The Crime of Tax Evasion

 

Section 7201 of the tax code creates the federal crime of tax evasion. The crime of tax evasion  has historically served as the principal tax revenue offense.

There are two potential offenses under section 7201: (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.  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).  Both are a federal crime.

The federal tax evasion statute provides as follows:

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.

Thus, in order to establish a violation of section 7201, the government must prove the following elements:

  1. An affirmative act constituting an attempt to evade or defeat a tax or the payment thereo.
  2. An additional tax due and owing.
  3. Willfulness.

Notably, in order to establish the crime of tax evasion, the government must prove that a defendant engaged in some affirmative conduct that was designed to mislead the IRS or conceal tax liability or assets.  A common method of evading or defeating assessment of a tax is the intentional filing of a false tax return.   A false tax return that understates tax liability–either by omitting income or claiming improper deductions–may serve as a method of attempting to evade or defeat the assessment of tax.  However, a mere failure to file a return, standing alone, generally is not sufficient to establish an attempt to evade taxes.  See Spies v. United States, 317 U.S. 492, 499 (1943); United States v. Hoskins, 654 F.3d 1086, 1091 (10th Cir. 2011) (“To be liable under § 7201, a defendant must do more than passively fail to file a tax return”); United States v. Nelson, 791 F.2d 336, 338 (5th Cir. 1986).

Evasion of Assessment

Filing a false tax return that omits income or claims improper deductions is the most common form of the evasion of the assessment of a tax.

Evasion of Payment

The crime of willfully attempting to evade or defeat the payment of a tax typically occurs after it is established that a tax is due. Generally, the tax is established by the taxpayer reporting the amount of the tax or by the IRS assessing the amount of the tax at issue. Evasion of payment often involves an affirmative act to conceal money or assets that may be available to pay the tax.   However, “[m]erely failing to pay assessed taxes, without more, . . . does not constitute evasion of payment.” United States v. McGill, 964 F.2d 222, 231 (3d Cir. 1992).

Evasion of Another Person’s or Entity’s Tax

The crime of tax evasion is worded very broadly as an attempt “in any manner to evade or defeat any tax imposed by [Title 26] or payment thereof.” The government takes the position that this statute allows for the prosecution of one person for assisting with the evasion of another person’s tax liability.

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