help to establish willfulness.

[c] Individuals. Filing requirements for individuals are governed by (1) filing status,

(2) age, and (3) gross income.

1. Generally, the filing requirement imposed on taxpayers is based on the receipt of

a pecified amount of gross income. The term "gross income" is broadly defined as income from

"whatever source derived." I.R.C. § 61(a).

2. Periodically, legislation changes the specified amount of gross income which

triggers the duty to file a return. Therefore, whether a taxpayer is required to file a return must be

determined for each year under consideration.

[d] Corporations are required to file a Form 1120 regardless of the amount of gross

income involved.

1. The corporate officer responsible for filing may be prosecuted for a willful

failure to file. United States v. Neal, 93 F.3d 219, 223 (6th Cir. 1996), cert. denied, 519

U.S. 1115 (1997); Heligman v. United States, 407 F.2d 448, 451 (8th Cir. 1969), cert.

denied, 395 U.S. 977 (1969); Lumetta v. United States, 362 F.2d 644, 647 (8th Cir.

1966); Bloom v. United States, 272 F.2d 215, 222-23 (9th Cir. 1959), cert. denied, 363

U.S. 803 (1960).

2. If more than one corporate officer shared the responsibility of filing the

corporate return, it may be impossible to convict any officer under I.R.C. § 7203. United

States v. Fago, 162 F. Supp. 125, 129 (W.D. N.Y. 1958).

3. For manufacturing, merchandising, or mining enterprises, where the filing

requirement is predicated upon gross income, gross income is determined, in part, by

subtracting the cost of goods sold from gross receipts or total sales. Treasury Regulations

on Income Tax (1986 Code), Sec. 1.61-3 (26 C.F.R.); United States v. Ballard, 535 F.2d

400, 404 (8th Cir.), cert. denied, 429 U.S. 918 (1976). To meet its burden, the

government need prove only that gross receipts exceed the cost of goods sold by an

amount sufficient to trigger the reporting requirement. United States v. Francisco, 614

F.2d 617, 618 (8th Cir.), cert. denied, 446 U.S. 922 (1980); Siravo v. United States, 377

F.2d 469, 473 (1st Cir. 1967). This rule applies even if the business is illegal.

[e] Partnerships are required to file Form 1065. The gross income of a partner includes his

or her share of the partnership's gross income. Treas. Reg. § 1.61-13(a).

[f] Employers are required to file Forms 940 and 941.

[g] Fiduciaries of an estate or trust are required to file Form 1041.

[h] Person engaged in a trade or business who in the course of such trade or business

receives more than $10,000 in cash in one transaction (or two or more related transactions) must

file a Form 8300. I.R.C. § 6050I.

[3] Failure to file a return at time required by law

[a] What constitutes a return.

1. Generally, a Form 1040 does not constitute a return unless it discloses

sufficient information about the taxpayer's income to allow computation of the tax.

United States v. Porth, 426 F.2d 519, 522-23 (10th Cir.), cert. denied, 400 U.S. 824

(1970).

2. Several circuits have held that a tax return which contains blanks, zeros

throughout the return, or only a bottom-line figure does not constitute a return and

therefore, a failure to file charge is appropriate. United States v. Mosel, 738 F.2d 157, 15859 (6th Cir. 1984); United States v. Farber, 630 F.2d 569, 571 (8th Cir. 1980), cert. denied,

449 U.S. 1127 (1981); United States v. Moore, 627 F.2d 830, 834-35 (7th Cir. 1980), cert.

denied, 450 U.S. 916 (1981); United States v. Rickman, 638 F.2d 182, 184 (10th Cir.

1980); United States v. Smith, 618 F.2d 280, 281 (5th Cir. 1980), cert. denied, 449 U.S.

868 (1980); United States v. Edelson, 604 F.2d 232, 234 (3d Cir. 1979).

3. Ninth Circuit recognizes a distinction between a return that contains any

numerical entries, even if they are all zeros, and returns left blank or containing other nonnumeric entries, e.g., asterisks. The former constitutes a return under United States v.

Long, 618 F.2d 74, 75-76 (9th Cir. 1980) (because a tax could be computed from the

information contained on the form), and the latter does not. United States v. Kimball, 896

F.2d 1218 (9th Cir.), reh'g granted, 914 F.2d 1386 (9th Cir. 1990), rev'd in part, remanded

in part, 925 F.2d 356 (9th Cir. 1991)(per curiam).

4. Also, a blank return with a Form W-2 attached showing the salary and tax

withheld has been held to constitute a return because the information necessary to allow

computation of the tax was present. United States v. Crowhurst, 629 F.2d 1297, 1300 (9th

Cir.), cert. denied, 449 U.S. 1021 (1980).

[b] The time prescribed for filing an income tax return is generally governed by I.R.C. § 6072.

1. Individuals are required to file on or before the 15th day of the fourth month

following the close of their taxable year.

2. Corporations are required to file on or before the 15th day of the third month

following the close of their tax year. Time for filing will obviously differ depending on whether

the corporation is on calendar year or fiscal year. Caution: A new corporation has election of

adopting taxable year filing period. Treas. Reg. § 1.4411(b)(3). See also, United States v.

Bourque, 541 F.2d 290, 293-94 (1st Cir. 1976).

3. Partnerships are required to file on or before the 15th day of the fourth month

following the close of their tax year.

4. I.R.C. § 6071 fixes the time for filing all other returns for which a time for

filing is not otherwise enumerated in the Code, and I.R.C. § 6075 fixes the time for filing estate

and gift tax returns.

