Fraudulent Withholding Exemption Certificate or Failure to Supply Information - 26 U.S.C. § 7205
Employers have a legal obligation to withhold a portion of their employees' pay for income tax purposes. This practice ensures that the employees pay enough in taxes, and any surplus is refunded to them each year.
For the system to work properly, the employer must have accurate information from the employee to ensure enough tax is withheld.
This is why (unbeknownst to some) it's actually a violation of federal law to intentionally provide false information on your withholding certificates or fail to supply the necessary information to your employer for the purpose of withholding less than is due.
This law is embodied in Title 26 U.S. Code 7205. If you're charged with doing this willfully, you could face up to a year in federal prison.
18 U.S.C. 7205 says, "(a) Withholding on wages-
Any individual required to supply information to his employer under section 3402 who willfully supplies false or fraudulent information or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under section 3402, shall, in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than one year, or both.
(b) Backup withholding on interest and dividends-
If any individual willfully makes a false certification under paragraph (1) or (2)(C) of section 3406(d), then such individual shall, in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than one year, or both."
What Does the Law Say?
As noted, 26 U.S.C. 7205 makes it a federal offense to willfully supply false or fraudulent information or fail to supply necessary information on a withholding exemption certificate. The statute primarily targets two forms of misconduct:
- Fraudulent Withholding Exemption Certificates: This occurs when an individual provides false information on a Form W-4, which employers use to determine the amount of federal income tax to withhold from an employee's paycheck. An example might be claiming an excessive number of exemptions with the intent of reducing tax withholdings, even when those exemptions are not applicable.
- Failure to Supply Information: This involves the deliberate omission of necessary information that would otherwise ensure accurate withholding. For instance, if an individual fails to update their Form W-4 after a significant life change, such as a divorce or the birth of a child, which would alter their tax obligations, they could be charged under this statute.
The essence of this statute is to penalize the willful attempt to mislead or evade proper tax withholding, which the IRS views as an attempt to defraud the government.
It's worth noting that 26 U.S.C. 7205 only specifies giving fraudulent or false information to avoid an increase in the amount of withholding. There is no penalty for over-withholding, as the refund comes back to the taxpayer.
What Must Be Proven to Convict?
To secure a conviction under 26 U.S.C. 7205, the federal prosecution must prove the following elements of the crime beyond a reasonable doubt:
- Willfulness: The most critical element is willfulness. The government must show that you intentionally and knowingly provided false information or failed to supply necessary information with the intent to deceive or defraud. A mistake or oversight, without intent, is generally not enough to secure a conviction.
- Submission of the Document: The false or fraudulent information must be provided through a formal document, typically a Form W-4 or similar withholding certificate. The prosecution must establish that this document was submitted to an employer or other relevant entity.
- Material Falsity or Omission: The false information or omission must be material, meaning it must have a significant impact on the amount of tax withheld. Insignificant errors or omissions that do not substantially alter withholding amounts may not meet this threshold.
What Are the Related Federal Laws?
26 U.S. Code Chapter 75 Subchapter A Part I General Provisions has several federal laws related to taxes, 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 Internal Revenue 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 Penalties?
Violating U.S.C. 7205 is a misdemeanor federal offense. If you are convicted, you could receive:
- A maximum fine of $1,000 and
- Up to one year in federal prison.
Defending Against the Charges
A skilled federal criminal defense attorney can implement several defense strategies to counter accusations that you willfully supplied fraudulent or false information to an employer under 18 U.S.C. 7205. The specific defenses are contingent on the specifics of the case:
- Lack of Willful Intent: Proving willfulness is a key element to procuring a conviction under this law. If the action you took was a result of a misunderstanding, clerical error, or lack of knowledge, it may not meet the threshold of willfulness required for conviction.
- Mistake of Fact: If you genuinely believed the information provided was correct, this can serve as a defense. For instance, misinterpreting the number of dependents or the appropriate withholding status due to complex personal circumstances.
- Corrective Action: Taking timely corrective action upon realizing the mistake can sometimes mitigate the situation. If you noticed the error and promptly amended the information and paid any outstanding taxes, it could serve as a mitigating factor during prosecution.
Contact us for additional information. Eisner Gorin LLP is in Los Angeles, California.
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