§7203. Willful failure to file return, supply information,
or pay tax
Any person required under this title to pay any estimated
tax or tax, or required by this title or by regulations made under authority
thereof to make a return, keep any records, or supply any information, who
willfully fails to pay such estimated tax or tax, make such return, keep such
records, or supply such information, at the time or times required by law or
regulations, shall, in addition to other penalties provided by law, be guilty of
a misdemeanor and, upon conviction thereof, shall be fined . . ., or imprisoned
not more than 1 year, or both, together with the costs of prosecution. In the
case of any person with respect to whom there is a failure to pay any estimated
tax, this section shall not apply to such person with respect to such failure if
there is no addition to tax under section 6654 or 6655 with respect to such
failure. In the case of a willful violation of any provision of section 6050I,
the first sentence of this section shall be applied by substituting “felony” for
“misdemeanor” and “5 years” for “1 year.”
1. For the misdemeanor offenses set forth in section 7203, the
maximum permissible fine is at least $100,000 for individuals and at least
$200,000 for organizations. For felony offenses under section 7203 involving
willful violations of section 6050I, the maximum permissible fine is at least
$250,000 for individuals and at least $500,000 for organizations. 18 U.S.C. §
3571(b) & (c). Alternatively, “[i]f any person derives pecuniary gain from
the offense, or if the offense results in pecuniary loss to a person other than
the defendant, the defendant may be fined not more than the greater of twice the
gross gain or twice the gross loss . . . .” 18 U.S.C. § 3571(d).
The misdemeanor offense of
willful failure to file a tax return, pay tax, keep records or supply
information should only be used when a defendant failed to comply with an
affirmative requirement of the Internal Revenue Code or regulations and did not
commit any act or omission as part of an attempt to evade taxes or obstruct the
IRS. Cases involving individuals who fail to file tax returns or pay a tax but
who also commit acts of evasion or obstruction should be charged as felonies
under Section 7201 or Section 7212(a) to avoid inequitable treatment. As an
example, a defendant who commits tax evasion, fails to file a tax return, and
fails entirely to pay all taxes due should not be given more lenient treatment
than a defendant who files a false tax return and fails to pay only a portion of
taxes due.
Section 7203 covers four
different situations, each of which constitutes a failure to timely perform an
obligation imposed by the Internal Revenue Code: (1) failure to pay an estimated
tax or tax, (2) failure to make (file) a return, (3) failure to keep records,
and (4) failure to supply information.
With the exception of cases
involving willful violations of any provision of IRC § 6050I, all of the
offenses under Section 7203 are misdemeanors. Therefore, except for Section
6050I felonies, Section 7203 prosecutions may be initiated either by information
or indictment. Reference should be made to Section 25.00, infra, for additional discussion of violations
of Section 6050I.
The charge most often brought
under Section 7203 is the failure to make (file) a return. A number of cases are
also brought under Section 7203 for failure to pay a tax. Note that the attempt
to evade or defeat the payment of a tax is a felony under Section 7201. The
difference in the offenses is that a failure to file or pay offense under
Section 7203 involves a failure perform a specified act at the time required by
law (an omission), whereas there must be an affirmative act or a “willful
commission” to satisfy the requirements of a Section 7201 felony. Sansone v. United States, 380 U.S. 343,
351-52 (1965). By its express terms, Section 7203 does not apply to a “failure
to pay an estimated tax” if there is no “addition to tax” pursuant to the rules
provided for in Section 6654 (Failure By Individuals To Pay Estimated Income
Tax) and Section 6655 (Failure By Corporation To Pay Estimated Tax).
Few cases are brought charging a
failure to supply information, possibly because of the three year statute of
limitations. See Section 10.05[8], infra. The charge of failing to “keep any
records” is also not commonly used. Consequently, these charges are not treated
separately in this Manual.
Each of the categories set forth
in Section 7203 specifies a distinct and separate obligation. Failure to perform
an obligation in any one of the categories may constitute an offense. See
Sansone v. United States, 380 U.S.
343, 351 (1965). An offender may be charged with failure to perform each
obligation as often as the obligation arises. See, e.g., United States v. Harris, 726 F.2d 558,
560 (9th Cir. 1984) (defendant who failed to file for three years guilty of
three separate offenses rather than one continuing offense); United States v. Stuart, 689 F.2d 759,
763 (8th Cir. 1982) (same).
Any “person” who fails to
perform an obligation imposed by the Internal Revenue Code and the applicable
regulations may be subject to prosecution under Section 7203. The term “person”
is “construed to mean and include an individual, a trust, estate, partnership,
association, company or corporation.” 26 U.S.C. § 7701(a)(1). Section 7343
extends the definition of “person” to include “an officer or employee of a
corporation, or a member or employee of a partnership who as such officer,
employee, or member is under a duty to perform the act in respect of which the
violation occurs.” See United States
v. Neal, 93 F.3d 219, 223 (6th Cir. 1996) (corporate officers liable
under Section 7203 for failure to file employer’s quarterly tax return (Form
941)); Ryan v. United States, 314
F.2d 306, 309 (10th Cir. 1963).
To establish the offense of
failure to make (file) a return, the government must prove three essential
elements beyond a reasonable doubt:
1. The defendant was a person required to file a
return;
2. The defendant failed to file at the time required by
law; and
3. The failure to file was willful.
United States v.
McKee, 506 F.3d 225, 244 (3d Cir. 2007); United States v. Clayton, 506 F.3d 405,
408 (5th Cir. 2007); United States v.
Vroman, 975 F.2d 669, 671 (9th Cir. 1992); United States v. Harting, 879 F.2d 765,
766-67 (10th Cir. 1989); United States v.
Williams, 875 F.2d 846, 849 (11th Cir. 1989); United States v. Foster, 789 F.2d 457,
460 (7th Cir. 1986); United States v.
Ostendorff, 371 F.2d 729, 730 (4th Cir. 1967); cf. United States v. Doyle, 956 F.2d 73,
74-75 (5th Cir. 1992) (in case in which there was no issue about whether
defendant was a person required to file a return, Fifth Circuit listed elements
of misdemeanor failure to make return as willfulness and failure to make a
return when due).