5. Although taxpayers legitimately may seek and obtain an extension of time to

file a return under the I.R.C. § 6081 (extension of time for filing returns), abuse of this

provision can support a § 7203 conviction. See, United States v. Goldstein, 502 F.2d 526, 528

(3d Cir. 1974) (filing extension request was not intended as an attempt to comply with the legal

requirement to file an income tax return, but solely in an attempt to postpone any possible day

of reckoning).

6. Proof of a taxpayer's failure to file is established with a certified transcript of

account or a certificate of assessments and payments. Such documents routinely withstand

hearsay and Confrontation Clause challenges because the documents are admissible under a

hearsay exception and because the documents are not the inherently unreliable out-of-court

statements at which the Confrontation Clause was directed. See, Federal Rules of Evidence, Rule

803(10); United States v. Neff, 615 F.2d 1235, 1241-42 (9th Cir. 1980).

[c] Willfulness. (See generally, discussion in Section 1-1.03[4])

1. Willfulness in misdemeanor failure to file cases is the same as in the felony hierarchy of

tax offenses. Willfulness in this context simply means a voluntary, intentional violation of a known

legal duty. United States v. Murphy, 469 F.3d 1130, 1137 (7th Cir. 2006); United States v. Powell,

955 F.2d 1206, 1210 (9th Cir. 1992). Similarly, the Cheek defense applies in failure to file cases.

United States v. Gaumer, 972 F.2d 723, 724-25 (6th Cir. 1992); United States v. Willie, 941 F.2d

1384, 1394-95 (10th Cir. 1991), cert. denied, 502 U.S. 1106 (1992).

2. Examples from which willfulness may be inferred include:

(A) The failure to file returns in successive years suggests willfulness. United

States v. McCaffrey, 181 F.3d 854, 857 (7th Cir. 1999) (admission of evidence of failure

to file income tax returns for nine previous uncharged years was not unduly prejudicial);

United States v. Crawford, 1997 WL 532495 * 2 (4th Cir. Aug. 29, 1997) (unpublished),

cert. denied, 522 U.S. 1117 (1998) (taxpayer’s earlier delinquent filing or non-filing

could be evidence of willfulness); United States v. Greenlee, 517 F.2d 899, 903 (3d Cir.),

cert. denied, 423 U.S. 985 (1975); United States v. Ostendorff, 371 F.2d 729, 731(4th

Cir.), cert. denied, 386 U.S. 982 (1967). Both prior and subsequent failures to file may

be presented on the issue of willfulness. United States v. Farris, 517 F.2d 226, 229 (7th

Cir. 1975); United States v. Thompson, 513 F.2d 577, 578-79 (8th Cir. 1975).

(B) The taxpayer's filing of timely returns in prior years is evidence which permits the

inference that he knew the law required him to file returns and that he willfully failed to

do so. United States v. Poschwatta, 829 F.2d 1477, 1481 (9th Cir. 1987); United States v.

Shivers, 788 F.2d 1046, 1049-50 (5th Cir. 1986); United States v. McCabe, 416 F.2d 957,

957-58 (7th Cir. 1969), cert. denied, 396 U.S. 1058 (1970).

willful failure to file federal returns. United States v. Magnus, 365 F.2d 1007, 1011-12

(2d Cir. 1966), cert. denied, 386 U.S. 909 (1967); United States v. Taylor, 305 F.2d 183,

185-86 (4th Cir.), cert. denied, 371 U.S. 894 (1962).

(D) The taxpayer's receipt of Forms W-2 received before or during the period

within which filing is required, as reminders of his duty to file, United States v. Cirillo,

251 F.2d 638, 639 (3d Cir. 1957), cert. denied, 356 U.S. 949 (1958), or letters from the

Service Center, United States v. Grumka, 728 F.2d 794, 797 (6th Cir. 1984).

3. Defenses which have been accepted or rejected by the courts include the following:

(A) Although it is a common defense contention to argue that the Government has

not proven tax liability, actually this defense contention has been rejected since tax

liability is not an element of failure to file. Spies v. United States, 317 U.S. 492, 496

(1943). Intent to defraud is also not an element of failure to file. United States v.

McCorkle, 511 F.2d 482, 485 (7th Cir. 1975); United States v. Klee, 494 F.2d 394, 395

(9th Cir. 1954).

(B) Both the defense of good faith misunderstanding of the law and the defense of

belief that the tax laws are unconstitutional are acceptable defenses without regard to the

objective reasonableness of the misunderstanding or belief. However, proof that the

defendant possessed knowledge that the law imposes a duty on him will negate these

defenses and imply that the defendant merely disagreed with the law. Cheek v. United

States, 498 U.S. 192, 201-02 (1991); United States v. Willie, 941 F.2d 1384, 1395 (10th

Cir. 1991), cert. denied, 502 U.S. 1106 (1992); United States v. Gaumer, 972 F.2d 723,

724 (6th Cir. 1992). Also, affirmative acts of concealment of assets or sources of income

will negate a defense of good faith misunderstanding and prove willfulness. United States

v. Brooks, 174 F.3d 950, 955 (8th Cir. 1999) (defendant relied on good faith

misunderstanding defense although he had placed ownership of his home and bank

account in the names of trusts, used a post office box in the name of these trusts to

receive mail related to his home and bank account, prepared and signed inaccurate Forms

W-4, and filed a Form W-8 falsely claiming exempt status as a non-resident alien).

lack of willfulness, the Government can counter that delinquent filing constitutes an

effort by the taxpayer to put himself in a better position after he knew his defalcations

were about to be discovered. United States v. Crawford, 1997 WL 532495 *2 (4th Cir.

