Chitwood, C. Michael, Haase, Paul J., Halpern, Kerry, American Criminal Law Review
This Article outlines the elements, defenses, and sentencing consequences of various criminal tax violations under the major sections of the United States Internal Revenue Code ("I.R.C."), [subsections] 7201, 7202, 7203, 7206, and 7212(a).
Section II of the Article examines the policies and procedures of Internal Revenue Service ("IRS") investigations and the applicable punishments set out in the Federal Sentencing Guidelines. Section II also addresses the basic elements and defenses to the following crimes: tax evasion under [sections] 7201; failure to collect tax in violation of [sections] 7202; willful failure to file taxes under [sections] 7203; "tax perjury" and "aiding and assisting" tax fraud under [sections] 7206; and interference with the administration of internal revenue laws under [sections] 7212(a). Section III details criminal investigations of conspiracy to violate the tax laws under the defraud clause of 18 U.S.C. [sections] 371.
II. CRIMINAL INVESTIGATIONS UNDER I.R.C. [subsections] 7201, 7202, 7203, 7206, AND 7212(a)
Part A of this Section examines the policies and procedures of IRS investigations, constitutional considerations and the statute of limitations for I.R.C. violations. Parts B through F of this Section address the basic elements of and defenses to: tax evasion; failure to collect tax; failure to file taxes; "tax perjury" and "aiding and assisting" tax fraud; and interference with the administration of internal revenue laws. Part G explains the applicable punishments set out in the Federal Sentencing Guidelines and various possible enhancements.
A. Policies and Procedures of IRS Investigations
I. Purposes of IRS Investigations
The IRS divides enforcement of the U.S. tax laws between two investigative divisions. The Examination Division investigates civil tax cases and the Criminal Investigation Division ("CID") investigates potential criminal violations.(1) Criminal tax investigations serve two purposes as set forth in the Internal Revenue Manual: (1) to enforce the tax laws and (2) to encourage voluntary compliance.(2) To achieve maximum deterrence, the IRS's CID focuses on individuals participating in illicit activities involving sophisticated criminal schemes and on high-dollar financial transactions.(3) The IRS also "may be more likely to press a case involving a ... prominent taxpayer than a relatively obscure person."(4) As a result, few agents remain available to audit returns among the general population, thereby reducing the percentage of total returns audited.(5) The IRS's focus on prominent individuals and illicit activities may be insufficient to significantly enhance voluntary compliance.(6)
CID special agents are responsible for investigating alleged criminal violations under the I.R.C. and related provisions of Title 18 of the United States Code.(7) A special agent conducts an administrative investigation when the agent receives a matter with potential for criminal prosecution or warranting further inquiry.(8) If the special agent believes the matter merits prosecution, a special agent's report ("SAR") is prepared, explaining the details of the investigation, its results, and the agent's recommendations.(9) The matter is referred to IRS counsel, who then makes the referral to the Department of Justice ("DOJ"), Tax Division or, where authorized, directly to the U.S. Attorneys for the jurisdictions where venue most appropriately lies.(10) Referring the matter to the Tax Division terminates the CID's authority to employ the administrative investigation process.(11)
The Tax Division, under the Assistant Attorney General's guidance, has authority to authorize prosecution in criminal tax cases.(12) In addition, the Tax Division supports and coordinates tax litigation.(13) U.S. Attorneys assume responsibility for litigating criminal tax cases.(14)
3. Constitutional Considerations