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Which Criminal Statutes Are Commonly Used by the IRS?

Posted by Dmitry Gorin | Jul 22, 2024

Although most tax-related discrepancies may be resolved out of court by simply paying back taxes, the Internal Revenue Service (IRS) can utilize numerous federal laws to prosecute individuals and entities if it believes tax crimes have been willfully committed.

Violators can face severe penalties, including hefty fines, imprisonment, and a permanent criminal record, depending on the nature and severity of the offense. These penalties are not to be taken lightly and should be a caution to all taxpayers and entities.

The United States income tax system is based on voluntary compliance. Under this system, it is the taxpayer's responsibility to report all income. Tax evasion is not just a financial offense; it is illegal and can lead to serious legal consequences.

People try to evade paying taxes by failing to report all or some of their income. Sometimes, people do not report all the tips they collect or the money they earn through other activities.

Such money-making activities are part of the underground economy, which exists to avoid paying taxes. If taxpayers fail to pay what officials say they owe, the IRS can assess a penalty and collect the back taxes.

In contrast, tax avoidance is legal. It's important to understand the distinction between the two. IRS regulations allow eligible taxpayers to claim certain deductions, credits, and adjustments to income. For example, some homeowners can claim an interest deduction they pay on a home mortgage.

The IRS tends to leverage some tax laws more than others in prosecuting tax crimes. The terms "tax avoidance" and "tax evasion" sound familiar and are sometimes used interchangeably, but their meanings and legal consequences are vastly different.

In no specific order, let's look at some of the federal statutes the IRS uses most often to prosecute tax-related offenses.

Tax Evasion - 26 U.S.C. 7201

Tax evasion is one of the IRS's most commonly prosecuted offenses. This statute prohibits any willful attempt to evade or defeat a tax. It encompasses actions such as underreporting income, inflating deductions, hiding money or assets, and other deceptive practices aimed at reducing tax liability.

For instance, the penalties for tax evasion can be severe, including up to five years in prison, substantial fines, and the cost of prosecution. This should be a stark reminder of the risks of willful tax crimes.

26 U.S. Code 7201 attempt to evade or defeat tax says, "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 five years, or both, together with the costs of prosecution."

Related laws include 26 U.S. Code 7202 will failure to pay over tax and 18 U.C. Code 1344 bank fraud.

Fraud and False Statements - 26 U.S.C. 7206

This statute criminalizes making false statements or misrepresentations on tax returns or other documents submitted to the IRS. It includes submitting untrue information, omitting income, or claiming unentitled deductions.

This law also specifically targets tax preparers who willfully assist in preparing returns and documentation they know to contain fraudulent information. The penalties on conviction can be up to three years of imprisonment and hefty fines.

26 U.S. Code 7206 - fraud and false statements says, "Any person who, under penalties of perjury, willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter, or aid or assistance."

Willful Failure to File Return, Supply Information, or Pay Tax - 26 U.S.C. 7203

Under this statute, it is illegal to willfully fail to file a tax return, pay taxes due, or supply required information to the IRS. Even if the amount of tax owed is relatively small, failing to comply with this statute can lead to criminal charges.

Penalties include fines and imprisonment of up to one year for each violation. In some cases, the charge may be escalated to a felony, in which case the penalty could be up to 5 years in prison.

26 U.S.C. 7203 says, "Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall…"

Conspiracy to Commit Offense or to Defraud the United States - 18 U.S.C. 371

This statute targets individuals who conspire with at least one other person to commit any offense against the United States or to defraud the government. In the context of tax crimes, this often involves schemes to avoid paying taxes or defraud the IRS.

It should be noted that conspiracy charges like these don't require the scheme to succeed; it is only that it was devised and actions were taken to fulfill it. Convictions can result in up to five years of imprisonment and fines.

18 U.S.C. 371 says, "If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned…"

Mail Fraud (18 U.S.C. 1341) and Wire Fraud (18 U.S.C. 1343)

While these statutes generally prohibit using mail or wire communications to conduct any fraudulent scheme, the IRS frequently uses these statutes to prosecute people for sending false tax returns, whether through the mail (U.S.C. 1341) or electronically via e-file (U.S.C. 1343).

A conviction under these statutes can carry up to 20 years in prison and substantial fines.

18 U.S.C. 1343 says, "Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property using false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted using wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds to execute such scheme or artifice, shall be fined under this title or imprisoned…"

Fraud in Connection with Major Disaster or Emergency Benefits - 18 U.S.C. 1040

Given the recent natural disasters and the global pandemic, the IRS has been using this law more frequently to crack down on illegal attempts to benefit from scams related to emergencies. While not exclusively a tax crime, this statute can intersect with IRS investigations when fraudulent claims affect taxable benefits or entitlements. Convictions can lead to substantial penalties, including up to 30 years imprisonment and fines.

18 U.S.C. 1040 says, "(a) Whoever falsifies, conceals, or covers up by any trick, scheme, or device any material fact or (2) makes any materially false, fictitious, or fraudulent statement or representation, or makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or representation, in any matter involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with a major disaster declaration shall be fined and imprisoned…."

Public Money, Property, or Records - 18 U.S.C. 641

This statute criminalizes the theft, misuse, or embezzlement of public money, property, or records-anything the U.S. government claims.

The IRS may utilize this law when someone is accused of hiding assets the government intends to seize for payment of taxes (e.g., draining bank accounts, selling homes or vehicles, etc.) Penalties for convictions under this law can include up to 10 years in prison and hefty fines.

18 U.S.C. 641 says, "Whoever embezzles, steals, purloins, or knowingly converts to his use or the use of another, or without authority, sells, conveys or disposes of any record, voucher, money, or thing of value of the United States or any department or agency thereof, or any property made or being made under contract for the United States or any department or agency thereof, shall be fined or imprisoned…."

RICO Prohibited Activities - 18 U.S.C. 1962

While the Racketeer Influenced and Corrupt Organizations Act (RICO) is primarily used to investigate and prosecute organized criminal organizations, the IRS may use elements of RICO to prosecute tax-related offenses when they appear to be related to extensive and systematic fraud occurring across interstate or international boundaries.

RICO Prohibited Activities - 18 U.S.C. 1962

Convictions under this law can carry substantial penalties, including up to 20 years in prison and hefty fines.

18 U.S.C. 1962 says, "(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an illegal debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect interstate or foreign commerce…."

For more information, contact our federal criminal defense lawyers at Eisner Gorin LLP, based in Los Angeles, California.

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About the Author

Dmitry Gorin

Dmitry Gorin is a State-Bar Certified Criminal Law Specialist, who has been involved in criminal trial work and pretrial litigation since 1994. Before becoming partner in Eisner Gorin LLP, Mr. Gorin was a Senior Deputy District Attorney in Los Angeles Courts for more than ten years. As a criminal tri...

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