Aug. 29, 1997) (unpublished), cert. denied, 522 U.S. 1117 (1998); United States v.

McCormick, 67 F.2d 867, 868 (2d Cir. 1933), cert. denied, 291 U.S. 662 (1934). Figures

on delinquent returns may also be used as admissions as to income and expenses.

(D) An intent to file in the future does not constitute a defense to a I.R.C. § 7203

charge. Sansone v. United States, 380 U.S. 343, 354-55 (1965).

(E) Preoccupation with personal and business affairs has been rejected

as a defense. Eustis v. United States, 409 F.2d 228 (9th Cir. 1969); United

States v. Ostendorff, 371 F.2d 729, 731 (4th Cir.), cert. denied, 386 U.S. 982

(1967); Haskell v. United States, 241 F.2d 790, 793-94 (10th Cir.), cert.

denied, 354 U.S. 921 (1957).

(F) Chronic depression and a neurological disorder causing taxpayer to

sleep twenty hours per day does not constitute a defense where taxpayer was a

successful professional and managed to raise three children. United States v.

McCaffrey, 181 F.3d 854, 856-57 (7th Cir. 1999). But see, United States v.

Cohen, 510 F. 3d 1114, 1123-24 (9th Cir. 2007). (District Court erred in not

allowing psychiatrist to testify about defendant’s claimed mental disorder).

(G) Lack of funds is not a legal excuse for failure to file returns. Ripperger v.

United States, 248 F.2d 944 (4th Cir. 1957), cert. denied, 355 U.S. 940 (1958). But, lack

of funds, coupled with the belief that returns may not be filed without payment, may

negate willfulness. United States v. Lewis, 671 F.2d 1025, 1027-28 (7th Cir. 1982).

(H) Procrastination as a defense in a failure to file case has been rejected. United

States v. Browney, 421 F.2d 48, 50-51 (4th Cir. 1970).

(I) Fear that a prior history of non-filing would be discovered is no defense. United

States v. Matosky, 421 F.2d 410, 412-13 (7th Cir.), cert. denied, 398 U.S. 904 (1970).

(J) It is no defense that the Government had contemporaneous

knowledge of the taxpayer's failure to file. United States v. Hayes, 60-2

U.S.T.C. 9783, 6 A.F.T.R.2d (RIA) 5924 (E.D. Wis. 1960).

(K) I.R.S. failure to comply with the Paperwork Reduction Act by

failing to display OMB control numbers on filing regulations, tax forms or

instructions is no defense. United States v. Dawes, 951 F.2d 1189, 1190-92

(10th Cir. 1991); United States v. Hicks, 947 F.2d 1356, 1359 (9th Cir. 1991);

United States v. Kerwin, 945 F.2d 92 (5th Cir. 1991).

4. The Fifth Amendment does not justify a taxpayer's complete refusal to file

any sort of return document. See e.g., United States v. Turk, 722 F.2d 1439, 1440-41

(9th Cir. 1983); United States v. Moore, 692 F.2d 95, 97 (10th Cir. 1982).

(A) The Fifth Amendment privilege must be claimed on a filed return and only in

response to specific questions on the return. United States v. Sullivan, 274 U.S. 259, 26364 (1927); United States v. Leindendeker, 779 F.2d 1417, 1418 (9th Cir. 1986); United

States v. Bulkley, 56 A.F.T.R.2d 85-6205 (10th Cir. 1984). A valid exercise of the

privilege is a defense to a I.R.C. § 7203 charge. Garner v. United States, 424 U.S. 648,

661-63 (1976). A good faith claim of Fifth Amendment privilege, although unfounded,

can negate willfulness in a failure to file case. United States v. Callery, 774 F.2d 1456,

1458 (9th Cir. 1985); United States v. Pilcher, 672 F.2d 875, 877 (11th Cir. 1982).

(B) Garner dealt with a claim of privilege as to the source of income.

Problems arise in cases where a return is filed and the taxpayer claims the Fifth

Amendment with respect to the amount of income. The traditional view is that

the filed document does not constitute a return. United States v. Daly, 481 F.2d

28, 29 (8th Cir. 1973); United States v. Porth, 426 F.2d 519, 522-23 (10th

Cir.), cert. denied, 400 U.S. 824 (1970). Self-incrimination must be real and

not unsubstantial. United States v. Barnes, 604 F.2d 121, 148 (2d Cir. 1979),

cert. denied, 446 U.S. 907 (1980); United States v. Neff, 615 F.2d 1235, 1239

(9th Cir. 1980).

5. The filing of partnership returns does not excuse the non-filing of individual returns.

United States v. Harrison, 72-2 U.S.T.C. 9573, 30 A.F.T.R.2d (RIA) 72-5367 (E.D. N.Y.), aff'd

without opinion, 486 F.2d 1397 (2d Cir. 1972), cert. denied, 411 U.S. 965 (1973).

6. Other taxpayer considerations:

(A) Cooperation.

(B) Education and intellect.

(D) Background and character.

(E) Age.

(F) Health.

See United States v. McCaffrey, 181 F.3d 854, 856 (7th Cir.1999).

7. Willful failure to file a return, in violation of I.R.C. § 7203, may be elevated to

willfully attempting to evade or defeat tax, in violation of I.R.C. § 7201, by showing an

affirmative act, such as filing a false W-4 form.

[4] Failure to File Forms 8300

[a] I.R.C. § 6050I requires that any person who is engaged in a trade or business and who

in the course of such trade or business receives more than $10,000 in cash in one transaction (or

two or more related transactions) must file a Form 8300.

[b] Failure to file a Form 8300 is prosecuted as an I.R.C. § 7203 failure to file violation.

