Death. Taxes. The words added together give us the well-known slogan about the two certainties of life: death and taxes. Is it unfair to pair “taxes” with “death”? Maybe, but only because taxes are treated so (pardon the pun) gravely.
The tax crime of omission is in fact very serious, and can lead to severe punishment if not handled correctly. The following includes its definition, factors the government must prove, and how my firm can help someone who has been charged with it.
Under 26 U.S.C. § 7203, it is a crime to intentionally fail to file a return, pay a tax, keep necessary records, or provide information that is required by the IRS. Any of these four separate offenses, on their own, is a violation of this section.
Unlike tax evasion, these four crimes can be established without affirmative action. See, e.g., Sansone v. United States, 380 U.S. 343, 351 (1965); United States v. Mal, 942 F.2d 682, 684 (9th Cir. 1991). (“What distinguishes [the felony offense of evasion] from the misdemeanor offense of willful failure to file a return, supply information, or pay taxes, which is set out in 26 U.S.C. § 7203, is the requirement of an affirmative act.”). Under this statute, the simple fact that you intentionally and knowingly didn’t do the thing you were required to do by the law could be enough to support a charge.
A failure to file a tax return is one of the most commonly charged tax crimes. A failure to file happens when a taxpayer who was required to file a return failed to do so. However, just because you sent in a tax form, doesn’t necessarily mean you successfully filed a tax return. United States v. Porth, 426 F.2d 519, 522-23 (10th Cir.), cert. denied, 400 U.S. 824(1970). If the tax form doesn’t have sufficient information about your income, you could still be charged with a failure to file. See id.
Failure to pay a tax is the second most commonly charged offense under this section of the IRC. Simply put, a failure to pay a tax occurs when the taxpayer knows they were legally required to pay a tax, but didn’t. In most failure to pay cases, the taxpayer already filed a tax return, but failed to pay the associated tax.
In order to successfully prove the tax crimes of omission, the Government must prove each of an essential set of facts, called elements, beyond a reasonable doubt. See supra. How are Charges Selected? United States v. Marashi, 913 F.2d 724, 735-36 (9th Cir. 1990); United States v. Williams, 875 F.2d 846, 849 (11th Cir. 1989). If the Government fails to prove any one of these elements, the defendant should not be found guilty.
The elements for failure to file, pay tax, keep records, or supply information are:
United States v. Marinello, 2015 WL 13158491, *5 (W.D.N.Y. 2015); see also United States v. Hassebrock, 663 F.3d 906, 919 (7th Cir. 2011); United States v. McBride, 2014 WL 4699126 (D.Utah) (2014).
Willfulness for the misdemeanor offenses under this statute has the same meaning as it does for the felony crime of tax evasion. See supra. How Does the Government Prove Tax Evasion, Willfulness. It is also the same for each of the four offenses, so we’ll discuss this element before breaking down any special considerations by offense.
The four offenses outlined in section 7203 specifically require that the taxpayer knew and was aware of the duty under the law to do one of those actions, but deliberately chose not to. Therefore, a good faith misunderstanding of the law is a defense to willfulness, even if the belief isn’t that reasonable. See Cheek v. United States, 498 U.S. 192, 201-02 (1991); United States v. Willie, 941 F.2d 1384, 1395 (10th Cir. 1991), cert. denied, 502 U.S. 1106 (1992); United States v. Gaumer, 972 F.2d 723,724 (6th Cir. 1992).
For example, John Doe falls within the category of individuals who has to file a tax return for the year, but John Doe moved to London. John Doe believes that because he now lives in London he doesn’t have to file a tax return for the prior year when he was working and living in the United States. Whether or not this is a reasonable belief, John Doe wouldn’t necessarily be guilty of a failure to file. We say necessarily because the Government could still prove John Doe knew he had a duty to file a return.
For a failure to file, the Government can show that the choice not to file a return was willful through the fact that the taxpayer failed to file tax returns for many years in a row. United States v. McCaffrey, 181 F.3d 854, 857 (7th Cir. 1999).
In our example, if John Doe didn’t file any tax returns for the ten years before he moved to London, the Government could point to this fact to show that he willfully failed to file this year. On the other hand, the Government can also use the fact that the taxpayer did consistently file tax returns in prior years to show that the taxpayer knew they were supposed to file their tax return for the year charged. United States v. Poschwatta, 829 F.2d 1477, 1481 (9th Cir. 1987); United States v.Shivers, 788 F.2d 1046, 1049-50 (5th Cir. 1986); United States v. McCabe, 416 F.2d 957,c957-58 (7th Cir. 1969), cert. denied, 396 U.S. 1058 (1970).
In our John Doe example, the Government may have a harder time with this angle, but they could still say that John Doe was aware of his duty to file a return this year because every year like clockwork, John Doe filed a tax return for the prior year.
Generally, the duty to file a return, which is the first element that the Government has to prove for a failure to file charge, is created by meeting a certain level of total income. 26 U.S.C. § 6012; See United States v. Middleton, 246 F.3d 825, 841 (6th Cir. 2001); see also United States v. McKee, 506 F.3d 225, 245 (3d Cir. 2007). This level of income changes from year to year. See United States v. Clayton, 506 F.3d 405, 409 & nn.1 & 2 (5th Cir. 2007) (noting that the requirement to file taxes is correlated to the “exemption amount”).
