TYPES OF TAX CRIMES - Definitions and Punishment

1. Tax Crimes Overview, Part I: 26 U.S.C. Sections 7201-7204

Attempt to evade or defeat tax as defined in 26 U.S.C. § 7201 involves the willful attempt to evade or defeat taxation. The term “willful” implies knowledge on the part of the taxpayer that their affirmative act (e.g., destroying records, keeping double books) is being conducted in order to evade or attempt to evade taxes. Tax evasion is a felony punishable by a minimum prison sentence of five years and/or a fine of up to $250,000 ($500,000 in the case of a corporation).

If the government cannot prove that the taxpayer made a willful, affirmative act or attempt to evade taxes (for example, if it can be shown that the taxpayer was just taking a risk through actions that they thought may or may not be illegal), the charge will be a misdemeanor tax crime under a different code section, and not tax evasion.

Willful failure to collect or pay over tax under 26 U.S.C. § 7202 was enacted to ensure that third parties responsible for collecting and withholding excise and FICA taxes truthfully account for those taxes and pay them over to the federal government. The penalties for noncompliance are $10,000 and/or imprisonment for up to 5 years.

Willful failure to file a tax return, supply information, or pay tax to the IRS may result in a misdemeanor charge under 26 U.S.C. § 7203. If convicted, the punishment may be imprisonment for up to one year and/or a fine of up to $25,000 ($100,000 in the case of a corporation). For returns that include cash received in a trade or business, the charge will be raised to a felony and the maximum prison sentence will increase to five years.

Fraudulent statement or failure to make statement to employees under 26 U.S.C. § 7204 is a misdemeanor carrying a penalty of up to $1,000 and/or up to one year in prison. A company may be charged under this section for activities such as understating employee income on payroll sheets and preparing false W-2 withholding statements.

Note that the costs of prosecution are tacked on to most of these penalties.

2. Tax Crimes Overview, Part II: 26 U.S.C. Sections 7205-7211

Fraudulent withholding exemption certificate or failure to supply information under 26 U.S.C. § 7205 applies to individual taxpayers who supply false information to their employer, or willfully fail to supply information that would require an increase in tax withholdings. This section applies to both withholding on wages and withholding on interest and dividends. The penalty is a fine of up to $1,000 and/or imprisonment of up to one year.

Fraud and false statements under 26 U.S.C. § 7206 includes, among other things (1) submitting a written declaration made under penalty of perjury that the taxpayer knows to be false and (2) aiding or assisting in the preparation of a return, affidavit, claim or other document known to be false. The penalty for these felonies is a maximum three-year prison sentence and/or a fine of up to $100,000 ($500,000 in the case of a corporation). Note that under 18 U.S.C. § 3571(d) a taxpayer may alternatively be fined twice the amount of taxpayer’s gain, or their victim’s loss (this includes losses to the IRS), unless imposition of the fine would unduly complicate or prolong the sentencing process.

Willful delivery of false statements under 26 U.S.C. § 7207 includes the willful delivery of a false return, statement, account or other document to the IRS. This misdemeanor charge may result in a fine of up to $10,000 ($50,000 in the case of a corporation) and/or a prison term of up to one year.

Tax Stamp and related offenses under 26 U.S.C. § 7208 and 26 U.S.C. § 7209 address tax stamps, coupons, tickets, and books. Unauthorized use or sale of tax stamps is a misdemeanor punishable by a fine of up to $10,000 and/or imprisonment of up to 5 years. Counterfeiting and reusing tax stamps is a felony and is punishable by a fine of up to $10,000 and/or imprisonment of up to five years.

Failure to obey an IRS summons by failing to appear to testify, or to produce books, account, records or other documents, is a criminal offense under 26 USC §7210. The penalty is a fine of up to $1,000 and/or imprisonment of up to one year.

Making false statements to purchasers or lessees of any article relating to tax includes misleading any person to believe that the article being sold or leased includes tax, or ascribing a part of the price of an item to a tax. This is a misdemeanor under 26 USC §7211 punishable by a fine of up to $1,000 and/or imprisonment of up to one year.

Note that the costs of prosecution are tacked on to most of these penalties.