See, United States v. Rogers, 18 F.3d 265, 267 (4th Cir. 1994).

[c] Felony Offense. While a failure to file other I.R.S. forms is a misdemeanor, a failure to

file Form 8300 prosecuted under I.R.C. § 7203 is a felony (i.e., maximum punishment is 5 years

imprisonment and/or $25,000 fine ($100,000 for corporations).

[d] Knowledge of the law is a key criterion in cases involving a failure to file Form 8300.

See, United States v. Loe, 262 F.3d 427, 435-36 (5th Cir. 2001) (prior cash transactions over

$10,000, false statements to IRS agents, and refusal to turn over records to IRS sufficient

evidence for jury to find defendant knew about the reporting requrements); Rogers, 18 F.3d 265,

267 (4th Cir. 1994) (holding that the government must prove that a defendant was aware of the

return obligations of a trade or business and acted to evade them).

1-3.05 Failure to Keep Records - Offense #3

[1] Elements of the offense:

[a] Person required by law to maintain books and records; and,

[b] The willful failure to maintain books and records.

United States v. Kafes, 214 F.2d 887, 890 (3d Cir.), cert. denied, 348 U.S. 887 (1954).

[2] As a general rule, invocation of this criminal sanction entails the practical difficulty of

defining what books and records were required to be maintained. By regulation the Secretary

requires taxpayers to "keep such permanent books of account or records, including inventories,

as are sufficient to establish the amount of gross income, deductions, credits, or other matters

required to be shown by such person in any return of such tax or information." Treas. Reg.

1.6001-1(a). The regulation does not mandate any form of record keeping but simply requires

that such records be accurate and sufficient to enable the district director to ascertain whether

liability for tax is incurred and, if so, the amount thereof. District Directors are empowered to

require any person (by notice served upon him) to keep specific records which will enable the

District Director to ascertain if such person is liable for tax. Treas. Reg. 1.6001-1(d). 4

1-3.06 Failure to Supply Information - Offense #4

[1] Elements of the offense:

[a] Person required by law to supply information;

[b] Failure to supply information at the time required by law; and,

[c] Willfulness.

Pappas v. United States, 216 F.2d 515, 517 (10th Cir. 1954).

[2] Examples of prosecutions under this criminal sanction include:

[a] Form 1099. United States v. Haimowitz, 404 F.2d 38 (2d Cir. 1968).

[b] Form 1065. Pappas v. United States, 216 F.2d 515, 517-18 (10th Cir. 1954).

[c] Frivolous returns. United States v. Quimby, 636 F.2d 86, 88 (5th Cir. 1981).

1-3.07 Venue

[1] General rule: venue lies in any judicial district in which the taxpayer is required to file a tax

return.

[2] I.R.C. § 6091 sets forth the places for filing returns.

[3] In general, an individual return is to be filed either in the internal revenue district where the

taxpayer resides or has his/her principal place of business; or at the Service Center serving the

internal revenue district where the taxpayer resides or has his/her principal place of business. In

those instances where the Internal Revenue Code does not provide for the place of filing, the

Secretary "shall by regulations" prescribe the place for filing.

Following the reorganization of the IRS, the District Director position was abolished. An Area Director holds his authority

now.

1-3.08 Statute of Limitations

[1] For willful failure to file a return or pay a tax - six (6) years. I.R.C. § 6531(4).

[2] For information returns required by the Code or for willful failure to either keep records or

supply information, the statute of limitations is three (3) years. I.R.C. § 6531(4).

[3] For willful failure to file a Form 8300 - three (3) years. I.R.C. § 6531(4).

[4] The statute of limitations is computed from the due date of the return. Phillips v. United

States, 843 F.2d 438, 443 (11th Cir. 1988).

[a] For individuals, this due date will usually be April 15th, unless an extension of time in

which to file is granted, in which case, the statute is computed from the extended compliance

date. Phillips, 843 F.2d at 442-43.

[b] Corporate returns are due by March 15th, unless a timely extension was made and

granted, in which case, the statute is computed from the extended compliance date.

1-3.09 Table of Cases

Ballard, United States v., 535 F.2d 400, 404 (8th Cir.), cert. denied, 429 U.S. 918 (1976) .....................42

Barnes, United States v., 604 F.2d 121 (2d Cir. 1979), cert. denied, 446 U.S. 907 (1980)......................46

Bell, United States v., 734 F.2d 1315 (8th Cir. 1984) ............................................................................41

Bloom v. United States, 272 F.2d 215 (9th Cir. 1959), cert. denied, 363 U.S. 803 (1960).....................41

Bourque, United States v., 541 F.2d 290 (1st Cir. 1976)........................................................................43

Brooks, United States v., 174 F.3d 950 (8th Cir. 1999) .........................................................................45

Browney, United States v., 421 F.2d 48 (4th Cir. 1970) ........................................................................45

Bulkley, United States v., 56 A.F.T.R.2d 6205 (10th Cir. 1984) ............................................................46

Callery, United States v., 774 F.2d 1456 (9th Cir. 1985) .......................................................................46

Cheek v. United States, 498 U.S. 192 (1991)...................................................................................40, 44

Cirillo, United States v., 251 F.2d 638 (3d Cir. 1957), cert. denied, 356 U.S. 949 (1958) ......................44

Cohen, United States v., 510 F. 3d 1114 (9th Cir. 2007)........................................................................45

Crawford, United States v., 1997 WL 532495 * 2 (4th Cir. Aug. 29, 1997) (unpublished), cert. denied,

522 U.S. 1117 (1998)..................................................................................................................44, 45

