“The
legal right of the taxpayer to decrease the
amount of what otherwise would be his taxes or altogether avoid them
by means which the law permits, cannot be doubted.”
[NOTE:
The above ruling may only be cited by "taxpayers". There is no
way for a "nontaxpayer" to avoid or reduce a liability he doesn't have
in the fits place."]
[Gregory v. Helvering, 293 U.S. 465 (1935)]
TITLE 26 >
Subtitle F >
CHAPTER 75 >
Subchapter D > § 7343
§ 7343. Definition of term “person”
The term “person”
as used in this chapter includes [is limited to] an officer or employee
of a corporation, or a member or employee of a partnership, who
as such officer, employee, or member is under a duty to perform
the act in respect of which the violation occurs.
9.1.3.3.2.1 (07-29-1998)
Avoidance Distinguished from Evasion
- Avoidance of taxes is not a criminal offense.
Any attempt to reduce, avoid, minimize, or alleviate
taxes by legitimate means is permissible. The distinction
between avoidance and evasion is fine, yet definite.
One who avoids tax does not conceal or misrepresent.
He shapes events to reduce or eliminate tax liability
and, upon the happening of the events, makes a complete
disclosure. Evasion, on the other hand, involves
deceit, subterfuge, camouflage, concealment, some
attempt to color or obscure events, or makes things
seem other than they are. For example, the creation
of a bona fide partnership to reduce the tax liability
of a business by dividing the income among several
individual partners is tax avoidance. However, the
facts of a particular case may show that an alleged
partnership was not, in fact, established and that
one or more of the alleged partners secretly returned
his/her share of the profits to the real owner of
the business, who, in turn, did not report this
income. This would be an instance of attempted evasion.
9.1.3.3.2.2 (08-11-2003)
IRC §7201—
Elements of the Offense
- The elements of the offense of willfully attempting
in any manner to evade or defeat any tax or the
payment of any tax are the same, but the courts
have interpreted the terms differently in some instances.
The differences are noted in the explanation. The
elements of the offense are:
- additional tax due and owing
- an attempt in any manner to evade or
defeat any tax, or the payment thereof
- willfulness
9.1.3.3.2.2.1 (08-11-2003)
Additional Tax Due and Owing
- The government must establish that at the
time the offense was committed the taxpayer
owed more tax than he reported. However, it
is not necessary to prove evasion of the full
amount alleged in the indictment. It would be
sufficient to show that a substantial amount
of the tax was evaded, and this need not be
measured in terms of gross and net income or
by any particular percentage of the tax shown
to be due and payable.
Note:
The element of tax due and owing for
IRC §7201 in reference to the evasion or
attempted evasion of the payment of tax
is slightly different. When the government
charges attempted evasion to pay, it must
establish that a tax is due and owing at
the time the offense is committed (like
evasion). Unlike evasion, this amount need
not be any additional tax or deficiency
but could be the amount of tax shown on
the original return which had not been paid.
- Carryback losses are technically no legal
impediment to prosecution for years in which
they eliminate a tax liability. However, the
probability of conviction could be lessened
where it is shown that a tax deficiency does
not exist by operation of law.
- Likewise, the acceptance by government agents
of an agreement Form 870 (Waiver of Restrictions
on Assessment and Collection of Deficiency in
Tax and Acceptance of Overassessment) does not
bar prosecution. However, experience has demonstrated
that attempts to pursue both the criminal and
the civil aspects of a case concurrently may
jeopardize the successful completion of the
criminal case. As a result, Policy Statement
P–4–84, Balancing Civil and Criminal Aspects
provides, among other things, that the consequences
of civil enforcement actions on matters involved
in a criminal investigation and prosecution
case should be carefully weighed.
9.1.3.3.2.2.2 (08-11-2003)
Attempt to Evade or Defeat Any Tax
- The substance of the offense under IRC §7201
is the term "attempt in any manner." The statute
does not define attempt, nor does it limit or
define the means or methods by which the attempt
to evade or defeat any tax may be accomplished.
- However, it has been judicially determined
that the term " attempt" implies some affirmative
action or the commission of some overt act.
The actual filing of a false or fraudulent return
is not a requisite for the commission of the
offense, although the filing of such a return
is usually the "attempt" to evade or defeat
the tax. A false statement made to Treasury
agents for the purpose of concealing unreported
income has also been judicially determined to
be an attempt to evade or defeat the tax.
- The willful omission of a duty or the willful
failure to perform a duty imposed by statute
does not per se constitute an attempt to evade
or defeat a tax. However, a willful omission
or failure (such as a willful failure to make
and file a return) when coupled with affirmative
acts or conduct from which an attempt may be
inferred would constitute an attempt. In the
case of Spies v. United
States, the Supreme Court provided
illustrations of acts or conduct which may infer
"the attempt to evade or defeat any tax," such
as:
- keeping a double set of books
- making false entries, alterations,
invoices, or documents
- destroying books or records
- concealing assets or covering up
sources of income
- handling one's affairs to avoid
making records usual in transactions
of the kind
- any conduct, the likely effect of
which would be to mislead or to conceal
- Attempt does not mean that one whose efforts
are unsuccessful cannot commit the crime of
willful attempt. The crime is complete when
the attempt is made and nothing is added to
its criminality by success or consummation,
as would be the case with respect to attempted
murder. It has been held that attempts cover
both successful and unsuccessful endeavors or
efforts. As the courts have stated, the real
character of the offense lies, not in the failure
to file a return or in the filing of a false
return, but rather in the attempt to evade any
tax.