Various provisions of the
Internal Revenue Code (and regulations thereunder) specify the events that
trigger an obligation to file a return. Section 6012 lists the persons and
entities required to make returns with respect to income taxes, including,
inter alia, “[e]very individual having for the taxable year gross income
which equals or exceeds the exemption amount,” with certain specified
exceptions, and “every corporation subject to taxation under subtitle A.” 26
U.S.C. § 6012(a)(1)(A).2 The receipt of a specified amount of gross
income generally determines whether an income tax return must be filed.
See United States v.
Middleton, 246 F.3d 825, 841 (6th Cir. 2001) (stating that the
assertion that the filing of an income tax return is “voluntary” is frivolous
because 26 U.S.C. § 6012(a)(1)(A) requires that every individual who earns a
threshold level of income must file a tax return); see also United States v. McKee, 506 F.3d 225, 245
(3d Cir. 2007) (government must prove that an individual has a duty to file a
tax return based on the receipt of income of a taxable nature, and bears burden
of proving taxable character of funds). “Gross income” is broadly defined in
section 61(a) of the Code to mean the following:
[A]ll income from whatever source derived, including (but
not limited to) the following items:
(1) Compensation for services, including fees,
commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment
contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross
income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or
trust.
The amount of gross income that triggers the filing
requirement has changed over the years. See United States v. Clayton, 506 F.3d 405,
409 & nn.1 & 2 (5th Cir. 2007) (noting that filing requirement is tied
to the “exemption amount,” which is based, in part, on the Consumer Price
Index). Consequently, care must be exercised to insure that the amount of gross
income received by the defendant was sufficient to require the filing of a
return in the particular year at issue. Attention should also be paid to the age
(over or under the age of 65), marital status, and filing status of a spouse
since these factors can change the threshold amount of income for a given year.
Section 6012 provides a formula based on gross income to determine whether an
individual must make a return.
2. Section 6012(a) also addresses filing requirements for
estates, trusts, political organizations, homeowners associations, recipients of
advanced payments of the earned income credit, and bankruptcy estates.
To meet its burden, the
government need prove only that a person’s gross income equals or exceeds the
statutory minimum. United States v.
Bell, 734 F.2d 1315, 1316 (8th Cir. 1984); United States v. Wade, 585 F.2d 573, 574
(5th Cir. 1978). Where the government is unable to present direct evidence of
gross income, its burden may be satisfied by means of an indirect method of
proof. United States v. Bianco,
534 F.2d 501, 503-06 (2d Cir. 1976) (evidence of expenditures in excess of the
statutory minimum plus evidence negating nontaxable sources); United States v. Shy, 383 F. Supp. 673,
675 (D. Del. 1974) (net worth).
Gross income is different and
distinguishable from gross receipts. “Gross receipts cannot be called gross
income, insofar as they consist of borrowings of capital, return of capital, or
any other items which the IRS Code has excluded from gross income.” United States v. Ballard, 535 F.2d 400,
404 (8th Cir. 1976). Nevertheless, after appropriate adjustments are made to the
gross receipts total, the resulting amount may properly reflect gross income.
See United States v.
Garguilo, 554 F.2d 59, 62 (2d Cir. 1977); Brown v. United States, 434 F.2d 1065,
1067 (5th Cir. 1970); Clark v. United
States, 211 F.2d 100, 102 (8th Cir. 1954); Ballard, 535 F.2d at 405. For example,
for manufacturing, merchandising, or mining enterprises, the filing requirement
is predicated upon gross income, which is determined, in part, by subtracting
the cost of goods sold from gross receipts or total sales. 26 C.F.R. § 1.61-3
(1992); Ballard, 535 F.2d at
404-05. To meet its burden, the government need prove only that gross receipts
exceed the cost of goods sold by an amount sufficient to trigger the reporting
requirement. United States v.
Francisco, 614 F.2d 617, 618 (8th Cir. 1980); Siravo v. United States, 377 F.2d 469,
473 (1st Cir. 1967); see also United
States v. Gillings, 568 F.2d 1307, 1310 (9th Cir. 1978). The burden
then shifts to the enterprise to come forward with evidence of offsetting
expenses. United States v. Bell,
734 F.2d 1315, 1317 (8th Cir. 1984); Siravo, 377 F.2d at 473-74; United States v. Bahr, 580 F. Supp. 167,
170-71 (N.D. Iowa 1983); see also Gillings, 568 F.2d at 1310; Garguilo, 554 F.2d at 62.
The government need not cite in
the indictment or information the provision of the Code that requires the filing
of the particular return involved. United
States v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992). It is enough
that an indictment allege the elements of Section 7203 “with sufficient clarity
to apprise [the defendant] of the charges against him and is drawn with
sufficient specificity to foreclose further prosecution upon the same facts.”
Vroman, 975 F.2d at
670-71.
Section 6050I of the Internal
Revenue Code requires any person engaged in a trade or business who receives
more than $10,000 in cash in one transaction (or two or more related
transactions) to file an information return (Form 8300). 26 U.S.C. 6050I(a); 26
C.F.R. §1.6050I-1(e)(2) (2001). The return is due the 15th day after the cash is
received. 26 C.F.R. §1.6050I-1(e)(1). Attorneys are not exempt from the
requirements under Section 6050I. See Lefcourt v. United States, 125 F.3d 79,
84-86 (2d Cir. 1997) (discussion of attorney’s obligation to identify client on
Form 8300 in civil context). This
requirement, as applied to attorneys, does not violate the Fourth, Fifth, or
Sixth Amendment. United States v. Goldberger
& Dubin, P.C., 935 F.2d 501, 503-04 (2d Cir. 1991). It also does
not impinge on the attorney-client privilege. United States v. Blackman, 72 F.3d 1418,
1425 (9th Cir. 1995); United States v.
Leventhal, 961 F.2d 936, 940 (11th Cir. 1992). Section 7203
criminalizes the failure to file a Form 8300. See, e.g., Bickham Lincoln-Mercury Inc. v. United
States, 168 F.3d 790, 793 (5th Cir. 1999).