A failure to perform that duty is a little more complicated. If a tax form is deficient to the point that it does not provide information from which the IRS can calculate your tax liability, it does not count as a return. See e.g., United States v. Mosel, 738 F.2d 157, 158 (6th Cir. 1984); United States v. Rickman, 638 F.2d 182, 184 (10th Cir. 1980); United States v. Moore, 627 F.2d 830, 835 (7th Cir. 1980); United States v. Smith, 618 F.2d 280, 281 (5th Cir.1980), but see United States v. Long, 618 F.2d 74, 75 (9th Cir. 1980) (holding a tax form containing zeros on all of the lines is still a return because tax liability can be computed from zeros.)
Individual taxpayers are required to file a return on or before April 15th of the following year, or the “fourth month following the close of the fiscal year”. 26 U.S.C.§ 6072(a). A corporation generally must file by March 15th or the “third month following the close of the fiscal year”. 26 U.S.C. § 6072(b). If the date for filing falls on a weekend or holiday, you must file by the next business day (i.e., if April 15th falls on a Saturday you would have to file on Monday. If that Monday happens to be a holiday, you would file on Tuesday). 26 U.S.C. § 7503. Even one day late could be enough for a failure to file charge, but you can legally request an extension.
However, extensions can’t be used continuously as a tool to avoid filing your taxes. See, United States v. Goldstein, 502 F.2d 526, 528 (3d Cir. 1974) (filing extension request was not intended as an attempt to comply with the legal requirement to file an income tax return, but solely in an attempt to postpone any possible day of reckoning). If you do file your tax return late, this won’t get rid of a prior failure to file. See United States v. Houser, 754 U.S. 1335, 1351 (11th Cir. 2014).
Having a “good reason” that you didn’t file your taxes is generally not a defense to the failure to file altogether. See United States v. Dillon, 566 F.2d 702, 703-04 (10th Cir. 1977). For example, it is not enough that the Defendant didn’t have the funds to pay taxes. See United States v. Pomponio, 429 U.S. 10, 12 (1976). The Fifth Amendment protection against incriminating yourself is generally not a defense to a failure to file either. See e.g., United States v. Turk, 722 F.2d 1439, 1440-41 (9th Cir. 1983); United States v. Moore, 692 F.2d 95, 97 (10th Cir. 1982).
The Fifth Amendment can, however, be claimed for certain questions, such as the source of income, on a filed tax return. United States v. Sullivan, 274 U.S. 259, 263-64 (1927); United States v. Leindendeker, 779 F.2d 1417, 1418 (9th Cir. 1986); United States v. Bulkley, 56 A.F.T.R.2d 85-6205 (10th Cir. 1984).
In order to prove a failure to pay the Government doesn’t need to prove that there was a formal assessment of the tax due. 26 U.S.C. § 6151(a); see United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983). This means that there doesn’t need to be any official record on the IRS books that the individual has a tax debt. Essentially, if you know you need to pay a tax, you need to pay it. The Government can prove a failure to pay using a certified transcript of a taxpayer’s account. See, Fed. R. Evid. 803(10); United States v. Neff, 615 F.2d 1235, 1241-42 (9th Cir. 1980).
Just like a failure a file charge, the Government doesn’t need to show that you had the money to pay the tax at the time it was due. United States v. Easterday 539 F.3d 1176, 1182 (9th Cir. 2008); United States v. Ausmus, 774 F.2d 772, 725 (6th Cir. 1985); United States v. Tucker, 686 F.2d 230, 233 (5th Cir. 1982).
For these crimes, the Government can bring the charges in the place where the taxpayer could have performed their duty to file a return, pay a tax, keep records, or provide information (i.e., their district’s Internal Revenue Service Center, or where the defendant lives.) 26 U.S.C § 6091
The statute of limitations, or maximum time in which the Government can bring charges after the crime occurred, for a failure to file a return or pay a tax is six (6) years. 26 U.S.C. § 6531(4). The prosecutor has six (6) years from the date that the tax return or payment in question was due to bring charges. Phillips v. United States, 843 F.2d 438, 443 (11th Cir. 1988).
For a failure to provide information or keep records required by law, the statute of limitations is three (3) years. I.R.C. § 6531(4).
What is the Punishment for a Failure to File, Pay Tax, Keep Records, or Supply Information?
A failure to file, pay a tax, keep records, or supply information is a misdemeanor. It is punishable by up to a year in jail or year of probation and a $25,000 fine (a corporation may pay up to a $100,000 fine). 26 U.S.C. § 7203.
The Tax Division specifically requires that this misdemeanor offense is only used for a failure to comply with a duty. The prosecutor is instructed to upgrade to a felony tax evasion or obstruction charge if the taxpayer “…commit[ed] any act or omission as part of an attempt to evade taxes or obstruct the IRS.” Criminal Tax Manual, § 10.02 (2015).
The example above with John Doe shows the many ways that the Government can approach an omissions case. The crime is serious and the punishment reflects that. If you are charged with the crime of omission, it is no laughing matter. If you are reading this, you may be looking to avoid a $25,000 fine. If that is the case, we can help.
There are two certainties in life: death and taxes. Let us help make the taxes part seem less like death.
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Last updated: June 3, 2023
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