Why Is Tax Evasion a Felony?
Is Tax Evasion a Felony? When a person believes they may have committed a serious tax violation, one of the most common researched terms on the internet is “tax evasion” and whether it is a criminal offense.
Tax evasion is a criminal offense, and it is one of the tax crimes that the IRS and U.S. government in general seeks to enforce against Taxpayers. That is because from the IRS’s perspective ,if a person intentionally or willfully seeks to evade tax, they are trying to steal money from the IRS by artificially reducing their tax liability, and the IRS wants payback.
We will summarize the criminal tax offense of tax evasion and why tax evasion is a felony.
How is Tax Evasion Defined
Tax Evasion is as crime which is defined in IRC 7201.
26 USC 7201 Evasion
“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.”
DOJ Criminal Tax Manual
“Tax evasion” is a shorthand phrase that many people use for all manner of tax fraud. But the charge of tax evasion, in violation of 26 U.S.C. § 7201, is not necessarily the best one to bring against individuals defrauding the IRS.
Defendants frequently seek to exploit the fact that, in order to establish the crime of tax evasion, the government must prove the existence of a tax due and owing and willfulness. Prosecutors therefore should consider other charges, such as conspiring to defraud the United States, 18 U.S.C. § 371; filing false returns, 26 U.S.C. § 7206; or endeavoring to obstruct the IRS, 26 U.S.C. § 7212(a), as alternatives or supplements to the charge of tax evasion.
In the criminal context, the concept of Willfulness is not as abstract as it is in the civil context.
In other words, for criminal tax evasion, willfulness essentially requires “intent”.
As provided by the DOJ Criminal Tax Manual
“Willfulness has been defined by the courts as a “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U.S. 192, 200-01 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973). Therefore, in order to establish willfulness, the government must establish that the defendant was aware of his or her obligations under the tax laws.
See United States v. Bishop, 264 F.3d 535, 546 (5th Cir. 2001); United States v. Buford, 889 F.2d 1406, 1409 (5th Cir. 1989); United States v. Conforte, 624 F.2d 869, 875 (9th Cir. 1980); United States v. Peterson, 338 F.2d 595, 598 (7th Cir. 1964). As the Seventh Circuit Court of Appeals has stated, there must be “proof that appellant knew he was violating a ‘known legal duty.’” United States v. Fitzsimmons, 712 F.2d 1196, 1198 (7th Cir. 1983).”
“Notwithstanding the alternative methods of proving willfulness set forth in Powell, the fact remains that the Supreme Court has definitively and unequivocally defined willfulness as the “voluntary, intentional violation of a known legal duty.” Thus, the government should never rely on any “alternative method” of proof that does not establish the defendant’s voluntary and intentional violation of a known legal duty. Similarly, juries should always be instructed that it is the government’s burden to prove that a defendant acted voluntarily and intentionally and violated a known legal duty.”
Misdemeanor Evasion Counterpart
While IRC 7201 is a felony, section 7203 is a misdemeanor.
“Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution.
In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure.
In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”
IRC 7203 Misdemeanor
When a person violates IRC 7203, that does not mean the person has committed tax evasion. While section 7201 specifically uses the word evasion, section 7203 does not use the term evasion.
“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”
The violations listed under 7203 are more general in nature, and a misdemeanor violation under 7203 does equate to having committed tax evasion.
*Referring to it a 7203 violation as “misdemeanor tax evasion” (as some cases have done) is not entirely accurate.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
The post Is Tax Evasion Always a Felony? appeared first on International Tax Lawyers – IRS Offshore Voluntary Disclosure.