Understanding the Tax Evasion Statute.
Tax evasion is the most commonly prosecuted federal tax crime. Defined in 26 U.S.C. § 7201, tax evasion is a failure to report taxes, failure to report taxes accurately, or the failure to pay taxes. If the IRS proves its case for tax evasion against a taxpayer, the penalties can be significant including monetary fines and jail time.
In enacting the federal tax evasion statute, the legislature used consistently broad language, giving the IRS and other governmental agencies broad power to investigate and prosecute the crime. The tax evasion statute states: “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 . . .” 26 U.S.C. § 7201 [emphasis added]. The use of the word “any” throughout the statute stands out, and was meant to do so when drafted by the legislature. The word “any” gives federal investigators, prosecutors, and judges broad power concerning:
- whom may be prosecuted
- what constitutes a “tax,”
- what constitutes an “attempt.”
To establish a case for tax evasion under section 7201 of the Internal Revenue Code (IRC), the government must prove each of the following beyond a reasonable doubt:
- an additional tax was due and owing;
- that the taxpayer attempted to evade or defeat a tax or payment of a tax;
- and the taxpayer acted willfully.
Who Can Be Prosecuted for Tax Evasion?
The tax evasion statute intentionally includes the phrase “any person,” giving a broad scope which can apply to an individual taxpayer, as well as a tax preparer, accountant, bookkeeper, attorney, or anyone who assists in a taxpayer’s attempt to evade payment of a due tax. Prosecutors can utilize the statute to prosecute a corporate officer who attempts to evade their corporation’s corporate tax, or the administrator of an estate who attempts to evade the estate’s tax. Notably, even if a person merely aided and abetted the taxpayer in the evasion of due taxes can be prosecuted as a principal for the crime of tax evasion.
History has validated the notion that the IRS will apply the tax evasion statute broadly, targeting all kinds of persons, businesses, and walks of life. From Al Capone to Martha Stewart to Willie Nelson to Wesley Snipes, the broad net that the IRS can cast is evident. Learning from the mistakes of the past, and properly utilizing an experienced tax professional, can normalize your tax position and minimize your risk.
What Does “Attempt” Really Mean?
The dictionary definition of attempt is rather simple: “to try to accomplish or complete something.” The legal concept of attempt however, is by nature complex, subtle, and evasive. In criminal cases, attempt is generally considered one of the more difficult things for a prosecution to prove. However, the broad language of the tax evasion, specifically the phrase in “any manner,” expands the scope of the crime of attempt in the context of tax evasion cases.
The IRS usually spots instances of tax fraud and tax evasion through investigations it conducts on taxpayers. Some audits are conducted randomly, but most are initiated as a result of unusual activity. IRS professionals are highly trained to spot certain “red flags” that can trigger an IRS audit or “badges of tax fraud” that they consistently look for:
- when a taxpayer claims a large number of deductions in proportion to their income;
- when a taxpayer with significant assets declares very small income;
- understatements of income;
- inadequate records;
- failure to file tax returns;
- implausible or inconsistent explanations of behavior;
- concealment of assets;
- failure to cooperate with tax authorities;
- engaging in illegal activities;
- attempting to conceal illegal activities;
- dealing in cash; and
- failure to make estimated tax payments.
When dealing with tax evasion, “attempt” can be committed, even if the attempt was ultimately unsuccessful. Understanding the broad scope of the statute, and utilizing top tax advisers to advise on your situation, are the keys to protecting your assets.
What kinds of taxes are subject the evasion laws?
The statute also include broad language in the description of “any tax,” which means that tax evasion is not limited to income tax, but can include other forms of tax, including estate tax, excise tax, or employment taxes. The broad scope of possible offenses makes it critically important for anyone who may potentially be facing charges of tax crimes to seek the counsel of an experienced tax fraud attorney.
What are the possible penalties for tax evasion?
As opposed to civil tax fraud, tax evasion is a criminal offense which means the penalties go beyond simply paying a fine. The IRS can decide to simply impose civil taxes, but it may instead choose to charge the taxpayer with criminal tax evasion. In the case of civil tax fraud, the fine may be equal to 75% of the tax due, plus interest. In collecting fines, the IRS has the ability to freeze money in checking and/or savings accounts, garnish wages, levy tax liens, or seize assets.
The Importance of a Tax Attorney in Tax Evasion Cases
Tax evasion and other tax crimes are extremely serious. The IRS has the power to impose significant penalties, including fines and jail sentences, if it suspects a taxpayer has committed any form of tax fraud. In these situations, it is important for an accused taxpayer to have a knowledgeable tax attorney who understands the law and can fight for your rights.