3. Tax Crimes Overview, Part III: 26 U.S.C. Sections 7212-7217

Interfering with an IRS investigation under 26 U.S.C. § 7212(a) includes offering bribes to federal tax officials. Corruption or threat of force (e.g., a threatening letter or other communication) can cost a taxpayer up to $3,000 and/or may land them in jail for up to a year. If actual force is used, the result may be up to three years in jail and/or a fine of up to $5,000.

Forcible rescue of seized property under 26 U.S.C. § 7212(b) is where a taxpayer forcibly takes a property after seizure. The penalty is a maximum two-year prison sentence and/or a fine of double the property value or up to $500, whichever is greater.

Federal employees who violate the provisions of 26 U.S.C. § 7213 (unauthorized disclosure of information), 26 U.S.C. § 7213A (unauthorized inspection of returns or return information) and 26 U.S.C. § 7214 (unauthorized acts such as extortion, oppression and fraud) may also be subject to fines and prison time.

Offenses with respect to collected taxes under 26 USC §7215 applies to employers who fail to collect employment taxes and to deposit the withheld taxes in a special bank account held in trust for the government. The penalty is a fine of up to $5,000 and/or up to one year in jail. Note that exceptions apply if there was reasonable doubt that the law required collection of the tax, who was required to collect the tax, or where the tax was not collected due to circumstances beyond the control of the person who was supposed to collect the tax (note that this does not include lack of funds).

Disclosure or use of information by preparers of returns under 26 U.S.C. § 7216 applies to tax preparers and others who use information provided to them for the purpose of preparing a tax return for any purpose other than the preparation of a tax return. The penalty is a fine of up to $1,000 and/or up to one year in jail.

Prohibition on executive branch influence over taxpayer audits and other investigations under 26 U.S.C. § 7217 addresses efforts to directly or indirectly convince an IRS officer or employee to conduct or terminate an audit or investigation of a particular taxpayer. The penalty is a fine of up to $5,000 and/or imprisonment up to 5 years. Note that some exceptions apply.

Note that the costs of prosecution are tacked on to most of these penalties.

4. Some Related Title 18 Offenses

Conspiracy to defraud the Government with respect to claims under 18 U.S. Code § 286 includes any agreement to participate or aid in a scheme involving a fictitious or fraudulent claims. The penalty is up to 10 years’ imprisonment and a fine.

False, fictitious or fraudulent claims made to government departments, agencies and officials are punishable under 18 U.S. Code § 287 by up to five years in jail and a fine.

Conspiracy to commit offense or to defraud the United States under 18 U.S.C. § 371 requires two or more persons doing anything together to commit an offense or to defraud the United States or any of its agencies (including the IRS). The penalty is up to five years in jail and a fine. Note that if the offense is a misdemeanor, the punishment will not exceed the maximum punishment for that misdemeanor.

Fraud and related activity in connection with identification documents, authentication features, and information (identity theft) under 18 U.S.C. § 1028 includes any knowing production, use, theft, transfer or trafficking of documents or authentication features that are either false or belong to another person, or the possession of such documents or authentication features with the intent to defraud the United States. The penalty is imprisonment for up to 15 years and a fine. Note that identity theft crimes will be covered in depth in an upcoming blog posts series.

Frauds and swindles under 18 U.S. Code § 1341 involves devising or intending to devise and plan or scheme to defraud by any number of monetary currencies by any number of methods.

Fraud by wire, radio or television communication is covered by 18 U.S. Code § 1343. Note that the penalty if interstate commerce is involved is imprisonment up to 20 years and an appropriate fine. If the fraud or swindle takes place in connection with a national disaster or emergency the penalty is a fine of up to $1 million and 30 years in prison.

Title 18 Fines
Unless otherwise specified in the individual statute, Title 18 fines are delineated in 18 U.S. Code § 3571:

Note that as in Title 26, an alternative fine may be imposed amounting to double the defendant’s gain from the offense, or double the victim’s (including the IRS’) loss.

A criminal tax charge requires representation by a criminal tax attorney
The IRS has a criminal investigation division that focuses entirely on obtaining a criminal conviction for tax crimes (and not on collecting any amounts due). If you are in tax trouble, be sure to hire the experienced and successful criminal tax defense attorneys at Moskowitz, LLP.

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