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.
The Crime of Omission
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.
How Does the Government Prove Failure to File, Pay Tax, Keep Records, or Supply Information?
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:
[a] A duty under the Internal Revenue Code to pay a tax, file a return, keep records or supply information.
[b] A failure to perform that duty.
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.