When the FBI Comes Calling…®
TAX EVASION
The IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code. IRS, Criminal Investigation (CI) At-a-Glance, available here (last visited March 7, 2008). The Criminal Investigation Division [hereinafter CID, as it is known in Federal defense circles] is comprised of approximately 4,400 employees worldwide. Id. In the period spanning October 1, 2004 through June 30, 2005, CID had initiated over 3000 investigations, secured over 1800 indictments, and won convictions in over 1600 of those cases. IRD, Current Fiscal Year Investigations, available here (Last Visited March 7, 2008). 84.1% of those convicted went to prison and served an average of 44 months there. Id. Obviously, then, the IRS takes attempts to evade the tax laws of the United States very seriously. The CID has the ability to investigate more crimes than mere tax crimes, such as money laundering and bank fraud. CI At-a-Glance. However, for the purposes of this page, only the crimes listed in 26 U.S.C. § 7201 (2007) et seq. will be considered.
26 U.S.C. § 7201 (2007).
The Crime
Under section 7201, it is a crime for a person to
- willfully attempt in any manner to
- evade or
- defeat
- any tax imposed by this title or the payment thereof.
The Punishment
Violating section 7201 will constitute a felony, and the punishment for doing so is
- a fine of not more than $100,000 ($500,000 in the case of a corporation),
- imprisonment for not more than 5 years, or
- both.
Furthermore, the defendant will have to pay the costs of prosecution.
Case Law Interpreting Section 7201
Tax evasion requires some overt, affirmative act that would constitute an evasion or attempted evasion of tax. See Sansone v. United States, 380 U.S. 343, 351 (1965); Spies v. United States, 317 U.S. 492, 498-99 (1943) (also holding that mere omission is insufficient to sustain a conviction under section 7201. Stated a different way, the felonious conduct proscribed by section 7201 has two elements: 1) a particular subjective state of mind, and 2) certain affirmative activity carried on pursuant to that mental state. Wilson v. United States, 250 F.2d 312, 318 (9th Cir. 1957). Building off of Sansone, the Second Circuit feels that there are four offenses in section 7201: "(1) 'evading … a[] tax'; (2) defeating a[] tax'; (3) 'evading … the payment thereof'; and (4) 'defeating … the payment thereof.'" Evangelista v. Ashcroft, 359 F.3d 145, 151 (2d Cir. 2004) (brackets in original) cert. denied 543 U.S. 1145 (2005).
A violation of section 7201 can be considered an "aggravated felony" under 8 U.S.C. § 1101(a)(43)(M)(ii) which allows aliens to be deported because section 7201 includes the offense of willfully attempting to evade or defeat the assessment of a tax as well as a willing attempt to evade or defeat the payment of the tax. Evangelista at 151.
There are a number of actions that a defendant may take that might constitute an offense. Among them are:
- filing a false or fraudulent return; see United States v. Schafer, 580 F.2d 774, 782 (5th Cir. 1978);
- taking fraudulent deductions; see United States v. Ragen, 314 U.S. 513, 524 (1942) (interpreting predecessor statute);
- failure to report income from criminal activity; see United States v. Milder, 459 F.2d 801, 802, 804 (8th Cir. 1972);
- improper accounting; see United States v. Walker, 896 F.2d 295, 300 (8th Cir. 1990);