The Federal Crime of Tax Evasion – 26 U.S.C. § 7201
Title 26 of the United States Code contains most of the provisions of federal law regarding imposition and collection of taxes. When an individual willfully attempts to evade or defeat a federal tax provided for in Title 26, they may be charged with the federal crime of tax evasion in violation of 26 U.S.C. § 7201.
Tax evasion and fraud occurs when people or a business intentionally underpays or fail to pay their tax obligations. The government can pursue tax evasion cases either civilly or criminally, but federal prosecutors are not reluctant to pursue criminal charges against anyone they believe has committed tax fraud.
The Internal Revenue Service (IRS), which is part of the Department of Treasury, is the federal agency responsible for collecting and processing tax returns.
However, they also investigate alleged federal tax crimes and employ special agents who are responsible for detecting and investigating tax evasion and other related tax fraud cases, such as identity theft.
It's not uncommon for federal prosecutors to pursue conspiracy charges, under 18 U.S.C. § 371, related to tax crimes. Conspiracy means a defendant made an agreement with other people to commit a tax related crime and at least one person involved in alleged conspiracy engaged in overt acts in furtherance of the conspiracy.
The federal government aggressively investigates allegations of federal white-collar crimes, including any type of tax fraud. If convicted of tax evasion, the penalties can include many years in prison.
To give readers more useful information about tax evasion, our federal criminal defense attorneys are providing a review below.
Definition of 26 U.S.C. § 7201 Tax Evasion
The federal crime of tax evasion in defined under 26 U.S.C. § 7201:
Anyone who willfully attempts to evade or defeat any tax imposed, in addition to other penalties provided by law, are guilty of a felony and after conviction, shall be fined up to $100,000, or $500,000 for a corporation, or imprisoned up to 5 years, or both.
It should be noted that just failing to file a tax return is not considered a crime of tax evasion, even if it was a willful act. Tax evasion requires an affirmative act, where someone intentionally violates a known legal duty.
Someone could be guilty of making false statements on an income tax return, under 26 U.S.C. § 7206(1), if they knowingly and willfully sign and submit a tax return that contains material false statements with intent to violate a legal duty.
A false statement is considered material if can influence an IRS audit, investigation, or verifying income. False statements include omitting information on a tax return. Evade reporting requirements are defined under 31 U.S.C. 5324.
Tax Evasion Case Examples
Tax planning which focuses on minimizing an individual or company's tax liability through lawful means such as claiming business expenses, structuring a company in a way which puts the company in a more favorable tax bracket, categorizing assets in more favorable ways, etc. is not a crime.
Tax planning and tax accounting are important aspects of running an efficient business which a corporation, in particularly, has a legal duty to do effectively.
However, these activities are categorically different from using unlawful and deceptive means to knowingly avoid paying taxes which are due to the federal government. Take the following example.
In the first scenario, Company A takes advice from their accountant that by investing in certain capital goods such as machinery, they can claim business expenses and depreciation which will reduce the company's effective tax liability by 50%.
Company A follows the accountant's advice and makes the necessary arrangements so that they owe substantially less in federal taxes than they would have had they structured their affairs differently. Company A has committed no crime even thought the net result is that the federal government received much less revenue on a year by year basis than it would have otherwise.
By contrast, Company B is also concerned with its tax liability but has no investments to make and no legitimate expenses to claim.
Nevertheless, the owners of Company B decide to reduce their tax liability by falsifying entries in the company's balance sheets to make it appear that they have suffered substantial business losses which can be written off.
On the basis of the false entries, Company B claims significant tax deductions and thereby reduces its effective tax liability by 50%. Company B is guilty of tax evasion under 26 U.S.C. § 7201.
Penalties for 26 U.S.C. § 7201 Tax Evasion
Tax evasion in violation of Section 7201 of Title 26 of the United States Code is a serious criminal offense.
The maximum punishment for a defendant convicted under 26 U.S.C. § 7201 is five years in federal prison, a $100,000 fine, or both. A corporation convicted of tax evasion faces a maximum penalty of $500,000 rather than $100,000.
In the case of both an individual and a corporation convicted under 26 U.S.C. § 7201, the defendant must also reimburse the government for the cost of prosecution, i.e. the money expended by federal law enforcement and prosecutors in investigating and bringing the tax evasion case in federal court.
As noted in our articles on sentencing and the United States Sentencing Guidelines, a federal court has substantial discretion in setting the appropriate sentence based on the specific offense characteristics and defendant's prior criminal history.
While the maximum sentence is 5 years' imprisonment and the significant fines noted above, effective advocacy at sentencing, particularly in the case of a first-time offender, can have an important impact with the sentencing court.
Fighting 26 U.S.C. § 7201 Tax Evasion Charges
In tax evasion cases, the federal government will often investigate for a lengthy period of time before indicting a defendant.
There are opportunities for prefiling intervention during this time by which the government may be persuaded to work out a negotiated plea deal with the defendant prior to actually charging them in federal court.
This has several advantages including potentially avoiding an arrest and pretrial detention spent in federal custody. By demonstrating early and complete acceptance of responsibility, a defendant who negotiates a pre-indictment plea will often receive a relatively more lenient sentence from the sentencing federal judge compared with a defendant who has to be tracked down by the federal government and brought into court after being arrested.
Our criminal defense attorneys might be able to make an argument there was a lack of intent. A tax evasion conviction requires the prosecutor to prove, beyond a reasonable doubt, a defendant intended to defraud the federal government. Making a mistake on tax document, such as a miscalculation, doesn't constitute tax fraud.
Contact our Federal Criminal Defense Attorneys
If you or a family member is under investigation for, has been charged with, or has already been convicted of and are pending sentencing for, the federal crime of tax evasion in violation of 26 U.S.C. Section 7201, contact our experienced team of federal criminal defense attorneys for a consultation.
We will leverage our experience and expertise in federal court to assist you in securing the best possible outcome in your case. Through a prefiling intervention, we will ensure your rights are protected while working toward a favorable resolution which minimizes the chances of protracted custody time.
Eisner Gorin LLP is a top-ranked criminal defense law firm with a track record of success and decades of combined experience.
Our law firm is located at 1875 Century Park E #705, Los Angeles, CA 90067. We are also located next to the Van Nuys Superior Courthouse at 14401 Sylvan St #112 Van Nuys, CA 91401. Contact our office for a consultation at 877-781-1570.