The mere fact that an individual
or entity files a tax form does not necessarily satisfy the requirement that an
income tax return be filed. For example, tax defiers or individuals who receive
illegal source income sometimes file the correct form but do not provide
meaningful or complete information. Such filings may include assertions of
various constitutional privileges.
Most courts take the approach
that a form which does not contain sufficient financial information to allow the
calculation of a tax liability is not a “return” within the meaning of 26 U.S.C.
7203. See, e.g., United States v.
Marston, 517 F.3d 996, 1001 (8th Cir. 2008) (“A defendant can be
guilty of failure to file a tax return even if he actually files a form with the
I.R.S. if that form does not contain ‘sufficient information [ ] from which the
IRS can calculate tax liability’”); United
States v. Kimball, 925 F.2d 356, 357-38 (9th Cir. 1991) (en
banc) (Forms 1040 filed by defendant, who “wrote only asterisks in the
spaces provided on the income tax forms at issue and signed his name,” did not
constitute “returns” for purposes of 26 U.S.C. 7203); United States v. Upton, 799 F.2d 432,
433 (8th Cir. 1986) (taxpayer included bottom line assertion of liability, but
did not include information showing how that figure was derived); United States v. Malquist, 791 F.2d
1399, 1401 (9th Cir. 1986) (Form 1040 with word “object” written in all spaces
requesting financial information is not a return); United States v. Green, 757 F.2d 116,
121 (7th Cir. 1985); United States v.
Goetz, 746 F.2d 705, 707 (11th Cir. 1984); United States v. Mosel, 738 F.2d 157,
158 (6th Cir. 1984) (per curiam); United
States v. Vance, 730 F.2d 736, 738 (11th Cir. 1984); United States v. Grabinski, 727 F.2d
681, 686-87 (8th Cir. 1984); United States v.
Stillhammer, 706 F.2d 1072, 1075 (10th Cir. 1983); United States v. Verkuilen, 690 F.2d
648, 654 (7th Cir. 1982); United States v.
Reed, 670 F.2d 622, 623-24 (5th Cir. 1982); United States v. Edelson, 604 F.2d 232,
234 (3d Cir. 1979); United States v.
Brown, 600 F.2d 248, 251-52 (10th Cir. 1979) (Forms 1040 containing
responses of “unknown” or “Fifth Amendment” are not returns); United States v. Porth, 426 F.2d 519,
523 (10th Cir. 1970) (“A taxpayer’s return which does not contain any
information relating to the taxpayer’s income from which the tax can be computed
is not a return within the meaning of the Internal Revenue Code or the
regulations adopted by the Commissioner”). See also discussion at
Section 40.03[5], infra.
Although it is well settled that
a form containing only constitutional objections or asterisks does not
constitute a tax return for purposes of 26 U.S.C. § 7203, the circuits disagree
on whether a tax return form that contains all zeroes or minimal monetary
information constitutes a tax return. The Ninth Circuit has taken the position
that a Form 1040 with zeroes on all lines that require the reporting of
financial information is a return because a tax liability, albeit an incorrect
one, can be computed from zeroes. United
States v. Long, 618 F.2d 74, 75 (9th Cir. 1980). (Note that under
Long, the filing of such a
document could be charged under 26 U.S.C. 7206(1) as the filing of a false
return. Long, 618 F.2d at 75-76).
Other courts have declined to follow Long. See, e.g., United States v. Mosel, 738 F.2d 157,
158 (6th Cir. 1984); United States v.
Rickman, 638 F.2d 182, 184 (10th Cir. 1980); United States v. Moore, 627 F.2d 830,
835 (7th Cir. 1980); United States v.
Smith, 618 F.2d 280, 281 (5th Cir.1980). Those courts do not reject
Long’s premise that a tax
liability can be computed from zeroes. Rather, they focus on the question
whether the form submitted was intended to convey the sort of tax return
information required to be submitted to the government. Moore, 627 F.2d at 835 (“there must be
an honest and reasonable intent to supply the information required by the tax
code,” and “when it is apparent that the taxpayer is not attempting to file
forms accurately disclosing his income, he may be charged with failure to file a
return”); Smith, 618 F.2d at 281
(returns that contained nothing but zeroes and constitutional objections plainly
did not even purport to disclose the required information).
Some decisions suggest that the
determination of what is an adequate return is a legal question, and the
district court properly may decide the question. United States v. Green, 757 F.2d 116,
121-22 (7th Cir. 1985); United States v.
Moore, 627 F.2d 830, 834 (7th Cir. 1980); United States v. Klee, 494 F.2d 394, 397
(9th Cir. 1974) (a return that contained “absolutely no information” about the
defendant’s tax status but merely stated “all details available on proper
demand” is not a return, and the “court was right in telling the jury so”).
Other courts, however, have cautioned that such a ruling may improperly invade
the province of the jury. See Section 40.03[5][c], infra. In view of the Supreme Court’s reasoning
in United States v. Gaudin, 515
U.S. 506, 522-23 (1995), in which the Court held that materiality in a
prosecution under 18 U.S.C. 1001 is an element of the offense and must be
submitted to the jury, the safer practice would be to submit to the jury, with
proper instructions, the question whether the form the defendant filed is a
“return” within the meaning of 26 U.S.C. 7203. As a practical matter, the
prosecutor may wish to consider bringing a charge under 26 U.S.C. § 7201, 26
U.S.C. § 7206(1), or 26 U.S.C. § 7206(2). Those statutes define felonies and are
not limited to tax returns. See Marston, 517 F.3d at 1001-02 (defendant
who filed a Form 1040EZ listing zero income properly charged under 26 U.S.C. §
7206(1)).
Section 7203 applies to
situations in which the taxpayer does not file a tax return on the required
filing date. In Spies v. United
States, 317 U.S. 492, 496 (1943), the Supreme Court noted the
importance given to timely filing:
Punctuality is important to the fiscal system, and these
are [criminal] sanctions to assure punctual as well as faithful performance of
these duties.
Section 6072 of the Internal
Revenue Code prescribes the time for filing income tax returns. Individuals who
file on a calendar year basis are required to file a return on or before the
15th day of April following the close of the calendar year. 26 U.S.C. § 6072(a).
