Black's Law Dictionary,
Sixth Edition, p. 1461:
Illegally paying less
in taxes than the law permits; committing fraud in filing or paying
taxes. An example includes reporting less income than actually
received or deducting fictitious expenses. Such act is a crime
and may result in an underpayment penalty. See I.R.C. §7201.
Compare Tax avoidance. See also Fraud (Tax fraud).
[Black's Law Dictionary,
Sixth Edition, p. 1461]
Merriam Webster's
Dictionary of Law, 1996:
tax evasion:
a willful and esp. criminal attempt to evade the imposition or payment
of a tax
Example: convicted of tax evasion
26 U.S.C. §7201 Attempt
to Evade or Defeat Tax
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 5 years, or both, together with the costs
of prosecution.
United States v. Dack, 747
F.2d 1172 (1984):
"Existence of tax deficiency
is element of both willful attempt 'to evade or defeat any tax' and
willful attempt to evade or defeat 'payment' of any tax. 26 U.S.C.A.
§7201."
"In sum, tax assessment
proceedings are civil in nature and are not normally prerequisites to
criminal liability. But when the crime charged is one of
evading the payment of taxes that have been assessed in civil proceedings,
the Government must prove the existence of a valid tax assessment."
[United States v. Dack,
747 F.2d 1172 (1984)]
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- 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 or 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.
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- 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.
- Willfulness.
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- 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 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 the 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 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 provides, among other things, that the consequences
of civil enforcement actions on matters involved in the
criminal investigation and prosecution case should be carefully
weighed.
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- 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 requisite for the commission of the offense
though the filing of such a return is the usual 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. 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 gave certain
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 the 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 successful
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 1 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 charged 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 the tax are found in the Giglio case.
These are:
- 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.
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- The attempt in any manner to evade or defeat any tax
must be willful. Willfulness has been defined as an act
or conduct done with a bad or evil purpose. Mere understatement
of income and the filing of an incorrect return does not
in itself constitute willful attempted tax evasion. The
offense is made out when conduct such as exemplified in
the Spies case (supra) is present.
- Courts have held that disbursement of available funds
to creditors other than the government , or to corporate
stockholders is not of itself an attempt to evade or defeat
payment of taxes.
- This definition of willfulness applies to all Title
26 offenses where willfulness is an element, unless stated
otherwise.
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[9.1] 3.3.3 (07-29-1998)
IRC 7202. Willful Failure to Collect or Pay Over Tax
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- IRC 7202 states; "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."
- Violations under this section usually involve 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 7201.
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- 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. (The subject of willfulness is covered
above in 3.3.2.2.3.)
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- Willful failure to truthfully account for and pay over
is considered to be an inseparable dual obligation. (Chief
Counsel memo, 5-8-64, CC:E-172.) Failure to pay, even though
an accounting is made in the sense of a return filed, leaves
the duty as a whole unfulfilled. Section 406.603, Code of
Federal Regulations, states, "The return shall be signed
and verified by...the President, Vice-President, or other
principal officer, if the employer is a corporation."
- 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, and the indictment was dismissed. 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.
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- Willfulness under this Code section refers to motive
or purpose and includes some element of an evil motive and
want of justification in view of all the financial circumstances
of the taxpayer. It is not enough merely to prove that the
acts were knowingly and intentionally committed. 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.
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- The courts have held in one case of IRC 7202 (Willful
Failure To Collect Or Pay Over Tax) that the statute of
limitations is 6 years and in another case that the statute
of limitations is 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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