- It is well settled that a separate offense
may be committed with respect to each year.
Therefore, an attempt for one year is a separate
offense from an attempt for a different year.
- There may also be more than one violation
in one year resulting from the same acts such
as the willful attempt to evade the payment
of tax and the willful attempt to evade tax.
Likewise, there may be a willful attempt to
evade tax and a willful failure to file a return
for the same year.
- In an attempt to evade or defeat the payment
of any tax, the mere failure or willful failure
to pay any tax does not constitute an attempt
to evade or defeat the payment of any tax. The
comments set out above with respect to attempts
also apply to this offense. The attempt implies
some affirmative action or the commission of
some overt act. Examples of such action or conduct
relating to the attempted evasion of the payment
of tax include:
- concealing assets
- reporting income through others
- misappropriating, converting, and
diverting corporate assets
- filing late returns
- failing to withhold taxes as required
by law
- filing false declarations of estimated
taxes
- filing false tentative corporate
returns
9.1.3.3.2.2.3 (07-29-1998)
Willfulness
- The attempt in any manner to evade or defeat
any tax must be willful. Willfulness is defined
as the voluntary, intentional violation of a
known legal duty. Mere understatement of income
and the filing of an incorrect return does not
in itself constitute willful attempted tax evasion.
Absent an admission or confession, willfulness
is rarely subject to direct proof and generally
must be inferred from the circumstances in the
case. Willfulness may be inferred from any conduct,
the likely effect of which, would be to mislead
or conceal, such as that exemplified in
Spies.
- Courts have held that disbursement of available
funds to creditors other than the government,
or to corporate stockholders is not in itself
an attempt to evade or defeat the payment of
taxes.
- This definition of willfulness applies to
all Title 26 offenses where willfulness is an
element, unless stated otherwise.
9.1.3.3.3 (08-11-2003)
IRC §7202. Willful Failure to Collect or Pay Over
Tax
- IRC §7202 states in its entirety:
Any person
required under this title to collect, account for, and
pay over any tax imposed by this title who willfully
fails to collect or truthfully account for and pay over
such tax shall, in addition to other penalties provided
by law, be guilty of a felony and, upon conviction thereof,
shall be fined not more than $10,000, or imprisoned
not more than 5 years, or both, together with the costs
of prosecution.
Note:
The maximum permissible fine under IRC §7202,
would be at least $250,000 for individuals and $500,000
for corporations. Alternatively, if any person derives
pecuniary gain from the defendant, the defendant
may be fined not more than the greater of twice
the gross gain or twice the gross loss.
- Violations under this section usually involve the
failure to truthfully account for and pay over withholding,
social security, and excise taxes with the exception
of wagering excise taxes. Failure to file returns would
involve violations of IRC §7203 and filing false and
fraudulent returns would constitute violations under
IRC §7206(1).
9.1.3.3.3.1 (08-11-2003)
IRC §7202
Elements of the Offense
- The elements of a criminal violation under this
Code section are:
- either a duty to collect any tax or
a duty to account for and pay over any tax,
or both
- either failure to collect any tax or
failure to truthfully account for and pay
over any tax, or both
- willfulness (see subsection 9.1.3.3.2.2.3)
9.1.3.3.3.1.1 (07-29-1998)
Duty to Collect, Account for, and Pay Taxes
- Willful failure to truthfully account for
and pay over any tax is considered to be an
inseparable dual obligation. Failure to pay,
even though an accounting is made in the return
filed, leaves the duty as a whole unfulfilled.
- However, considerable difficulty has been
encountered in determining the person charged
with the duty of collecting, accounting for
and paying over taxes, especially in cases involving
small corporations where the precise duties
of the officers are not clearly defined or rigidly
carried out. For example, in one case, it was
determined that although the president of the
corporation was the dominating force in the
management of the firm, the fact that there
were other officers who signed some returns
and engaged in financial activities on behalf
of the corporation made it doubtful whether
the president was the officer under a duty to
perform the required acts, resulting in a dismissal
of the indictment. Another case held that the
term " person" includes a chief executive officer
of a corporation who possesses the authority
to determine how corporate funds should be expended.
Accordingly, it is imperative to ascertain the
various activities and responsibilities of all
officers of a corporation before recommending
prosecution against any one of them as the "person"
defined in IRC §7343.
9.1.3.3.3.1.2 (07-29-1998)
Willfulness
- Willfulness under IRC §7202 is the same
as for all Title 26 offenses, i.e., voluntary,
intentional violation of known legal duty. Evil
motive or bad purpose is not needed to establish
willfulness. For example, a successful prosecution
under this section was based upon the following
facts: The taxpayer filed timely employment
tax returns but habitually failed to pay the
amount of tax shown to be due thereon. He willingly
signed agreements for partial payments, made
the first payment, and then ignored further
requests for payments. When his bank accounts
were levied upon, he closed the accounts and
made arrangements with his customers to receive
future payments in cash. All his assets were
then transferred to the names of others. His
only defense was that he used the money withheld
from his employees to meet current operating
expenses. An analysis of his bank accounts and
records of personal expenditures showed that,
contrary to his contentions, a profit was realized
from the business in all years and funds were
available to pay the taxes shown on the returns.
9.1.3.3.3.1.3 (07-29-1998)
Statute of Limitations
- The statute of limitations for IRC §7202
violations is 6 years. Note, however two Federal
district courts have concluded the limitations
period to be 3 years. The position of the Department
of Justice, Tax Division, is that the statute
of limitations is 6 years, as provided in IRC
§6531(4).
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