TAX VIOLATIONS

TAX VIOLATIONS

I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1535

II. CRIMINAL INVESTIGATIONS UNDER I.R.C. §§ 7201, 7202, 7203,

7206, AND 7212(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1535

A. Legal Landscape of IRS Investigations . . . . . . . . . . . . . . . . . . 1535

1. Responsibility for Investigation and Prosecution . . . . . . . 1535

2. Constitutional Considerations . . . . . . . . . . . . . . . . . . . . . 1537

a. Notice and Due Process Requirements . . . . . . . . . . . 1537

b. Substantive Rights and the Internal Revenue Manual . 1537

c. Disclosure of Documents . . . . . . . . . . . . . . . . . . . . . 1539

3. Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1540

4. Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . 1541

B. I.R.C. § 7201—Tax Evasion. . . . . . . . . . . . . . . . . . . . . . . . . . 1542

1. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1542

a. Existence of a Tax Def‌iciency . . . . . . . . . . . . . . . . . 1542

b. Aff‌irmative Act Constituting Evasion . . . . . . . . . . . . 1546

c. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1548

2. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1550

a. Lack of Def‌iciency. . . . . . . . . . . . . . . . . . . . . . . . . . 1550

b. Lack of Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . 1551

c. Reliance on Counsel . . . . . . . . . . . . . . . . . . . . . . . . 1552

d. Selective Prosecution and Other Constitutional

Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1553

3. Relation to Other Tax Crimes . . . . . . . . . . . . . . . . . . . . . 1553

C. I.R.C. § 7202—Failure to Collect Tax . . . . . . . . . . . . . . . . . . 1554

1. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1554

a. Duty to Collect or to Account for and Pay Over Tax . 1555

b. Failure to Collect, Truthfully Account For, or Pay Over

Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1557

c. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1557

2. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1558

D. I.R.C. § 7203—Failure to File Taxes . . . . . . . . . . . . . . . . . . . 1558

1. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1559

a. Requirement to File a Return . . . . . . . . . . . . . . . . . . 1559

b. Failure to File a Return . . . . . . . . . . . . . . . . . . . . . . 1559

c. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1560

2. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1560

E. I.R.C. § 7206— Tax Fraud & False Statements and Aiding or

Assisting Tax Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1562

1. I.R.C. § 7206(1)—Tax Perjury . . . . . . . . . . . . . . . . . . . . 1562

1533

a. Making and Subscribing a False Return or Document 1563

b. Signed under Penalty of Perjury . . . . . . . . . . . . . . . . 1564

c. Material Falsity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1564

d. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1566

e. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1567

2. I.R.C. § 7206(2)—Aiding and Assisting Tax Fraud. . . . . . 1568

a. Aiding and Assisting . . . . . . . . . . . . . . . . . . . . . . . . 1568

b. Material Falsity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1569

c. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1569

d. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1570

F. I.R.C. § 7212(a)—Interference with the Internal Revenue Laws 1570

1. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1570

a. Corruption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1570

b. Endeavor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1571

c. Nexus Between the Defendant’s Conduct and an

Administrative Proceeding . . . . . . . . . . . . . . . . . . . . 1572

d. The Stage of Proceeding . . . . . . . . . . . . . . . . . . . . . 1572

2. Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1572

G. Sanctions Under the U.S. Sentencing Guidelines . . . . . . . . . . . 1572

1. Violations of I.R.C. § 7201 . . . . . . . . . . . . . . . . . . . . . . . 1573

2. Violations of I.R.C. § 7202 . . . . . . . . . . . . . . . . . . . . . . . 1574

3. Violations of I.R.C. § 7203 . . . . . . . . . . . . . . . . . . . . . . . 1574

4. Violations of I.R.C. § 7206 . . . . . . . . . . . . . . . . . . . . . . . 1575

