26 USC 7201: The Federal Crime of Tax Evasion

The United States tax code is a complex system of laws that govern how individuals and corporations report income and pay taxes. Within this system, Title 26 of the United States Code outlines the legal framework for federal taxation. Section 7201 of this title specifically addresses tax evasion, making it a felony for any person to willfully attempt to evade or defeat any tax imposed by the federal government. The Internal Revenue Service (IRS) is the agency responsible for investigating these allegations.

Elements of Tax Evasion

To secure a conviction for tax evasion, the government must prove three elements beyond a reasonable doubt: a tax deficiency, an affirmative act to evade the tax, and willfulness. The prosecution must successfully establish all three components. The law applies to both individuals and entities, such as corporations.

A Tax Deficiency

A tax deficiency means an unpaid tax liability exists because the taxpayer owed more than was reported and paid for a specific period. The prosecution does not need to prove the exact amount owed, but it must demonstrate that a substantial deficiency exists to support a felony charge. The government can prove this by analyzing financial documents like bank records and business ledgers to reconstruct the taxpayer’s true income.

An Affirmative Act

An affirmative act is a deliberate action taken to mislead the government or conceal tax liability, which goes beyond simply failing to file a return. This can take many forms, such as filing a false return. Even a single affirmative act is sufficient to meet this element of the offense for a given tax period.

Willfulness

Willfulness means the taxpayer acted with the specific intent to violate a known legal duty. The government must show the action was voluntary and intentional, not the result of a mistake, negligence, or a misunderstanding of the law. Proving this intent can involve using the taxpayer’s own statements, actions, or patterns of behavior to show they knew they owed more in taxes and deliberately chose not to pay.

Common Methods of Tax Evasion

Tax evasion can be accomplished through a variety of methods, all of which constitute the “affirmative acts” required for a conviction. Common methods include:

• Intentionally underreporting or omitting income, such as cash payments or side jobs.
• Keeping a double set of books, with one fraudulent set shown to the IRS.
• Making false entries or alterations in books and records, such as creating fake invoices.
• Claiming fraudulent deductions or exemptions, like inventing dependents or overstating contributions.
• Concealing assets through offshore bank accounts, shell corporations, or holding them in the names of others.

Penalties for Conviction

A conviction for tax evasion carries serious penalties. The statute classifies tax evasion as a felony, and the consequences can include substantial fines, imprisonment, or both.

Criminal Fines

For individuals, a conviction for tax evasion can result in a fine of up to $250,000. For corporations, the maximum fine is $500,000. The specific amount of the fine is determined by the court and can depend on the circumstances of the case.

Imprisonment

In addition to fines, a conviction can lead to a prison sentence of up to five years. The length of the sentence is at the discretion of the court and is often influenced by the severity of the offense and the defendant’s criminal history.

Costs of Prosecution

Beyond fines and imprisonment, a person convicted of tax evasion may also be ordered to pay the costs of prosecution. This means the defendant could be required to reimburse the government for the expenses incurred in investigating and prosecuting the case.

These criminal penalties are imposed in addition to any civil liabilities. A convicted individual is still responsible for paying the original back taxes owed, along with substantial civil fraud penalties and accrued interest.