False Tax Return - 26 U.S. Code § 7206
Reporting and paying income tax in the United States is effectively an "honor" system, meaning the government expects you to convey information regarding your taxes truthfully.
To that end, knowingly filing a false federal tax return (also referred to as "tax fraud") is a federal offense that falls under the category of "fraud and false statements" under Title 26 of the United States Code, Section 7206.
Simply put, this federal statute criminalizes the making of false or fraudulent statements on tax returns or other documents submitted, knowingly and willingly.
26 U.S.C. 7206 says, “(1) Declaration under penalties of perjury -
Willfully makes and subscribes any return, statement, or other document which contains or is verified by a written declaration that it is made under the penalties of perjury and which he does not believe to be true and correct as to every material matter; or
(2) Aid or assistance –
Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a return, affidavit, claim, or other document which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or
(3) Fraudulent bonds, permits, and entries –
Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the Internal Revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof.”
What Does the Law Say?
Title 26 U.S.C. 7206 effectively makes it a crime to do any of the following:
- To make or subscribe to "any return, statement, or other document" which you assert to be true under penalty of perjury, which you believe is not entirely accurate.
- To assist anyone in the filing of such a return or making such a statement knowing the information is untrue. This section makes it a crime for tax preparers to file false returns for someone else willfully.
- To simulate or fraudulently execute "any bond, permit, entry, or other document required by the provisions of the internal revenue laws" related to such a return.
- To conceal property that the government has the right to seize for payment of taxes
- To conceal property or destroy/falsify records concerning an "offer in compromise" with the IRS to settle a tax debt.
- To remove, deposits, or conceal, or is concerned in removing, depositing, or covering, any goods or commodities for or in respect of which any tax is or shall be imposed (Section 7206(4)).
What Are the Elements of the Crime?
The prosecution must conclusively prove three critical elements to secure a conviction for this crime, including the following.
- Material Falsification: The accused should have made and subscribed to a return, statement, or other document that was materially false. "Material" in this context refers to any data that could potentially impact the calculation of taxable income.
- False Belief: The prosecution needs to show that the accused did not believe that every claim in return was true and correct. This element deals with intent, which is a pivotal factor in many criminal prosecutions.
- Willful Violation: Lastly, it must be proven that the accused acted willfully. This means they knew that their action was illegal but did it anyway.
What Are Some Examples?
EXAMPLE 1: Dan is a successful business owner running multiple high-revenue generating establishments nationwide. To reduce his tax liability, Dan deliberately omits a significant portion of his income from one of his businesses on his federal tax return. He intentionally includes false information about his expenses, inflating them to offset the income he has not reported. Dan can be charged under 26 U.S.C. 7206.
EXAMPLE 2: Doris is a freelance graphic designer who juggles multiple projects throughout the year and receives payment from various clients. When preparing her tax return, she inadvertently omits a small payment from a minor project she completed early in the year, an oversight due to the complexity and volume of her income sources. Since hers was an honest mistake and not a willfully made false return, Doris will likely not be charged under 26 U.S.C. 7206.
What Are the Related Federal Laws?
26 U.S. Code Chapter 75 Subchapter A Part I General Provisions has several federal laws related to 26 U.S.C. 7206 fraud and false statements, 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 not giving info;
- 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 26 U.S.C. 7206 Penalties?
The federal government does not charge people with crimes for honest mistakes made on their taxes. However, if they have significant reason to believe you willfully filed false returns, the repercussions of being convicted could be severe. If convicted, you could face:
- A fine up to $100,000 ($500,000 for corporations) plus the costs of prosecution;
- Imprisonment for up to three years.
It's important to note that each false tax return filed could be considered a separate offense, thereby multiplying penalties.
What Are the 26 U.S.C. 7206 Defenses?
If you're charged with a crime or under investigation for 26 U.S.C. 7206, there are several defenses an experienced federal criminal defense attorney could employ, as discussed below.
Perhaps we can argue there was a lack of intent. Proving willfulness is a crucial element for prosecutors and often the most difficult to prove.
If you can show that any inaccuracies were due to honest mistakes, misunderstandings, or the incorrect advice of a tax professional—or even that you were unaware you were breaking any laws—you may be able to avoid a conviction.
Perhaps we can use the statute of limitations. Typically, the government has a six-year window from when the false return was filed to initiate prosecution. If this period has lapsed, the charges could be dismissed.
Perhaps we can negotiate a favorable plea agreement with the federal prosecutor. Contact us for a case review and to discuss legal options. Eisner Gorin LLP has offices in Los Angeles, California.