Review of the Federal Crime of Tax Evasion
Title 26 of the United States Code includes most of the provisions on federal laws relevant to imposition and collecting taxes.
When someone makes a willful attempt to evade federal taxes, they could face charges of federal tax evasion in violation of 26 U.S.C. § 7201, which is often called “tax fraud.”
A tax evasion offense occurs when an individual or business fails to pay their full tax obligations. The government has the discretion to pursue tax fraud cases either civilly or criminally.
It should be noted, however, federal prosecutors will not hesitate to seek a criminal indictment if they have sufficient evidence tax fraud has occurred.
The Internal Revenue Service (IRS), which is within the Department of Treasury, is responsible for collecting and processing tax returns, but they also investigate tax fraud cases.
What is fraud?
Fraud is a broad crime involving false statements to induce others to rely upon to their detriment. One usually thinks of fraud as a scheme, scam, or swindle committed by a scoundrel.
Yet the federal and state governments use the fraud crime statutes to prosecute misleading practices by otherwise reputable individuals and corporations making common transactions in ordinary fields.
We are providing readers a detailed review below about federal tax fraud cases.
The Challenge of a Federal Tax Fraud Charge
In particular, tax fraud is among the most challenging of federal crimes to face for several reasons. Everyone knows how complex federal tax law is and how heavy tax burdens can be.
Taxpayers have the right and interest to minimize their tax burdens through lawful means. Those lawful means, though, can easily look like intentional misrepresentation when a taxpayer:
- pushes a loophole too far, or
- makes an innocent mistake.
Legitimate matters of interpretation can easily look like intentional fraud.
Decent, hardworking, reputable individuals can find themselves accused of corrupt looking tax fraud crimes based on conduct that could just as well be entirely innocent.
IRS has unlimited resources
The fearsome reputation and unlimited resources of the IRS present other special challenges to defending a federal tax fraud charge.
Despite recent reforms granting taxpayer rights, the public still knows the IRS as among the world's most formidable opponents.
The federal government has no lack of resources for federal criminal prosecutions. A federal study indicates that the IRS collects about $3.5 trillion annually, of which it collects about $65 billion through enforcement actions.
And make no mistake: criminal penalties for federal tax fraud can include substantial prison sentences.
What Is Federal Tax Fraud?
The United States Code defines federal tax fraud crimes. The IRS Office of Chief Counsel for the Criminal Tax Division publishes a tax crimes handbook summarizing those crimes. Tax evasion under 26 U.S.C. 7201 is:
- willful failure to collect or pay under 26 U.S.C. 7202, and
- failure to file or supply information under 26 U.S.C. 7203.
There are federal tax crimes that have at least a whiff of misrepresentation to them, as do several other federal tax crimes.
Fraud and false statements - 26 U.S.C. 7206
The core federal tax fraud crime arises under 26 U.S.C. 7206 prohibiting fraud and false statements in any return, statement, or document. The fraud offense's elements include:
- (1) making and subscribing a materially false return, statement, or other document;
- (2) in a return, statement, or other document containing a written declaration that the subscriber made it under penalty of perjury;
- (3) the maker knew the return, statement, or other document was materially false; and
- (4) the maker falsely subscribed to the return, statement, or other document intending to violate the law.
Fraudulent tax returns - 26 U.S.C. 7207
26 U.S.C. 7207 adds the crime of aiding or assisting in preparing false or fraudulent documents, while Section 7206(4) prohibits removing or concealing material with the intent to defraud.
The following IRC Section 7207 adds a related core federal tax fraud crime specifically for fraudulent tax returns. The elements of the fraudulent return crime include:
- (1) delivery or disclosure to an IRS officer or employee of any list, return, account, statement, or other document;
- (2) that is false or fraudulent as to a material matter; and
- (3) done willfully or with knowledge of that falsity or fraud.
Penalties for tax fraud
Penalties for violating 26 U.S.C. 7206 on false returns, statements, and documents are a fine of up to $100,000 and three years of imprisonment, while penalties for violating 26 U.S.C. 7207 specifically on fraudulent returns are a fine of up to $10,000, ($50,000 for a corporation) and a year in jail.
Defending Federal Tax Fraud Charges
A federal tax fraud charge is not the place to retain an inexperienced attorney who devotes practice to other fields.
Federal law is highly technical and complex, especially federal tax law. Most criminal defense lawyers practice only or primarily in state court.
While the IRS has substantial enforcement resources, proving fraud requires establishing the defendant's specific intent to violate the law, a difficult element to prove.
There could be an opportunity for prefiling intervention where our lawyers could persuade the prosecutor to work out a negotiated plea deal prior to charging them in federal court.
This could potentially avoid an arrest and detention in federal custody. By showing you are accepting responsibility, you will normally receive a more lenient sentence from the federal judge.
Lack of intent
Our federal criminal defense attorneys might be able to make a reasonable argument there was a lack of intent.
In order to be convicted of tax evasion, the prosecutor must prove beyond a reasonable doubt that you intended to defraud the federal government. Perhaps you made an honest mistake or miscalculation.
Federal procedures differ from state procedures. Given the seriousness and complexity of a federal tax fraud charge, you need to retain a skilled defense lawyer who knows how to defend and defeat the charges.
We know how to challenge the IRS's case and to obtain charge dismissal, charge reductions, plea bargains, or alternatives to prosecution.
Eisner Gorin LLP is a nationally recognized criminal defense law firm serving people in Southern California and throughout the United States on federal offenses.
We are located at 1999 Avenue of the Stars, 11th Fl., Los Angeles, CA 90067. Our main office is located at 14401 Sylvan St #112 Van Nuys, CA 91401.
Contact our firm for an initial consultation at (310) 328-3776.