Corporations are generally required to file on or before the fifteenth day of
the third month following the close of the taxable year, i.e., March 15th
for a calendar year corporation. 26 U.S.C. § 6072(b). Section 6075 fixes the
time for filing estate and gift tax returns. 26 U.S.C. §§ 6075(a) & (b).
Forms 8300 are due the 15th day after the cash is received. See 26 C.F.R.
§ 1.6050I-1(e) (2001). In the event that the cash is received in multiple
payments, the recipient must aggregate the initial payment and subsequent
payments made within one year of the initial payment until the aggregate amount
exceeds $10,000, and report with respect to the aggregate amount within 15 days
after receiving the payment that causes the aggregate amount to exceed $10,000.
26 C.F.R. § 1.6050I-1(b)(2) (2001). When the last day for filing a return falls
on a Saturday, Sunday, or a legal holiday (including Emancipation Day, a legal
holiday in the District of Columbia), the return will be considered timely filed
if it is filed on the next succeeding day that is not a Saturday, Sunday, or
legal holiday. 26 U.S.C. § 7503. For example, if a return is due on April 15th
and April 15th falls on a Saturday, the return would be considered timely if it
was filed on the following Monday, unless the Monday is a legal holiday, in
which event, the return would be considered timely if it was filed on the next
day -- Tuesday.
If the Code does not fix a time
for the filing of a return, the Secretary is directed to prescribe that time “by
regulations.” 26 U.S.C. § 6071(a).
Because one of the elements of a
violation of 26 U.S.C. § 7203 is the defendant’s failure to file a return at the
time required by law, a prosecution might be jeopardized if an indictment did
not properly allege the date when the legal duty to file arose. See, e.g.,
United States v. Bourque, 541 F.2d
290, 293-94 (1st Cir. 1976) (IRS regulations allow a new corporation to
determine its own fiscal year and therefore date return is due); United States v. Goldstein, 502 F.2d
526, 528 (3d Cir. 1974).
Pursuant to section 6081(a) of
the Code, the Secretary is authorized to grant a “reasonable extension of time”
for filing any return, declaration, statement, or other document required to be
filed. Except for taxpayers who are abroad, the extension cannot be for a period
longer than six months. 26 U.S.C. § 6081(a). A corporation may obtain an
automatic extension of three months for filing a return, provided it meets the
conditions set forth in the Code and applicable regulations. 26 U.S.C.
§ 6081(b). Section 6081(b) requires that, in order to be granted the extension,
the corporation must “pay[], on or before the date prescribed for payment of the
tax, the amount properly estimated as its tax.”
Because there can be no crime of
failing to file an individual return by April 15th if the taxpayer has obtained
extensions of time within which to file, it is important in any failure to file
case to search IRS records to determine whether any extensions have been
obtained by the taxpayer. See Goldstein, 502 F.2d at 528-29 (reversing
conviction of defendant who was indicted for failing to file before April 15,
but who had applied for an extension and had been given until May 7 to file
return). Prosecutors should always attempt to obtain the filed extension form
from the IRS. Many professional return preparers routinely keep in their files
unsigned extensions on behalf of their clients, but an extension application
signed by the taxpayer provides evidence that the taxpayer knew a return was
due. Moreover, because the extension application bears a perjury jurat, a
materially false signed extension application can form the basis for a felony
prosecution under 26 U.S.C. § 7206(1).
The following chart summarizes
some of the filing requirements for the most common taxpaying
entities:
FILING REQUIREMENTS
| TAXPAYER | RETURN/FORM | GROSS INCOME | DATE DUE | |
|
Individual (Single)* (Under age 65) |
1040, 1040A, 1040EZ |
1994 | $6,250 | April 17, 1995 |
| 1995 | $6,400 | April 15, 1996 | ||
| 1996 | $6,550 |
April 15, 1997
| ||
| 1997 | $6,800 | April 15, 1998 | ||
| 1998 | $6,950 | April 15, 1999 | ||
| 1999 | $7,050 | April 17, 2000 | ||
| 2000 | $7,200 | April 16, 2001 | ||
| 2001 | $7,450 | April 15, 2002 | ||
| 2002 | $7,700 | April 15, 2003 | ||
| 2003 | $7,800 | April 15, 2004 | ||
| 2004 | $7,950 | April 15, 2005 | ||
| 2005 | $8,200 | April 17, 2006 | ||
| 2006 | $8,450 |
April 17, 2007 (April 15, 2007, fell on a Sunday, and April 16th was Emancipation Day, a holiday in the District of Columbia. See IRS Questions and Answers - April 17 Deadline.) | ||
| 2007 | $8,750 | April 15, 2008 | ||
| 2008 | $8,950 | April 15, 2009 | ||
| 2009 | $9,350 | April 15, 2010 | ||
| GENERAL: 15th day of 4th month after close of tax year | ||||
|
Married Filing Jointly (Both spouses under age 65) |
1040, 1040A, 1040EZ |
1994 | $11,250 | April 17, 1995 |
| 1995 | $11,550 | April 15, 1996 | ||
| 1996 | $11,800 |
April 15, 1997
| ||
| 1997 | $12,200 | April 15, 1998 | ||
| 1998 | $12,500 | April 15, 1999 | ||
| 1999 | $12,700 | April 17, 2000 | ||
| 2000 | $12,950 | April 16, 2001 | ||
| 2001 | $13,400 | April 15, 2002 | ||
| 2002 | $13,850 | April 15, 2003 | ||
| 2003 | $15,600 | April 15, 2004 | ||
| 2004 | $15,900 | April 15, 2005 | ||
| 2005 | $16,400 | April 17, 2006 | ||
| 2006 | $16,900 | April 16, 2007 | ||
| 2007 | $17,500 | April 15, 2008 | ||
| 2008 | $17,900 | April 15, 2009 | ||
| 2009 | $18,700 | April 15, 2010 | ||
| Corporation | 1120 | N/A | 15th day of 3rd month after close of tax year | |
| Subchapter S Corporation | 1120S | N/A | Same | |
| Partnership | 1065 | N/A | 15th day of 4th month after close of tax year | |
|
Fiduciary (trust or estate income) |
1041 | $600 gross or any taxable income | 15th day of 4th month after close of tax year | |
|
Person in Trade or Business |
8300 (CTR) | receipt of more than $10,000 cash | 15 days after cash received | |
| Employer | 941 | collected withholding tax (income and FICA) | Quarterly - last day of month following quarter** | |
| Estate | 706 | pre-1998 | $600,000 | 9 months after date of death |
| 1998 | $625,000 | 9 months after date of death | ||
| 1999 | $650,000 | 9 months after date of death | ||
| 2000 | $675,000 | 9 months after date of death | ||
| 2001 | $675,000 | 9 months after date of death | ||
| 2002 | $1,000,000 | 9 months after date of death | ||
| 2003 | $1,000,000 | 9 months after date of death | ||
| 2004 | $1,500,000 | 9 months after date of death | ||
| 2005 | $1,500,000 | 9 months after date of death | ||
| 2006 | $2,000,000 | 9 months after date of death | ||
| 2007 | $2,000,000 | 9 months after date of death | ||
| 2008 | $3,500,000 | 9 months after date of death | ||
* Note that the
minimum amount for a married individual whose spouse filed separately is
less.