Crowhurst, United States v., 629 F.2d 1297 (9th Cir.), cert. denied, 449 U.S. 1021 (1980)....................43

Daly, United States v., 481 F.2d 28 (8th Cir. 1973) ...............................................................................46

Dawes, United States v., 951 F.2d 1189 (10th Cir. 1991) ......................................................................46

Drefke, United States v., 707 F.2d 978 (8th Cir.), cert. denied, 464 U.S. 359 (1983) .............................39

Edelson, United States v., 604 F.2d 232 (3d Cir. 1979) .........................................................................42

Eustis v. United States, 409 F.2d 228 (9th Cir. 1969) ............................................................................45

Fago, United States v., 162 F. Supp. 125 (W.D. N.Y. 1958)..................................................................41

Farber, United States v., 630 F.2d 569 (8th Cir. 1980), cert. denied, 449 U.S. 1127 (1981) ...................42

Farris, United States v., 517 F.2d 226 (7th Cir. 1975)............................................................................44

Francisco, United States v., 614 F.2d 617 (8th Cir.), cert. denied, 446 U.S. 922 (1980) .........................42

Garner v. United States, 424 U.S. 648 (1976)........................................................................................46

Gaumer, United States v., 972 F.2d 723 (6th Cir. 1992) ..................................................................43, 44

Gleason, United States v., 726 F.2d 385 (8th Cir. 1984) ........................................................................41

Goldstein, United States v., 502 F.2d 526 (3d Cir. 1974).......................................................................43

Greenlee, United States v., 517 F.2d 899 (3d Cir.), cert. denied, 423 U.S. 985 (1975) ...........................44

Grumka, United States v., 728 F.2d 794 (6th Cir. 1984) ........................................................................44

Haimowitz, United States v., 404 F.2d 38 (2d Cir. 1968) ......................................................................48

Harrison, United States v., 72-2 U.S.T.C. 9573, 30 A.F.T.R.2d (RIA) 5367 (E.D. N.Y.), aff'd without

opinion, 486 F.2d 1397 (2d Cir. 1972), cert. denied, 411 U.S. 965 (1973) .........................................46

Harting, United States v., 879 F.2d 765 (10th Cir. 1989) .......................................................................41

Haskell v. United States, 241 F.2d 790 (10th Cir.), cert. denied, 354 U.S. 921 (1957) ...........................45

Hayes, United States v., 60-2 U.S.T.C. 9783, 6 A.F.T.R.2d (RIA) 5924 (E.D. Wis. 1960).....................45

Heligman v. United States, 407 F.2d 448 (8th Cir.), cert. denied, 395 U.S. 977 (1969)..........................41

Hicks, United States v., 947 F.2d 1356 (9th Cir. 1991)..........................................................................46

Kafes, United States v., 214 F.2d 887 (3d Cir.), cert. denied, 348 U.S. 887 (1954) ................................47

Kerwin, United States v., 945 F.2d 92 (5th Cir. 1991) ...........................................................................46

Kimball, United States v., 896 F.2d 1218 (9th Cir.), reh'g granted, 914 F.2d 1386 (9th Cir. 1990), rev'd

in part, remanded in part, 925 F.2d 356 (9th Cir. 1991) .....................................................................42

Klee, United States v., 494 F.2d 394 (9th Cir. 1954) .............................................................................44

Leindendeker, United States v., 779 F.2d 1417 (9th Cir. 1986)..............................................................46

Lewis, United States v.,651 F.2d 1163 (6th Cir. 1981) ..........................................................................39

Lewis, United States v., 671 F.2d 1025 (7th Cir. 1982) .........................................................................45

Loe, United States v., 262 F.3d 427 (5th Cir. 2001)...............................................................................47

Long, United States v.g, 618 F.2d 74 (9th Cir. 1980) ............................................................................42

Lumetta v. United States, 362 F.2d 644 (8th Cir. 1966).........................................................................41

Magnus, United States v., 365 F.2d 1007 (2d Cir. 1966), cert. denied, 386 U.S. 909 (1967) ..................44

Matosky, United States v., 421 F.2d 410 (7th Cir.), cert. denied, 398 U.S. 904 (1970).....................41, 45

McCabe, United States v., 416 F.2d 957 (7th Cir. 1969), cert. denied, 396 U.S. 1058 (1970) ................44

McCaffrey, United States v., 181 F.3d 854 (7th Cir. 1999).................................................. 40, 44, 45, 47

McCorkle, United States v., 511 F.2d 482 (7th Cir. 1975) .....................................................................44

McCormick, United States v., 67 F.2d 867 (2d Cir. 1933), cert. denied, 291 U.S. 662 (1934)..........41, 45

McGill, United States v., 964 F.2d 222 (3d Cir. 1992)...........................................................................40

Moore, United States v., 627 F.2d 830 (7th Cir. 1980), cert. denied, 450 U.S. 916 (1981) .....................42

Moore, United States v., 692 F.2d 95 (10th Cir. 1982) ..........................................................................46

Mosel, United States v., 738 F.2d 157 (6th Cir. 1984) ...........................................................................42

Murphy, United States v., 469 F.3d 1130 (7th Cir. 2006) ......................................................................43

Neal, United States v., 93 F.3d 219 (6th Cir. 1996), cert. denied, 519 U.S. 1115 (1997) ........................41

Neff, United States v., 615 F.2d 1235 (9th Cir. 1980)................................................................ 40, 43, 46

Ostendorff, United States v., 371 F.2d 729 (4th Cir.) cert. denied, 386 U.S. 982 (1967) ............ 41, 44, 45

