When the FBI Comes Calling…®

TAX EVASION (Continued)

26 U.S.C. § 7202 (2007).

The Crime
Under section 7202, it is a crime for a person who is required under this title to collect, account for, and pay over any tax imposed by this title

  • to willfully fail to
    • collect or
    • truthfully account for and pay over
  • such tax.

The Punishment
Violating section 7202 will constitute a felony, and the punishment for doing so is

  • a fine of not more than $10,000,
  • imprisonment for not more than 5 years, or
  • both,

Furthermore, the defendant will have to pay the costs of prosecution.

Case Law Interpreting Section 7202
The purpose of section 7202 is to assure compliance by employer with its obligation to withhold and pay the sums withheld, by subjecting the employer's officials to criminal penalties for any delinquencies. Slodov v. United States, 436 U.S. 238, 247 (1978) superseded by statute on other grounds as stated in Begier v. United States IRS, 878 F.2d 762, 766 (3d Cir. 1989). Section 7202 requires that persons both account for and pay over withholding taxes, and persons subject to this obligation may be convicted upon a showing that the person failed to pay over the tax even if there is a showing that the person accounted for the tax. United States v. Thayer, 201 F.3d 214, 220 (3d Cir. 1999) cert. denied 530 U.S. 1244 (2000). Furthermore, willfulness is an essential element of the crime. United States v. Palermo, 259 F.2d 872, 882(3d Cir. 1958). A series of knowingly and intentionally made defaults, indicating a pattern of behavior, may suggest the existence of a specific "evil motive"; mere laxity, or careless disregard, or even gross negligence, absent an "evil motive" may not be probative of "willfulness." Id. In prosecuting a case under section 7202, both the failure to account for and to pay over the owed taxes must be willful. United States v. Poll, 521 F.2d 329, 334 n.3 (9th Cir. 1975).

26 U.S.C. § 7203 (2007).

The Crime
It is a misdemeanor violation of section 7203 for a person who

  • is 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,
  • to willfully fail 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

    • In the case of a willful violation of a provision of 26 U.S.C. § 6050I, the aforementioned violation will be considered a felony.

The Punishment
The Punishment for a misdemeanor violation of section 7203 is

  • a fine of not more than $25,000 ($100,000 in the case of a corporation),
  • imprisonment for not more than 1 year, or
  • both.

    • The person guilty of a misdemeanor violation of section 7203 will also be required to pay the costs of prosecution.

    If a person commits a willful violation of section 6050I, the punishment will consist of

    • a fine of not more than $25,000 ($100,000 in the case of a corporation);
    • imprisonment for not more than 5 years, or
    • both.

    The person guilty of a felony violation of section 7203 will also be required to pay the costs of prosecution.

Exception
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 26 U.S.C. §§ 6654 or 6655 with respect to such failure.

Case Law Interpreting Section 7203
In order to convict a defendant on a charge of willfully failing to file an individual income tax return in violation of section 7203, the Government is required to establish that the defendant was the person required by law to file the return, that he failed to file at the time required, and the failure was willful. United States v. Londe, 449 F. Supp. 590, 593 (E.D. Mo. 1978). Furthermore, it should be noted that sections 7203 and 7201 are separate and distinct offenses; section 7203 consists of failure to file a tax return and section 7201 consists of tax evasion, which means that a defendant can be convicted of both and sentenced to serve cumulative periods. United States v. Defazio, 899 F.2d 626, 636 (7th Cir. 1990).

Tax Evasion Continued-->