** If the
corporation has already deposited full amount, there is an additional 10 days in
which to file.
Rule 803(10) of the Federal
Rules of Evidence directly addresses the issue of proof of the “absence of a
record, report, statement, or data compilation in any form, or the nonoccurrence
or nonexistence of a matter of which a record, report, statement, or data
compilation, in any form, was regularly made and preserved by a public office or
agency.” The Rule provides that proof may be in the form of testimony “that
diligent search failed to disclose the record, report, statement, or data
compilation, or entry” or a certification in accordance with Rule 902 of the
Federal Rules of Evidence. Fed. R. Evid. 803(10).
Thus, the failure to timely file
element of 26 U.S.C. § 7203 can be established through a witness’s trial
testimony, see United States v.
Wellendorf, 574 F.2d 1289, 1291 (5th Cir. 1978); by a certified
transcript of account from the appropriate Service Center, stating that the
taxpayer has not filed a return for the year(s) in question, see,
e.g., United States v.
Farris, 517 F.2d 226, 227-29 (7th Cir. 1975) (concluding that
IRS-certified computer records are admissible as self-authenticating documents
under Fed. R. Evid. 902(4)); United States v.
Neff, 615 F.2d 1235, 1241-42 (9th Cir. 1980); or through a
combination of the two, see United
States v. Spine, 945 F.2d 143, 148-49 (6th Cir. 1991) (Certificates
of Assessments and Payments (Forms 4340) showing absence of public record or
entry introduced through Service Center representative).
It is preferable that a witness
be a representative of the Service Center that has custody of returns for the
required place of filing. The witness testifies that he or she is a
representative of the Director of a particular Service Center, that the
particular Service Center has custody of tax returns for a given geographical
region, that any return that the defendant was required to file would have been
filed with the particular Service Center whose director he or she represents,
that the Service Center keeps records of the returns filed at the Service
Center, and that a search of the records revealed that no return was filed by
the defendant. If this procedure is followed, the witness should personally
conduct or direct the search of the records. In the event that the Service
Center representative from the Service Center where the return should have been
filed is unavailable, a representative from another Service Center may be used.
That representative can testify that he or she has access to records from all of
Service Centers, that he or she personally conducted or directed the search of
all the records, and that there was no record of the filing of the return at
issue.
In addition, the witness should
be interviewed in advance, and the questioner should establish during direct
examination that the witness is not testifying as an expert witness. This
clarification is important because failure to establish this fact can lead to
confusion and a very uncomfortable witness. In some cases, particularly those
involving tax defiers with experienced counsel, cross-examination concerning
Service Center procedures and various codes on IRS account transcripts may be
extensive. The questioning under cross-examination may also focus on the
witness’s knowledge regarding whether the Service Center has lost or misplaced
returns or whether the computerized taxpayer account system is faulty. Reference
should be made to the discussion of tax defier prosecutions in Section 40.00, infra.
Reference should be made to the
discussion of willfulness in each chapter of this Manual involving crimes of
willfulness, particularly Chapter
8, supra, Attempt to Evade or Defeat Tax.
Willfulness is the state of mind
that must be proven to establish intent. Whether the charge is a felony
(e.g., attempted evasion) or a misdemeanor (e.g., failure to
file), the willfulness or intent that must be established is the same. United States v. Bishop, 412 U.S. 346,
361 (1973). Courts have defined willfulness in criminal tax violations as a
“voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U.S. 192,
199 (1991); United States v.
Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346,
360 (1973); United States v.
Murphy, 469 F.3d 1130, 1137 (7th Cir. 2006); United States v. Abboud, 438 F.3d 554,
581 (6th Cir. 2006); United States v.
Boulerice, 325 F.3d 75, 80 (1st Cir. 2002); United States v. Shivers, 788 F.2d
1046, 1048 (5th Cir. 1986); United States v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984); United States v. Rothbart, 723 F.2d 752,
754 (10th Cir. 1983); United States v.
Moon, 718 F.2d 1210, 1222 (2d Cir. 1983); United States v. Dahlstrom, 713 F.2d
1423, 1427 (9th Cir. 1983); United States v.
Buckley, 586 F.2d 498, 503-04 (5th Cir. 1978). Particular reference
should be made to the discussion of the subjective standard for willfulness in
Sections 8.00, supra, and 40.00, infra.
Thus, in a failure to file
prosecution, the government must prove that the defendant acted voluntarily and
intentionally, with the specific intent to do something that the law prohibited,
that is to say, with intent to either disobey or disregard the law. United States v. Abboud, 438 F.3d 554,
581 (6th Cir. 2006). Negligent conduct is not sufficient to constitute
willfulness. E.g., id. at
581; United States v. Murphy, 469
F.3d at 1137 (willfulness “requires proof of a specific intent to do something
which the law forbids; more than a showing of careless disregard for the truth
is required”); United States v.