Palermo v. United States, 259 F.2d 872 (3d Cir. 1958)..........................................................................40

Pappas v. United States, 216 F.2d 515 (10th Cir. 1954).........................................................................48

Phillips v. United States, 843 F.2d 438 (11th Cir. 1988)........................................................................49

Pilcher, United States v., 672 F.2d 875 (11th Cir. 1982)........................................................................46

Porth, United States v., 426 F.2d 519 (10th Cir.), cert. denied, 400 U.S. 824 (1970)........................42, 46

Poschwatta, United States v., 829 F.2d 1477 (9th Cir. 1987) .................................................................44

Powell, United States v., 955 F.2d 1206 (9th Cir. 1992) ..................................................................40, 43

Quimby, United States v., 636 F.2d 86 (5th Cir. 1981). .........................................................................48

Rickman, United States v., 638 F.2d 182 (10th Cir. 1980).....................................................................42

Ripperger v. United States, 248 F.2d 944 (4th Cir. 1957), cert. denied, 355 U.S. 940 (1958).................45

Rogers, United States v., 18 F.3d 265 (4th Cir. 1994)............................................................................47

Sansone v. United States, 380 U.S. 343 (1965)......................................................................................45

Shivers, United States v., 788 F.2d 1046 (5th Cir. 1986) .......................................................................44

Siravo v. United States, 377 F.2d 469 (1st Cir. 1967) ............................................................................42

Smith, United States v., 618 F.2d 280 (5th Cir. 1980), cert. denied, 449 U.S. 868 (1980) ......................42

Spies v. United States, 317 U.S. 492 (1943) ....................................................................................40, 44

Sullivan, United States v., 274 U.S. 259 (1927).....................................................................................46

Taylor, United States v., 305 F.2d 183 (4th Cir.), cert. denied, 371 U.S. 894 (1962)..............................44

Thompson, United States v., 513 F.2d 577 (8th Cir. 1975) ....................................................................44

Tucker, United States v., 686 F.2d 230 (5th Cir.), cert. denied, 459 U.S. 1071 (1982) .....................39, 40

Turk, United States v., 722 F.2d 1439 (9th Cir. 1983) ...........................................................................46

Voorhies, United States v., 658 F.2d 710 (9th Cir. 1981) ......................................................................40

Vroman, United States v., 975 F.2d 669 (9th Cir. 1992), cert. denied, 507 U.S. 996 (1993)...................41

Wade, United States v., 585 F.2d 573 (5th Cir. 1978), cert. denied, 440 U.S. 928 (1979) ......................41

Williams, United States v., 875 F.2d 846 (11th Cir. 1989).....................................................................41

Willie, United States v., 941 F.2d 1384 (10th Cir. 1991), cert. denied, 502 U.S. 1106 (1992)..........43, 44

CHAPTER 1

SECTION 4

TITLE 26 TAX VIOLATIONS

FRAUDULENT WITHHOLDING EXEMPTION OR

FAILURE TO SUPPLY INFORMATION - I.R.C. § 7205

1-4.01

Statutory Language

1-4.02

Generally

1-4.03

Section 7205(a) Offense

1-4.04

Section 7205(b) Offense

1-4.05

Venue

1-4.06

Statute of Limitations

1-4.07

Table of Cases

1-4.01 Statutory Language

I.R.C. § 7205 - FRAUDULENT WITHHOLDING EXEMPTION OR FAILURE TO

SUPPLY INFORMATION

(a) Withholding on Wages.--Any individual required to supply information to his

employer under section 3402 who willfully supplies false or fraudulent information,

or who willfully fails to supply information thereunder which would require an

increase in the tax to be withheld under section 3402, shall, in addition to any other

penalty provided by law, upon conviction thereof, be fined* not more than $1,000, or

imprisoned not more than 1 year, or both.

(b) Backup Withholding on Interest and Dividends.-- If any individual willfully

makes any false certification under paragraph (1) or (2)(c) of section 3406(d), then

such individual shall in addition to any other penalty provided by law, upon

conviction thereof, be fined* not more than $1,000, or imprisoned not more than 1

year, or both.

* As to offenses committed after December 31, 1984, the maximum permissible fine is

increased to $100,000 for individuals and corporations.

1-4.02 Generally

[1] Of the two offenses contained in this section, those committed in violation of § 7205(a) are

far more common.

[a] Section 7205(a) applies to Form W-4 and Form W-4E.

[b] Some common fact patterns:

1. An employee falsely claims exemption from withholding, certifying no tax

liability incurred for preceding year and none anticipated for current year. This charge,

when coupled with failure to file charges under Section 7203, may give rise to what is

commonly referred to as a Spies evasion. See discussion in Section 1-1.03[2]. The section

7205 charge is based on the falsity of the employee's certification regarding the preceding

year. United States v. Echols, 677 F.2d 498, 499 (5th Cir. 1982).

2. An employee falsely inflates the number of "allowances" claimed, thereby

reducing or eliminating taxes withheld. United States v. Herzog, 632 F.2d 469, 472 (5th

Cir. 1980). Because the allowances for credits and itemized deductions are difficult to

compute, prosecution on this fact pattern will probably be confined to overstated

allowances for dependents. The problem is that allowances for dependents were lumped

together with other allowances on the face of the old W-4, so it was difficult to prove

which allowances were falsely stated unless the employee provided agents with his

worksheet or made admissions.

1-4.03 Section 7205(a) Offense

[1] Elements of the Offense

[a] The individual had a duty to supply information to employer under I.R.C. § 3402.

[b] The individual supplied false or fraudulent information or failed to supply information

which would require increase in tax withheld.

