26 USC 7201 – Attempt to Evade or Defeat Tax.

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26 USC 7201 – Attempt to Evade or Defeat Tax

Defending People Accused of Tax Evasion – Overview of 26 USC 7201

There are basically two kinds of tax evasion; the willful attempt to evade or defeat the assessment of a tax, and the willful attempt to evade or defeat the payment of a tax.

If a person transfers assets to prevent the I.R.S. from determining their true tax liability, they have attempted to evade assessment.  If they do so after a tax liability has become due and owing, they have attempted to evade payment.

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. Willful under reporting constitutes an attempt to evade or defeat tax by evading the correct assessment of the tax.

Evasion of payment 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).  The IRS typically claims a taxpayer concealed assets or money from which the tax could be paid.

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 allegations can arise by operation of law when there is a failure to file and the government later determines the tax liability.

The law defines tax evasion very broadly defined to include a person’s attempt “in any manner to evade or defeat any tax imposed or payment thereof.” The statute permits prosecution of one party for the evasion of another party’s tax liability.

In order to prove an attempt to evade the government must show the taxpayer undertook some action, that is, engaged 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 26 USC § 7201.

Examples of affirmative acts include: filing of a false return, filing of a false amended return, 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 a person failed to file a return, an evasion case can only be prosecuted if the taxpayer engaged in an affirmative act to conceal or mislead.

In Spies v. United States, 317 U.S. 492, 498-99 (1943).  The Supreme Court 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. (C) Making false invoices. (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.

Other conduct that has been found to constitute affirmative acts of evasion include filing false W-4’s , 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, false statements to Treasury agents relating to the fraud, a corporate officer’s diversion of corporate funds to pay personal expenses, 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, a consistent pattern of overstating deductions, concealment of bank accounts, holding property in nominee names, doing business in diverse names and keeping large sums of cash in safe deposit boxes in numerous banks, failure to file declaration of estimated tax, concealing or attempting to conceal true income, failure to pay income tax due, and filing frivolous returns, structuring cash transactions to evade the filing of Bank Secrecy Act reports.

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.

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). However where the law is vague or unsettled as to whether a transaction has generated taxable income, courts have found people accused of tax violations lacked willfulness.

There is a six year limitation period for the offense of willfully attempting to evade or defeat any tax.  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.

Call Federal Criminal Defense Lawyer Kresta Daly (916) 440-8600 

Defending against criminal tax allegations requires experience.  Kresta Daly has been defending criminal case for nearly 20 years.  She has tried countless cases in federal and state court.  She has successfully defended numerous tax cases.

26 USC 7201:

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.

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