What Is IRS Code 7201 for Attempt to Evade or Defeat Tax?

Internal Revenue Code (IRC) Section 7201 is the primary federal law used to prosecute tax evasion, which is considered a felony. This statute addresses attempts to evade or defeat the assessment or payment of any tax imposed under Title 26 of the U.S. Code. A conviction under this section carries significant penalties, and the law is broadly written to cover any person and any manner of attempting to avoid tax obligations.

The Elements of Tax Evasion

For the government to secure a conviction for tax evasion, it must prove three distinct elements beyond a reasonable doubt. These components are the existence of a tax deficiency, an affirmative act to mislead or conceal, and the element of willfulness.

A Tax Deficiency

The first element the government must prove is a tax deficiency, which means an unpaid tax liability exists for the period in question. This requires demonstrating that the taxpayer owed more tax than was reported or paid. The government does not need to prove the exact amount of the tax due, but it must show that a substantial amount of tax was due and owing.

An Affirmative Act

The second element is the commission of an affirmative act constituting an attempt to evade or defeat the tax. This component distinguishes tax evasion from lesser offenses; it requires more than passive neglect or an omission, such as simply failing to file a return. An affirmative act is a willful act of commission intended to mislead the government or conceal tax liability.

Examples of such acts include:

• Keeping a double set of books
• Making false entries or invoices
• Destroying records
• Concealing assets
• Placing assets in the names of others
• Hiding assets in offshore accounts
• Using shell companies to obscure income

Filing a false tax return is also considered a primary example of an affirmative act of evasion.

Willfulness

The final element is willfulness, defined as the intentional violation of a known legal duty. This separates fraudulent conduct from accidental errors, negligence, or a genuine misunderstanding of complex tax laws. The government must prove that the taxpayer acted voluntarily and purposely with the specific intent to do something the law forbids.

Proving willfulness often relies on inferential evidence. A consistent pattern of underreporting income over several years, making false statements to IRS agents, or deliberately failing to provide a tax preparer with complete and accurate information can all be used to demonstrate intent. A taxpayer’s claim that they believe tax laws are unconstitutional is not a valid defense against the element of willfulness.

Penalties for Conviction

A conviction for tax evasion is a felony and carries criminal penalties. For an individual, a conviction can result in a prison sentence of up to five years and a fine of up to $250,000. For a corporation, the maximum fine is $500,000 for each offense.

In addition to imprisonment and fines, a person convicted of tax evasion may also be ordered to pay the costs of prosecution. These criminal penalties are separate from and in addition to the underlying civil liabilities. The taxpayer will still be responsible for paying the original tax owed, plus interest and substantial civil fraud penalties, which can amount to 75% of the underpayment attributable to fraud under IRC Section 6663.

Related Tax Offenses

The Internal Revenue Code contains other criminal statutes that address conduct related to, but distinct from, tax evasion. These offenses often involve different elements of proof and carry different penalties.

Filing a False Return

One of the most commonly charged related offenses is filing a false return under IRC Section 7206. This law makes it a felony to willfully sign a tax return or other document under penalties of perjury that one does not believe to be true and correct as to every material matter. Unlike tax evasion, a conviction for filing a false return does not require the government to prove a tax deficiency. The crime is in the willful submission of a document with a known false statement on a material issue. This offense carries a maximum prison sentence of up to three years.

Failure to File or Pay

Another related offense is the willful failure to file a return, supply information, or pay tax, which is a misdemeanor under IRC Section 7203. This statute addresses acts of omission, unlike the affirmative acts required for tax evasion. Simply failing to file a tax return, without another affirmative act designed to conceal or mislead, falls under this lesser charge. The penalties are less severe than those for tax evasion.