Tax Fraud

Nowadays, it is not uncommon to read about high-profile business and industry leaders who come under fire for not paying taxes. Most recently, debates emerged in Congress over the need to increase the Internal Revenue Service's (IRS) resource to enforce tax collection. In all, the IRS loses nearly $400 billion each year in unpaid taxes, meaning it only collects about 84% of its entitled share in revenues (Source: Committee for a Responsible Federal Budget). The cause of this disparity? Folks who misrepresent their income on their tax filing. The IRS Criminal Investigation branch oversees potential criminal violations of the tax code and works with local law enforcement agencies to curb such abuses. One tool the Agency has to ensure people are paying their fair share is 26 U.S.C. § 7201 (Attempt to evade or defeat tax), a criminal statute explicitly targeting those who attempt to avoid or fail to pay federal income taxes.

26 U.S.C. § 7201 – Attempt to Evade or Defeat Tax

26 U.S.C. § 7201 makes it a crime for anyone to willfully attempt to evade or defeat the payment of federal income tax. There are three essential components to proving the crime beyond a reasonable doubt:

  • First, the prosecutor must show that the defendant owed a substantial amount of income tax.
  • Next, the prosecutor must prove that the defendant knew and understood that they had a tax deficiency, or simply put, owed money in taxes.
  • Lastly, the defendant willfully sought to evade or defeat the tax in some way, like concealing or misrepresenting income. Be mindful that failing to file a return without more is insufficient to prove this element.

If the government proves these elements successfully, the defendant can face up to five years in prison and a $250,000 penalty.

26 U.S.C. § 7203 – Failure to File a Tax Return

As noted, failing to file a tax return is not sufficient proof of one wilfully evading or failing to pay taxes. Nevertheless, that does not mean that failing to file does not come with a criminal penalty. 26 U.S.C. § 7203 makes it a crime, when one is required to file a tax return willfully fails to file such a return at the time required by law (often that time is April 15th, "Tax Day"). The prosecutor must prove beyond a reasonable doubt that:

  • The defendant was required by law or regulation to file a tax return;
  • The defendant failed to file such a return at the time required by law; and
  • In failing to file the return, the defendant acted willfully.

If convicted, one can face up to one year in federal prison and a $100,000 fine.

26 U.S.C. § 7206 – Filing a False Tax Return

Like penalties for failing to file a tax return, there are also criminal sanctions for filing a false tax return, which carries with it a possible 3-year prison sentence and $250,000 fine. 26 U.S.C. § 7206 (Fraud and false statements) does not just penalize individuals who file a fraudulent tax return. The statute also covers those who assist in the filing of the false return. In sum, the rule covers anyone who wilfully makes 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 that person does not believe such to be true and correct as to every material matter. For one to face conviction under 26 U.S.C. § 7206, the government must prove beyond a reasonable doubt that:

  • The defendant filed a tax return;
  • The tax return included a written declaration made under penalty of perjury;
  • The return made a false material representation;
  • The defendant did not believe the return was true and accurate concerning the material. matter; and
  • The defendant acted willfully.

Given these elements, it is essential to define what makes something "material." Something is "material" either when it (1) helped the accused carry out their criminal activity or (2) trick or deceive a target of the fraud into believing the accused.

Importance of Legal Counsel

Given the prominence of tax fraud and evasion cases in the news, it is without question that Federal prosecutors are eager to bring these types of cases. Moreover, with the threat of possible imprisonment and financial penalties on the line, the need to hire legal counsel is apparent. As a former federal and state prosecutor, Peter Katz has spent much of his career as a prosecutor and knows the ins and outs of criminal defense. By engaging with defense counsel during the early stages of the investigation, the more leverage you will have in crafting your defense.

Peter is ready to bring his over two decades of experience to your case and work tirelessly on your behalf to protect you and your rights. Call the Law Offices of Peter Katz at (609) 734-4380 or online to begin preparing your defense today.