Tax Evasion

By Graham, Lori; Michaud, Patrice et al. | American Criminal Law Review, Winter 1997 | Go to article overview

Tax Evasion


Graham, Lori, Michaud, Patrice, Signorello, Christopher, Zallaps, Lori A., American Criminal Law Review


I. INTRODUCTION II. IRC SECTION 7201

A. Elements

1. Existence of a Tax Deficiency

2. Affirmative Act Constituting Evasion

3. Willfulness

B. Defenses

1. Lack of Deficiency

2. Lack of Willfulness

3. Third Party Liability/Reliance.

4. Selective Prosecution

C. IRS Investigations under Section 7201

1. MS Policy

a. Notice of Criminal Proceedings

b. Fifth Amendment Issues and Disclosure of Documents

c. The Role of Counsel

III. IRC SECTION 7202

A. Willful Failure to Collect Tax

B. Willful Failure to Account for and Pay Over Tax

C. Elements

1. Duty to Collect and/v account For and Pay Over Tax

a. The Responsible Person

b. The Statutory Duty

2. Failure to Collect Tax or to Truthfully Account For and Pay Over Tax

3. Willfulness

D. Defenses

IV. IRC SECTION 7203

A. Elements

1. Requirement to File a Return

2. Failure to File a Return

3. Willfulness

4. Knowledge of Requirement

B. Defenses

V. IRC SECTION 7206

A. Section 7206(1): Tax Perjury

1. Elements of the Offense

a. Signing a False Return or Document

b. Penalty of Perjury

c. Falsity as to a Material Matter

d. Willfulness

2. Defenses

B. Section 7206(2): Aiding and Assisting

1. Elements

a. Aiding and Assisting

b. Material Falsity

c. Willfulness

2. Defenses

VI. STATUTE OF LIMITATIONS VII. FEDERAL SENTENCING GUIDELINES

A. Violations of IRC Section 7201

B. Violations of IRC Section 7202

C. Violations of IRC Section 7203

D. Violations of IRC Section 7206

I. INTRODUCTION

This article outlines the elements of tax evasion under the United States Internal Revenue Code ("IRC") sections 7201, 7202, 7203, and 7206. Section II of this article presents the general elements of the crime, the Government's investigative process, and available defenses. Section III addresses the failure to collect and withhold tax in violation of [sections] 7202. Section IV describes prosecution under [sections] 7203 of a willful failure to file taxes. Section V discusses [sections] 7206 and prosecution for "tax perjury" and "aiding and assisting" tax fraud. Sections VI and VII discuss the IRC statute of limitations and application of the Federal Sentencing Guidelines respectively.

II. IRC SECTION 7201

Violations of the IRC are prosecuted under an array of criminal tax statutes.(1) The "capstone of [this] system of sanctions"(2) is the felony provision 26 U.S.C. [sections] 7201, which imposes a maximum penalty of $100,000 and/or a prison term of five years for a willful attempt to defeat any tax obligation.(3)

To prove a [sections] 7201 violation, the government must prove three elements: (1) the existence of a tax deficiency; (2) an affirmative act constituting an evasion or attempted evasion of the tax; and (3) willfulness.(4) The government bears the burden of proving each element beyond a reasonable doubt.(5)

1. Existence of a Tax Deficiency

While all circuits require proof of a tax deficiency, some interpret [sections] 7201 to require proof of a "substantial tax deficiency."(6) The term "substantial" refers to the "amount of the tax evaded," and not to the amount of income unreported.(7) The existence of a deficiency may be demonstrated by the use of either direct or circumstantial evidence.(8)

The most accurate means of proving a deficiency with direct evidence is the "specific item method. …

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