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Failure to File

Failure to File Tax Return - 26 U.S. Code 7203

Let's review 26 U.S. Code 7203, willful failure to file a return, supply information, or pay tax. While most people will not be prosecuted for tax violations except for deliberate attempts at tax evasion, the willful failure to file or pay taxes to the government is still considered a federal offense.

This federal law is related to the Internal Revenue Code (IRC) 7203, which deals with failure to file, supply information, or pay tax. 

Failure to File Tax Return - 26 U.S. Code 7203
26 U.S. Code 7203 prohibits willful failure to file a tax return, supply information, or pay tax.

Violations of this statute can result in misdemeanor federal charges if prosecutors believe they can establish that the person's failure to abide by the rules was willful. If you're charged and convicted of this crime, you could be fined up to $25,000 and face up to one year in jail.

26 U.S.C. 7203 says, “Any person 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, who willfully fails 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, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be….

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 section 6654 or 6655 with respect to such failure. 

In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year.

This statute applies to both individuals and businesses. It covers all types of taxes, including income tax, payroll tax, and excise tax. 

What Are the Key Elements of This Law?

Under Section 7203, any person required to pay any tax or required by law or regulations to make a return or statement and willfully fails to do so or neglects to pay such tax is guilty of a misdemeanor. 

This statute applies to both individuals and businesses. It covers all types of taxes, including income tax, payroll tax, and excise tax. 

For purposes of this law, a "person" refers not just to an individual taxpayer but also to any "officer or employee of a corporation, or a member or employee of a partnership" responsible for filing/paying the taxes of that entity.

To convict you of this crime, the government must prove beyond a reasonable doubt that:

  • The individual or business was required by law or regulations to pay tax, file a return, or supply information.
  • The individual or business willfully failed to pay the tax, file the return, or supply the information and
  • The failure was done to violate the law rather than by accident or mistake.

Other things to know about this law:

  • While Section 7203 technically also applies to failure to pay estimated taxes, most instances of underpayment of estimated taxes are not prosecuted under this law. Still, they are typically assessed additional fees per IRC 6654 or IRC 6655.
  • If the failure to file or pay taxes involves a violation regarding large cash payments (26 U.S.C. 6050I), the crime is escalated from a misdemeanor to a felony with a maximum of 5 years' imprisonment.

What is the Practical Application of 26 U.S.C. 7203?

In practical terms, Section 7203 serves as a deterrent, emphasizing the importance of tax compliance. It imposes a duty on individuals and businesses to accurately file their tax returns and make the necessary payments. 

26 U.S. Code 7203

Prosecution under Section 7203 is generally a last resort when all other methods of securing compliance have failed. Additionally, most cases prosecuted under Section 7203 involve failure to file taxes rather than failure to pay them. 

The reason is that proving willful failure to pay estimated taxes is confusing at best, plus they are usually merely assessed with additional penalties, and willful failure to pay tax typically falls under the felony tax evasion charge (26 U.S.C. 7201).

Nevertheless, courts have held that such willful failure extends to cases intending to evade tax and situations of gross negligence or reckless disregard of statutory duty. In other words, 

if you recklessly or intentionally disregard your duty to file and pay tax returns, you are still considered guilty of violating this law and could be prosecuted.

What Are the Related Federal Statutes?

26 U.S. Code Chapter 75 Subchapter A Part I General Provisions has numerous several federal statutes that are related to 26 U.S. Code 7203 Willful failure to file the return, supply information, or pay tax, such as the following:

  • 26 U.S.C. 7201 - Attempt to evade or defeat tax,
  • 26 U.S.C. 7202 - Willful failure to collect or pay overtax,
  • 26 U.S.C. 7203 - Willful failure to file a return, supply information, or pay tax,
  • 26 U.S.C. 7204 - Fraudulent statement or failure to make a statement to employees,
  • 26 U.S.C. 7205 - Fraudulent withholding exemption certificate or failure to supply information,
  • 26 U.S.C. 7206 - Fraud and false statements,
  • 26 U.S.C. 7207 - Fraudulent returns, statements, or other documents,
  • 26 U.S.C. 7208 - Offenses relating to stamps,
  • 26 U.S.C. 7209 - Unauthorized use or sale of stamps,
  • 26 U.S.C. 7210 - Failure to obey summons,
  • 26 U.S.C. 7211 - False statements to purchasers or lessees relating to tax,
  • 26 U.S.C. 7212 - Attempts to interfere with the administration of IRS laws,
  • 26 U.S.C. 7213 - Unauthorized disclosure of information,
  • 26 U.S.C. 7213A - Unauthorized inspection of returns or return information,
  • 26 U.S.C. 7214 - Offenses by officers and employees of the United States,
  • 26 U.S.C. 7215 - Offenses concerning collected taxes,
  • 26 U.S.C. 7216 - Disclosure or use of information by preparers of returns,
  • 26 U.S.C. 7217 - Prohibition on executive branch influence over taxpayer audits and other investigations.

What Are the Potential Penalties?

Violating Section 7203 is a misdemeanor offense. If you are convicted of this crime, you may face a fine of up to $25,000 or $100,000 in the case of corporations, imprisonment for up to one year, or both, in addition to the costs of prosecution. 

What Are the Common Defenses?

While facing charges under Section 7203 can be daunting, a federal criminal defense attorney can employ specific defense strategies to counter the charges. These include, but are not limited to, the following:

  • Lack of Willfulness: If you prove that your failure to file or pay was not intentional but due to an honest misunderstanding, this may be a valid defense.
  • Reasonable Cause: If you demonstrate that you had a reasonable cause for not filing or paying and acted in good faith, you might be exempted from penalties. For example, if you had a legitimate question about the amount owed or the filing process and could not reach the IRS promptly.
  • Incorrect Assessment: If the IRS incorrectly assessed your tax obligation, you could challenge the charges.

Contact our law firm for more information. We represent clients across the United States on federal criminal matters. Eisner Gorin LLP is based in Los Angeles, California.

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