Federal tax crimes involve a vast array of complicated tax provisions. However, there are two common statutes used by federal prosecutors in tax fraud cases.
The first law provides that attempting to avoid any tax or payment of tax is a felony. A conviction may result in a prison sentence of up to 5 years and a fine of up to $100,000. (A corporation may be fined up to $500,000.) A defendant may also be required to pay the expenses of the prosecution.
The second law provides that a person who is required to pay a tax, make a return, keep any records, or supply any information and willfully fails to pay the tax, make the return, keep the records, or supply the information has committed a crime. A conviction under this law is generally a misdemeanor that may carry a 12-month sentence and a fine of up to $25,000. (A corporation may be fined up to $100,000.) Other tax fraud laws relate to the willful failure to collect taxes, wage withholding violations, and the making of false returns. Depending on the specific crime charged, a conviction will result in a sentence of one to five years.
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Many times, these crimes will also give rise to charges of conspiracy, false statements to government officials, making a false claim against the government, or forgery. A defendant may be subject to various civil proceedings as well. One such proceeding is the forfeiture of property. Personal or real property used in violating tax laws may be seized by Treasury Department agents, and in some cases forfeited to the United States. Property generally includes anything that is sold or removed to avoid paying taxes. The owner of the property has the right to intervene and challenge the forfeiture proceedings.
What does the government have to prove?
In tax evasion cases, there are generally three elements the government must prove to convict the defendant. First, the evasion must have been willful. Conduct such as keeping a double set of books, making false entries, destruction of books or records, concealment of assets, a consistent pattern of underreporting or failing to report all income, and covering up sources of income can be enough to satisfy this element. A jury may also infer willfulness by the defendant’s own experience and intelligence. An astute, experienced businessman or accountant may be held to a higher standard than others. Second, a tax deficiency must be proven. The statute does not explicitly state how large an underpayment must be to result in a conviction. However, the amount usually has to be substantial. The government may prove unreported income by any method that is reasonable and tends to show that there is a tax deficiency. The most frequent way for the government to prove a deficiency is by showing a person’s net worth. The government may also show that a person’s cash expenditures were greater than his initial net worth would support. Finally, there needs to be some affirmative act constituting an evasion or attempted evasion. This element generally requires more than a passive failure to file a tax return. There usually must be some act designed to mislead the government or conceal the truth. This element is often tied up with the element of willfulness.
A criminal defense attorney has many options in defending charges relating to federal tax crimes. First, the government must prove every element of the crime as charged. There can be no conviction if the government cannot prove every element beyond a reasonable doubt. For instance, the first element of tax evasion generally requires the government to show that the evasion was willful. If the government has no evidence showing willfulness, there can generally be no conviction.
Additionally, defense counsel has many means of countering evidence that tends to show willfulness. For instance, a defendant may argue that he relied on the advice of others. Relying in good faith on someone competent to give tax advice can be a powerful defense. A defendant may also show a misunderstanding in the law, or that he cooperated fully with agents during the investigation. Anything that tends to show that the defendant acted in good faith may be beneficial.
A defense attorney may also attack the method of calculation used by the government in tax evasion cases. If the government chooses to use the net worth method, a defense attorney may argue that many of the numbers used in the calculation are simply inaccurate. Omitted assets, offsetting liabilities, and prior cash on hand are all examples of numbers that may be disputed. The net worth method may also be challenged if unreported items have been assigned to the wrong year.
A defendant may also argue that the government failed to investigate leads that would explain any disputed income. There may also be tax over-payments that can offset any alleged deficiencies.