[c] The act or failure to act was willful.

United States v. Herzog, 632 F.2d 469, 471-72 (5th Cir. 1980); United States v. Olson, 576 F.2d

1267 (8th Cir.), cert. denied, 439 U.S. 896 (1978).

[2] Duty to supply information

[a] The employee's duty to supply an employer with information relating to the number of

withholding exemptions claimed is contained in I.R.C. § 3402(f)(2)(A), as follows:

On or before the date of commencement of employment with an employer, the employee

shall furnish the employer with a signed withholding exemption certificate relating to the

number of withholding exemptions which he claims, which shall in no event exceed the

number to which he is entitled.

[b] The taxpayer's status as an employee is an essential element of the offense which the

government must establish beyond a reasonable doubt. United States v. Bass, 784 F.2d 1282,

1284 (5th Cir. 1986); United States v. Herzog, 632 F.2d 469, 472 (5th Cir. 1980).

[3] False or fraudulent information

[a] Most courts have rejected the argument that the information provided must be either

deceptive or provided with the intent to deceive. United States v. Lawson, 670 F.2d 923, 928

(10th Cir. 1982); United States v. Hinderman, 528 F.2d 100, 102 (8th Cir. 1976); United States

v. Malinowski, 347 F. Supp. 347 (E.D. Pa. 1972), aff'd, 472 F.2d 850, 852-853 (3d Cir.), cert.

denied, 411 U.S. 1970 (1973).

[b] The Fourth Circuit has refused to equate "false" with "untrue" and has required, for a

Section 7205 conviction, that the information be either provided with the intent to deceive or

deceptive enough to possible change the amount withheld. United States v. Snider, 502 F.2d 645

(4th Cir. 1974). The W-4 involved claimed, in protest of the Vietnam conflict, three billion

dependents.

[4] Willfulness (See generally, discussion in Section 1-1.03[4])

[a] Willfulness in a Section 7205 prosecution is the same as it is in all specific intent

criminal tax offenses -- "a voluntary, intentional violation of a known legal duty." Cheek v.

United States, 498 U.S. 192, 194 (1991).

[b] Examples:

1. Evidence that the defendant had a tax liability in a prior year and then filed a

Form W-4 in which 99 exemptions were claimed and a document that falsely declared he

had no tax liability in the prior year and anticipated none in the year in issue. United States

v. Grumka, 728 F.2d 794, 797 (6th Cir. 1984); United States v. Arlt, 567 F.2d 1295, 1298

(5th Cir.), cert. denied, 436 U.S. 911 (1978).

2. The filing of frivolous returns and notice by the Service that the frivolous returns

were invalid. United States v. Grumka, 728 F.2d 794, 797 (6th Cir. 1984).

3. Defendant's filing of "Affidavits of Revocation" stating that she was not required

to file returns or pay taxes, and letters to I.R.S. stating that wages are not income is

evidence of willfulness. United States v. Ferguson, 793 F.2d 828, 831 (7th Cir. 1986), cert.

denied, 479 U.S. 933 (1987).

4. Evidence of prior tax paying history and of attempts by the defendant's employer

and the Internal Revenue Service to explain legal requirements to the defendant is

sufficient to sustain the jury's finding that the defendant was aware of his legal obligations

and intentionally chose not to comply. United States v. Foster, 789 F.2d 457, 460 (7th Cir.

1986); United States v. Rifen, 577 F.2d 1111, 1113 (8th Cir. 1978).

1-4.04 Section 7205(b) Offense

[1] Elements of the Offense

[a] Making false certification or affirmation on any statement required by a payor who is

attempting to satisfy certain dividend or interest information reporting requirements; or

[b] Making a false certification about not being subject to backup withholding; and

[c] Willfulness.

[2] Summary

[a] This criminal provision applies to interest and dividend income which generally are not

subject to a withholding tax.

[b] The Code imposes a system of backup withholding which applies when:

1. The payee fails to provide a taxpayer identification number (TIN);

2. The I.R.S. notifies the payor that the payee's TIN is incorrect;

3. The I.R.S. notifies the payor that the payee is underreporting interest and

dividend; or

4. The payee fails to certify to the payor, when opening a new account after 1983,

that he/she is not subject to backup withholding.

1-4.05 Venue

[1] In Section 7205 prosecutions, venue is proper in the judicial district where the false

certification or statement was made (e.g., where the false Form W-4 was submitted to the

employer).

[2] Note that where a defendant is charged with evasion under Section 7201 and the filing of a

false or fraudulent Form W-4 is an affirmative act of evasion, venue is proper where a false

withholding statement is prepared and signed, where it is received and filed, or where an attempt

to evade otherwise occurred. See, United States v. Felak, 831 F.2d 794, 799 (8th Cir. 1987).

1-4.06 Statute of Limitations

[1] The statute of limitations for I.R.C. § 7205 offenses is three years from the time the false or

fraudulent Form W-4 is filed. I.R.C. § 6531.

[2] The three-year limitations period can pose difficulties in combining a Section 7205 charge

with other tax charges which have a six-year statute of limitations (e.g., I.R.C. §§ 7201, 7203).

[3] If charges are brought only under these other sections, because the statute of limitations has

expired on charging a false Form W-4, the false form can be introduced to show the defendant's

willfulness in the I.R.C. §§ 7203 or 7201 prosecution. See, United States v. McDonough, 603

F.2d 19, 23 (7th Cir. 1979) (admissibility of evidence of a general motive to avoid taxes).

