Attempt to Evade
First is the attempt to evade. This element is a bit different if you are being charged with evasion of assessment or evasion of payment.
To prove evasion of assessment, the Government has to point to some affirmative action taken by the taxpayer for the purpose of attempting to evade or defeat the assessment of a tax. This affirmative action is important because simple neglect or failure to do something would not meet the requirement for an attempt to evade. United States v.Masat, 896 F.2d 88, 97-99 (5th Cir. 1990).
For example, not filing a tax return would not necessarily count as an attempt to evade assessment, but filing a fraudulent tax return would. Similarly, if you fail to file a tax return and you engage in misleading conduct such as destroying records, that could amount to an attempt to evade assessment as well. Spies v. United States, 317 U.S. 492, 498-99 (1943). See also, United States v. Brooks, 174 F.3d 950, 954-56 (8th Cir. 1999); United States v. Meek, 998 F.2d 776, 779 (10th Cir. 1993).
The key difference in the latter examples is a deceptive act. It doesn’t matter if the taxpayer’s main reason for this affirmative action is something other than avoiding taxes. As long as the Government can show that tax evasion was a part of the motivation for the dishonest conduct, it can still count as an attempt to evade assessment. United States v. Voight, 89 F.3d 1050, 1090 (3d Cir.), cert. denied, 519 U.S. 1047 (1996).
For evasion of payment, the affirmative act is generally going to be some form of hiding money or assets out of reach of the IRS. Like evasion of assessment, a failure to do something alone is not enough. The simple failure to pay your assessed taxes, without some other misleading conduct, would not constitute evasion of payment.
Examples of this misleading conduct for evasion of payment include hiding assets in family or friends’ bank accounts, keeping assets off the books (using only cash, not keeping financial records, not using banks or credit cards), making false statements about assets or property owned, and untruthfully declaring bankruptcy to prevent the collection of a tax.
See, e.g., United States v. Huebner, 48 F.3d 376, 379-80 (9th Cir. 1994) (the defendant, having created false loan documents and then filed for bankruptcy, was successfully prosecuted for evasion of payment.); United States v. Shorter, 809 F.2d 54, 56-57 (D.C. Cir.), cert. denied, 484 U.S. 817 (1987); United States v. Shoppert, 362 F.3d 451, 460 (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Brimberry, 961 F.2d 1286,1290-91 (7th Cir. 1992); United States v. McGill, 964 F.2d 222, 233 (3d Cir. 1992).
If one affirmative act was done with the intention to evade the payment of taxes over multiple years, the Government can charge a taxpayer with evasion for all of these years together. United States v. Shorter, 809 F.2d 54, 56-57 (D.C. Cir.), cert. denied, 484 U.S. 817 (1987)(upholding use of a single count of tax evasion covering twelve years of evasion of payment where the underlying basis of the count is an allegedly consistent, long-term pattern of conduct directed at the evasion of payment of taxes for those years).
Additional Tax Due
For both types of tax evasion, the Government also has to prove that there was a tax deficiency (some tax actually owed that hasn’t been paid). To do this, the Government has to prove that the income in question was actually taxable. See, U.S.C. §§ 61, 62 and 63. Illegal sources of income such as gambling, drug proceeds, and kickbacks are actually taxable. See e.g., McClanahan v. United States, 292 F.2d 630, 631-32 (5th Cir.), cert. denied, 368 U.S. 913 (1961); United States v. Sallee, 984 F.2d 643 (5th Cir. 1993); United States v. Swallow, 511 F.2d 514, 519 (10th Cir.), cert. denied, 423 U.S. 845 (1975); United States v. Wyss, 239 F.2d 658, 660 (7th Cir. 1957).
The prosecutor doesn’t need to show an exact amount by which the taxpayer was deficient, but many states require that it be substantial. See e.g. United States v. Johnson, 319 U.S. 503, 517-18 (1943); United States v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.), cert. denied, 530 U.S. 1230 (2000); United States v. Bender, 606 F.2d 897, 898 (9th Cir. 1979); United States v. Marcus, 401 F.2d 563, 565 (2d Cir. 1968), cert. denied, 393 U.S. 1023 (1969) ;United States v. Alker, 260 F.2d 135, 140 (3d Cir. 1958), cert. denied, 59 U.S. 906 (1959).
The last element of tax evasion is willfulness. This element is important to many of the tax crimes. The formal definition of willfulness is the "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); United States v. Pensyl, 387 F.3d 456, 458-59 (6th Cir. 2004); United States v. George, 420 F.3d 991, 999 (9th Cir. 2005). Essentially, it means you meant to do it.
Willfulness is a subjective test, meaning if the taxpayer had good faith belief that he is not violating a tax law, he has a legitimate defense to tax evasion. Cheek v. United States, 498 U.S. 192, 199-201 (1991). See also, United States v. Grunewald, 987 F.2d 531, 535-36 (8th Cir. 1993); United States v. Pensyl, 387 F.3d 456, 459 (6th Cir. 2004). However, this does not mean the taxpayer should get too comfortable.
Willfulness can be inferred from intentionally misleading conduct such as concealing or covering up income. The taxpayer also can’t simply turn a blind eye to an obvious tax liability. United States v. Willis, 277 F.3d 1026, 1031-32 (8th Cir. 2002); United States v. Dean, 487 F.3d 840, 851 (11th Cir. 2007).
The Government also has to show that the case was charged in the right place. See infra. For tax evasion crimes, venue is appropriate in the area that the crime was committed. Specifically, venue is proper in any judicial district where the tax return in question was made, signed, or filed. See, e.g., United States v. Marchant, 774 F.2d 888, 891-92 (8th Cir. 1985), cert. denied, 475 U.S. 1012 (1986)(venue appropriate where accountant prepared return); United States v. King, 563 F.2d 559, 562 (2d Cir. 1977), cert. denied, 435 U.S. 918 (1978)(prepared and signed); United States v. Gross, 276 F.2d 816, 819 (2d Cir.), cert. denied, 363 U.S. 831 (1960) (prepared); United States v. Albanese, 224 F.2d 879, 882 (2d Cir.), cert. denied, 350 U.S. 845 (1955)(prepared and mailed).
Statute of Limitations
Tax evasion also has to be charged by the Government within the timeframe provided by the law, called the statute of limitations. The statute of limitations for tax evasion is six (6) years. 26 U.S.C § 6531(2).
There is some debate as to when the six (6) years begins, but the general rule is that the Government has (6) years to charge tax evasion from the date of the last action taken to evade the tax, or from the date that the tax return in question was due, whichever is later.
What is the Punishment for Tax Evasion?
Punishment for a crime varies based on the specific facts of the case as well as the Defendant’s criminal history. However, if you are convicted of tax evasion, you could be facing some serious penalties.
Tax Evasion is a class E felony. It can be punished by up to five years in prison or five years of probation (you can also have a split sentence of some prison time and some probation time), and a fine of up to $100,000 (or $500,000 for a company), plus the costs to the Government for prosecuting the crime. 26 U.S.C. § 7201
If you’ve read this entire article, you should clearly know the difference between tax avoidance and tax evasion – sometimes quoted as “the difference between them being the thickness of a prison wall.” In simple terms, putting money away in an IRA or 401(k) is considered tax avoidance. Not claiming the income you’re making painting houses on weekends is tax evasion.
If you figured out the difference between the two a little late in the game, and are now facing possible felony charges for tax evasion, give my office a call. We will examine your situation and together decide on the best defense for your remuneration and acquittal.