Quimby, 636 F.2d 86, 90 (5th Cir. 1981) (Section 7203 “requires that
the act be purposefully done with an awareness of the action and not just
negligently or inadvertently”). However, the government is not required to prove
that the defendant acted with “evil motive or a bad purpose.” United States v. Powell, 955 F.2d 1206,
1211 (9th Cir. 1991); United States v.
Asmus, 774 F.2d 722, 726 (6th Cir. 1985) (taxpayer’s good or evil
motive is not relevant to determining whether the taxpayer’s act was willful
under § 7203); see also United
States v. Schafer, 580 F.2d 774, 781 (5th Cir. 1978). To establish
the requisite level of willfulness, the government must prove that the defendant
deliberately failed to file returns which he or she knew the law required to be
filed. United States v. Evanko,
604 F.2d 21, 23 (6th Cir. 1979); United
States v. Brown, 600 F.2d 248, 258 (10th Cir. 1979); United States v. Hawk, 497 F.2d 365,
366-69 (9th Cir. 1974).
A “good purpose” is not a
defense to a charge of willful failure to file. If it is shown that the taxpayer
intentionally violated a known duty, the reason for doing so is irrelevant.
See United States v.
Dillon, 566 F.2d 702, 703-04 (10th Cir. 1977) (rejecting argument
that defendant should have been permitted to testify that his failure to file a
return was an attempt to test constitutionality of income tax laws, because
reason for violating known legal duty irrelevant). For example, after rejecting
a defendant’s argument that to prove a willful failure to file, the government
had to establish an intent to defraud, the Seventh Circuit concluded that
evidence the defendant sought to introduce to “explain” his failure to file --
including, inter alia, contemplation of suicide, lack of funds available
to pay taxes, fear of IRS liens on property, pendency of divorce proceedings, an
offer to pay civil liabilities, an offer to cooperate with the IRS, and a fear
of prosecution for earlier years -- “was of no relevance to whether [defendant]
intentionally failed to file returns knowing that he was legally obliged to do
so.” United States v. McCorkle,
511 F.2d 482, 485-88 (7th Cir. 1975) (en banc); see also
United States v. Klee, 494 F.2d
394, 395 n.1 (9th Cir. 1974) (“no necessity that the government prove that the
defendant had an intention to defraud it, or to evade the payment of any
taxes”).
Willfulness is thus established
when the government proves that the failure to file was “voluntary and
purposeful and with the specific intent to fail to do that which he knew the law
required.” United States v.
Wilson, 550 F.2d 259, 260 (5th Cir. 1977). But willfulness is not
established if the government proves only a “careless and reckless disregard”
for the obligation to file. United States v.
Eilertson, 707 F.2d 108, 109-10 (4th Cir. 1983) (trial court
improperly used pre-Bishop
“careless disregard” jury instruction).
Proof of willfulness in a
willful failure to file case may be, and usually is, shown by circumstantial
evidence alone. United States v.
Collorafi, 876 F.2d 303, 305 (2d Cir. 1989); United States v. Grumka, 728 F.2d 794,
796-97 (6th Cir. 1984); United States v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984); United States v. Schiff, 612 F.2d 73,
77-78 (2d Cir. 1979) (proof of willfulness included previously filed corporate
and personal returns and reminder by accountant); see also United States v. Miller, 520 F.3d 504,
509 (5th Cir. 2008) (attempted evasion case); United States v. Boulerice, 325 F.3d 75,
80 (1st Cir. 2002) (in tax evasion case, “the government does not need to show
direct evidence of tax motivation so long as jury has a sufficient
circumstantial basis for inferring willfulness”); United States v. Bishop, 264 F.3d 535,
550 (5th Cir. 2001) (listing range of conduct that can support a finding of
willful attempt to evade taxation); United
States v. Marabelles, 724 F.2d 1374, 1379 (9th Cir. 1984) (listing
acts from which willfulness can be inferred in evasion case); United States v. Brown, 548 F.2d 1194,
1199 (5th Cir. 1977) (aiding and assisting in preparation and presentation of
false tax returns case); Swallow v. United
States, 307 F.2d 81, 83 (10th Cir. 1962) (attempted evasion
case).
A defendant’s past taxpaying
history is admissible to prove willfulness circumstantially. United States v. Daraio, 445 F.3d 253,
264 (3d Cir. 2006); United States v.
Bok, 156 F.3d 157, 165 (2d Cir. 1998); Schiff, 612 F.2d at 77-78; United States v. Magnus, 365 F.2d 1007,
1011 (2d Cir. 1966) (prior taxpaying history, both federal and state, can be
probative of a taxpayer’s willfulness in failing to pay substantial amounts of
federal taxes in the years at issue). Willfulness may be inferred from a pattern
of failing to file for consecutive years in which returns should have been
filed. United States v. Greenlee,
517 F.2d 899, 903 (3d Cir. 1975). This may include years prior or subsequent to
the prosecution period. United States v.
Upton, 799 F.2d 432, 433 (8th Cir. 1986).
Willfulness may also be shown by
such acts as mailing tax defier materials to the IRS, disregarding IRS warning
letters, and filing contradictory forms. United States v. Shivers, 788 F.2d 1046,
1047-48 (5th Cir. 1986) (defendant filed a W-4 claiming he was exempt from
withholding only four days after filing a W-4 claiming three allowances);
see also United States v.
Upton, 799 F.2d 432, 433 (8th Cir. 1986) (defendant sent defier
materials to IRS).
There is also an element of
common sense in establishing willfulness in a failure to file case. Thus,
willfulness can be shown by such factors as a defendant’s background, United States v. McCaffrey, 181 F.3d
854, 856 (7th Cir. 1999) (defendant was tax accountant); the filing of returns
in prior years, United States v.
Briscoe, 65 F.3d 576, 588 (7th Cir. 1995) (evidence indicated that,
except for one year, defendant failed to file or filed late in every year in
which he owed taxes in excess of the amount withheld); United States v. Hauert, 40 F.3d 197,
199 (7th Cir. 1994); United States v.
Birkenstock, 823 F.2d 1026, 1028 (7th Cir. 1987); United States v. Bohrer, 807 F.2d 159,
161 (10th Cir. 1986) United States v.