1-4.07 Table of Cases

Arlt, United States v., 567 F.2d 1295 (5th Cir.), cert. denied, 436 U.S. 911 (1978)................................57

Bass, United States v., 784 F.2d 1282 (5th Cir. 1986) ...........................................................................56

Cheek v. United States, 498 U.S. 192 (1991).........................................................................................57

Echols, United States v., 677 F.2d 498 (5th Cir. 1982) ..........................................................................55

Felak, United States v., 831 F.2d 794 (8th Cir. 1987) ............................................................................58

Ferguson, United States v., 793 F.2d 828 (7th Cir. 1986), cert. denied, 479 U.S. 933 (1987) .................57

Foster, United States v., 789 F.2d 457 (7th Cir. 1986) ...........................................................................57

Grumka, United States v., 728 F.2d 794 (6th Cir. 1984) ........................................................................57

Herzog, United States v., 632 F.2d 469 (5th Cir. 1980) ...................................................................55, 56

Hinderman, United States v., 528 F.2d 100 (8th Cir. 1976) ...................................................................56

Lawson, United States v., 670 F.2d 923 (10th Cir. 1982) ......................................................................56

Malinowski, United States v., 347 F. Supp. 347 (E.D. Pa. 1972), aff'd, 472 F.2d 850 (3d Cir.), cert.

denied, 411 U.S. 1970 (1973)............................................................................................................56

McDonough, United States v., 603 F.2d 19 (7th Cir. 1979) ...................................................................58

Olson, United States v., 576 F.2d 1267 (8th Cir.), cert. denied, 439 U.S. 896 (1978).............................56

Rifen, United States v., 577 F.2d 1111 (8th Cir. 1978) ..........................................................................57

Snider, United States v., 502 F.2d 645 (4th Cir. 1974)...........................................................................56

CHAPTER 1

SECTION 5

TITLE 26 TAX VIOLATIONS

FRAUD AND FALSE STATEMENTS - I.R.C. § 7206

1-5.01

Statutory Language

1-5.02

Generally

1-5.03

§ 7206(1) - Declaration under the Penalties of Perjury

1-5.04

1-5.05

[1] Elements of the Offense

[2] “Makes” (Files) any Return, Statement or Document

[3] Return, Statement or Other Document

[4] Signed Under Penalties of Perjury

[5] Did Not Believe the Document to be True and Correct

[6] Materiality

[7] Willfulness

§ 7206(2) - Aiding or Assisting the Preparation of a False or Fraudulent Document 71

[1] Elements of the Offense

[2] Aiding and Assisting

[3] Return, Affidavit, Claim, or Other Document

[4] Materiality

[5] Willfulness

§ 7206(4) - Removal or Concealment with Intent to Defraud

[1] Elements of the Offense

[2] Removes, Deposits, or Conceals

1-5.06

[3] Tax Imposed or Levy Authorized

[4] Willfulness

§ 7206(5) - Compromises and Closing Agreements

[1] Scope of section 7206(5)

[2] Willfulness

1-5.07

Venue

1-5.08

Statute of Limitations

1-5.09

Duplicity Considerations for Lesser Included Offenses

1-5.10

Table of Cases

1-5.01 Statutory Language

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.

* For offenses committed after December 31, 1984, the maximum permissible fine is

increased to $250,000 for individuals and $500,000 for corporations. 18 U.S.C. § 3571.

For the felony offenses set forth in sections 7206(4) and (5), if the offense has resulted in

pecuniary gain to the defendant or pecuniary loss to another person, the defendant may

by fined not more than the greater of twice the gross fain or twice the gross loss.

1-5.02 Generally

[1] 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.

[a] This section does not require the existence or proof of a tax deficiency. United States

v. Pree, 408 F.3d 855, 867 (7th Cir. 2005); United States v. Scholl, 166 F.3d 964, 980 (9th Cir.)

cert. denied 528 U. S. 873 (1999); United States v. Marashi, 913 F.2d 724, 736 (9th Cir. 1990).

See also, United States v. Wilson, 887 F.2d 69, 75 (5th Cir. 1989). While it is irrelevant whether

there was an actual tax deficiency, some measurable tax harm is important for gauging the

probability of conviction and for purposes of sentencing.

[b] There is no collateral estoppel as to civil fraud penalties under this section. The

section 7206 (1) charge is keyed into a false item, not a tax deficiency. Collateral estoppel arises

only with a conviction or guilty plea to tax evasion.

[2] These cases should be distinguished from those involving false claims for tax refund

which generally are prosecuted as violations under Title 18, i.e., 18 U.S.C. § 286

(conspiracy to defraud the government by obtaining or aiding to obtain the payment or

allowance of any false, fictitious or fraudulent claim) and 18 U.S.C. § 287 (making or

presenting false, fictitious, or fraudulent claims upon or against the government). See,

Chapter 2 of this handbook for further discussion of these Title 18 offenses.

[3] Section 7206(4) prosecutions are rarely brought because in the usual income tax case the

violation is covered by section 7201 (evasion) or section 7206(1) (subscribing to a false return)

of the Internal Revenue Code (Title 26). However, it is available as a prosecutorial tool, and

there are some factual situations that lend themselves to a section 7206(4) prosecution.

[a] Section 7206(4) and its predecessor5 have been used from an early date in cases

involving the sale of untaxed liquor. E.g., United States v. Davis, 369 F.2d 775, 778 (4th Cir.

1966), cert. denied, 386 U.S. 909 (1967); United States v. Goss, 353 F.2d 671, 672 (4th Cir.

1965); Hyche v. United States, 286 F.2d 248 (5th Cir. 1961); Ingram v. United States, 241 F.2d

708, 709 (5th Cir.), cert. denied,

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