5. Violations of I.R.C. § 7212(a) . . . . . . . . . . . . . . . . . . . . . 1576

III. CRIMINAL CONSPIRACY INVESTIGATIONS UNDER 18 U.S.C. § 371. . . . . . 1576

A. Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1577

B. Defenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1578

C. Statute of Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1579

IV. OTHER RELATED CRIMINAL STATUTES . . . . . . . . . . . . . . . . . . . . . . . . 1580

A. Related Title 18 Violations . . . . . . . . . . . . . . . . . . . . . . . . . . 1580

1. 18 U.S.C. § 286: Conspiracy to Defraud the Government

with Respect to Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 1580

2. 18 U.S.C. § 287: False, Fictitious, or Fraudulent Claims . . 1580

B. Related Title 31 Violations: Bank Secrecy Act and Anti-Money

Laundering Enforcementy . . . . . . . . . . . . . . . . . . . . . . . . . . . 1581

1. 31 U.S.C. § 5314: Report of Foreign Bank and Financial

Accounts (FBARs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1581

2. 31 U.S.C. § 5331(a) & I.R.C. § 6050I: Cash Transaction

Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1582

1534 AMERICAN CRIMINAL LAW REVIEW [Vol. 58:1533

I. INTRODUCTION

This article outlines the elements, defenses, and sentencing consequences

of select criminal tax violations

1

of the United States Internal Revenue Code

(“I.R.C.”), which are prosecuted under an array of criminal tax statutes.

2

Section II of this article examines the policies and procedures of Internal

Revenue Service (“IRS”) investigations. In doing so, it addresses the basic ele-

ments of, defenses to, and sanctions for f‌ive principal tax crimes: tax evasion under

§ 7201, willful failure to collect tax under § 7202, willful failure to f‌ile taxes under

§ 7203, tax perjury and aiding and assisting tax fraud under § 7206, and interfer-

ence with the administration of internal revenue laws under § 7212(a).

Sections III and IV of this Article examine criminal statutes that are related to

tax but are found outside the Internal Revenue Code. Section III details criminal

investigations of conspiracy to violate the tax laws under the defraud clause of 18

U.S.C. § 371. Section IV examines various criminal statutes that are related to tax

and found in Titles 18 and 31 of the United States Code.

II. CRIMINAL INVESTIGATIONS UNDER I.R.C. §§ 7201, 7202, 7203, 7206, AND

7212(A)

Part A of this section examines the legal landscape surrounding criminal tax

investigations, including: the division of responsibility for investigation and prose-

cution, constitutional considerations, venue, and the statute of limitations for

I.R.C. violations. Parts B through F of this section address the elements of, and

defenses to, each of the following offenses: tax evasion, failure to collect tax, fail-

ure to f‌ile taxes, tax perjury and aiding and assisting tax fraud, and interference

with the administration of internal revenue laws. Part G explains the applicable

punishments set forth in the United States Sentencing Guidelines (“Guidelines”)

and various possible sentencing enhancements.

A. Legal Landscape of IRS Investigations

1. Responsibility for Investigation and Prosecution

The IRS Criminal Investigation Division (“CI”) investigates potential criminal

violations of the I.R.C. and related provisions of Title 18 of the United States

Code.

3

The CI’s mission is to promote conf‌idence in the tax system and encourage

1. This article focuses on the most serious and common tax crimes. Although the remaining Title 26

provisions would not be duplicative of any tax crimes discussed in this article, the crimes that are omitted here

are considered to be either relatively minor (such as fraud on submitted copies of Form W-4) or rare (such as

forcible rescue of seized property).

2. I.R.C. §§ 7201–7232, 7261–62, 7268–7273, 7275 (setting forth criminal provisions of the Tax Code).

3. Criminal Investigation (CI) At-a-Glance, INTERNAL REVENUE SERV., https://www.irs.gov/about-irs/

criminal-investigation-ci-at-a-glance (last updated Apr. 21, 2020); see also United States v. Peters, 153 F.3d 445,

447 (7th Cir. 1998) (outlining the contours of an IRS investigation); U.S. DEP’T OF JUSTICE, CRIMINAL TAX

2021] TAX VIOLATIONS 1535