Shivers, 788 F.2d 1046, 1048 (5th Cir. 1986); a defendant’s education
and accounting knowledge, United States v.
Ostendorff, 371 F.2d 729, 731 (4th Cir. 1967)(college graduate with
some special knowledge of accounting and insurance); a defendant’s familiarity
with books and records and experience operating a business, United States v. Segal, 867 F.2d 1173,
1179 (8th Cir. 1989); and the receipt of a large gross income, Bohrer, 807 F.2d at 161.
Similarly, one appellate court
found that, if the defendant received a standard Form W-2, “the jury was
entitled to view the W-2 Forms as reminders of the duty to file received shortly
before or during the period in which filing was required.” United States v. Cirillo, 251 F.2d 638,
639 (3d Cir. 1957). A Form W-2 does not serve as a return, whether filed by the
taxpayer or employer. United States v.
Birkenstock, 823 F.2d at 1030. See also Section 40.05[11], infra. Also, evidence that a defendant had filed
returns in other years when he claimed refunds, while there was a substantial
tax due for the years for which he failed to file, is relevant evidence and more
than enough to establish willfulness. United
States v. Garguilo, 554 F.2d 59, 62 (2d Cir. 1977); accord
United States v. Briscoe, 65 F.3d
at 588. Additional examples of conduct found to constitute proof of willfulness
in attempted evasion cases may be found in Section 8.08[3], supra.
Because willfulness requires a
voluntary and intentional violation of a known legal duty, a defendant’s
ignorance of the illegality of a failure to timely file a tax return is a
defense to a finding that the defendant acted willfully. Such ignorance is not a
defense, however, if the defendant purposefully sought to avoid knowledge by,
for example, “consciously avoid[ing] any opportunity to learn what the tax
consequences were.” United States v.
Bussey, 942 F.2d 1241, 1248 (8th Cir. 1992); United States v. Mapelli, 971 F.2d 284,
286 (9th Cir. 1992).
When the evidence supports the
conclusion that a defendant purposely contrived to avoid learning all the facts,
the government may be entitled to an instruction on deliberate ignorance. United States v. Mapelli, 971 F.2d at
286. The use of an “ostrich instruction” -- also known as a deliberate
ignorance, conscious avoidance, willful blindness, or Jewell instruction (see United States v. Jewell, 532 F.2d 697
(9th Cir. 1976)) -- may be appropriate in circumstances where “a person suspects
a fact, realizes its probability, but refrains from obtaining final confirmation
in order to be able to deny knowledge if apprehended.” Jewell, 532 F.2d at 700 n.7.
The First Circuit has held that
“a willful blindness instruction is appropriate if (1) a defendant claims a lack
of knowledge, (2) the facts suggest a conscious course of deliberate ignorance,
and (3) the instruction, taken as a whole, cannot be misunderstood as mandating
an inference of knowledge.” United States v.
Griffin, 524 F.3d 71, 78 (1st Cir. 2008); United States v. Epstein, 426 F.2d 431,
438 (1st Cir. 2005). It is possible that evidence presented at trial may be
consistent with both a theory of actual knowledge and a theory of willful
blindness. Griffin, 524 F.3d at
78-79; United States v. Abbas, 74
F.3d 506, 513 (4th Cir. 1996).
A number of courts have approved
the use of willful blindness instructions under proper circumstances.
See, e.g., United States v.
Alston-Graves, 435 F.3d 331, 338 & nn.2-5 (D.C. Cir. 2006)
(collecting cases); United States v.
Picciandra, 788 F.2d 39, 46 (1st Cir. 1986); United States v. MacKenzie; 777 F.2d
811, 818-19 (2d Cir. 1985); United States v.
Callahan, 588 F.2d 1078, 1082 (5th Cir. 1979); United States v. Dube, 820 F.2d 886, 892
(7th Cir. 1987); United States v.
Bussey, 942 F.2d at 1246; United
States v. Fingado, 934 F.2d 1163, 1166-67 (10th Cir. 1991)
(deliberate ignorance instruction may be given when the evidence before the jury
supports a finding of intentional avoidance of knowledge). Note, however, that
courts have stated that the use of a deliberate ignorance instruction is “rarely
appropriate.” United States v.
Nguyen, 493 F.3d 613, 619 (5th Cir. 2007) (“While a ‘deliberate
ignorance’ instruction should rarely be given, a deliberate ignorance
instruction is justified where the evidence shows (1) subjective awareness of a
high probability of the existence of illegal conduct and (2) purposeful
contrivance to avoid learning of the illegal conduct” (internal quotation
omitted)); United States v. de
Francisco-Lopez, 939 F.2d 1405, 1410 (10th Cir. 1991) (“The
deliberate ignorance instruction must not be given unless evidence, direct or
circumstantial, shows that defendant’s claimed ignorance of an operant fact was
deliberate”); United States v.
Sanchez-Robles, 927 F.2d 1070, 1073 (9th Cir. 1991) (“[W]e have
recognized that the instruction should be used sparingly.”); but see
United States v. Rodriguez,
983 F.2d 455, 457 (2d Cir. 1993) (suggesting Second Circuit more willing than
Ninth Circuit to authorize use of this type of instruction). Thus, it is not
advisable to request such an instruction unless it is clearly warranted by the
evidence in a particular case.
Furthermore, the language of any
deliberate ignorance instruction in a criminal tax case must comport with the
government’s obligation to prove the voluntary, intentional violation of a known
legal duty. The deliberate ignorance instruction set forth in United States v. Fingado, 934 F.2d at
1166, appears to be suitable for a criminal tax case.3 Further, to
avoid potential confusion with the meaning of “willfulness” as it relates to the
defendant’s intent, it may be wise to avoid use of the phrase “willful
blindness,” using instead such phrases as “deliberate ignorance” or “conscious
avoidance.”4
3. Some circuits have a willful blindness or deliberate ignorance
instruction in their pattern jury instructions. For cases in jurisdictions where
there is no pattern jury instruction on this issue, a prosecutor may wish to
utilize an instruction like the one set out in United States v.
MacKenzie, 777 F.2d 811, 818 n.2 (2d Cir. 1985).
4. It is suggested that any time a deliberate ignorance or
conscious avoidance instruction is given, the prosecutor should also insure that
the jury is expressly directed not to convict for negligence or mistake.
The crime of failing to file a
return is complete if a return was required to be filed on a given date and the
taxpayer intentionally did not file a return. There is no requirement that the
government prove a tax liability, as long as the proof establishes that the
taxpayer had sufficient gross income to require the filing of a return. Spies v. United States, 317 U.S. 492,
496 (1943); United States v. Wade,
585 F.2d 573, 574 (5th Cir. 1978). As a practical matter, evidence establishing
a tax deficiency may be offered as a part of the government’s evidence of
willfulness, but this is technically not necessary. See United States v. Schmitt, 794 F.2d 555,
560 (10th Cir. 1986) (evidence of tax liability relevant and not prejudicial in
failure to file case); cf. United
States v. Hairston, 819 F.2d 971, 974 (10th Cir. 1987) (defendant not
allowed to show that he would have received refund, to negate
willfulness).
As a general rule, venue in a
failure to file case is proper in any judicial district in which the taxpayer
was required to file a return for the year at issue, i.e., the district
in which the crime was committed.5 United States v. Clines, 958 F.2d 578,
583 (4th Cir. 1992) (crime of failure to file returns is committed in the
district or districts where the taxpayer is required to file the returns); United States v. Hicks, 947 F.2d 1356,
1361 (9th Cir. 1991) (“Failure to file a tax return is an offense either at the
defendant’s place of residence, or at the collection point where the return
should have been filed”); United States v.
Rice, 659 F.2d 524, 526 (5th Cir. 1981); United States v. Quimby, 636 F.2d 86,
89-90 (5th Cir. 1981).
5. While no case exactly on point has been located, a reasonable
interpretation of the law is that the place for the filing of tax returns is to
be determined on the basis of the taxpayer’s legal residence or principal place
of business at the time the return was due, because 26 U.S.C. § 6091 is written
in the present tense.
Section 6091 of the Code sets
forth the places for filing returns. In those instances where the Code does not
provide for the place of filing, the Secretary “shall by regulations prescribe
the place for the filing.” 26 U.S.C. § 6091(a).
Generally, individual tax
returns are to be filed either in the internal revenue district in which the
taxpayer resides or has his or her principal place of business, or at the
Service Center serving the internal revenue district where the taxpayer resides
or has his or her principal place of business. 26 U.S.C. § 6091(b)(1)(A). The
corresponding regulation provides:
Except as provided in § 1.6091-3
(relating to certain international income tax returns) and § 1.6091-4 (relating
to exceptional cases):
(a) Individuals, estates, and
trusts. (1) Except as provided in paragraph (c) of this section, income tax
returns of individuals, estates, and trusts shall be filed with any person
assigned the responsibility to receive returns at the local Internal Revenue
Service office that serves the legal residence or principal place of business of
the person required to make the return.
. . . .
(c) Returns filed with
service centers. Notwithstanding paragraphs (a) and (b) of this section,
whenever instructions applicable to income tax returns provide that the returns
be filed with a service center, the returns must be so filed in accordance with
the instructions.
26 C.F.R.. § 1-6091-2 (2008); United States v. Garman, 748 F.2d 218,
219-21 (4th Cir. 1984). “‘Legal residence’ means the permanent fixed place of
the abode which one intends to be his residence and to return to despite
temporary residences elsewhere, or absences.” United States v. Taylor, 828 F.2d 630,
632-34 (10th Cir. 1987); United States v.
Calhoun, 566 F.2d 969, 973 (5th Cir. 1978). Note that “[a]n
individual employed on a salary or commission basis who is not also engaged in
conducting a commercial or professional enterprise for profit on his own account
does not have a ‘principal place of business’ within the meaning of [26 U.S.C.
§ 6091(b)].” 26 C.F.R. § 1.6091-2(a)(2).
There are several exceptions to
the general rule. 26 U.S.C. § 6091(b)(1)(B). If an individual citizen of the
United States has a legal residence outside the United States or his or her
return bears a foreign address, the taxpayer’s principal place of abode is
considered to be outside the United States, and the taxpayer’s return should be
filed as directed in the applicable forms and instructions. 26 C.F.R.
§ 1.6091-3(b). Similarly, an individual citizen of a possession of the United
States (whether or not a citizen of the United States) who has no legal
residence or principal place of business in any internal revenue district in the
United States should file a return as directed in the applicable forms and
instructions. 26 C.F.R. § 1.6091-3(c).
The general rule for
corporations is that “income tax returns of corporations shall be filed with any
person assigned the responsibility to receive returns in the local Internal
Revenue Service office that serves the principal place of business or principal
office or agency of the corporation.” 26 C.F.R. § 1.6091-2(b). However,
“whenever instructions applicable to income tax returns provide that the returns
be filed with a service center, the returns must be so filed in accordance with
the instructions.” 26 C.F.R. § 1.6091-2(c).
Returns can also be filed by
hand carrying to the appropriate Internal Revenue Service office. 26 U.S.C.
§ 6091(b)(4). The regulations provide, for example, “Returns of persons other
than corporations which are filed by hand carrying shall be filed with any
person assigned the responsibility to receive hand-carried returns in the local
Internal Revenue Service office as provided in paragraph (a) of this section.”
26 C.F.R. § 1.6091-2(d)(1). Section (a) refers to the Internal Revenue Service
office in the district “that serves the legal residence or principal place of
business of the person required to make the return.” Id.
As a practical matter, all of
this means that venue in the usual individual failure to file case can be placed
in the district in which the appropriate Service Center is located or in the
district in which the taxpayer resides or has his or her principal place of
business. Note, however, that under 18 U.S.C. § 3237, the statute governing
venue in continuing offenses, “where an offense is described in section 7203 of
the Internal Revenue Code . . ., and prosecution is begun in a judicial district
other than the judicial district in which the defendant resides,” the case may
be transferred upon motion by the defendant, “filed within twenty days after
arraignment,” to “the district in which he was residing at the time the alleged
offense was committed.” 18 U.S.C. § 3237(b). See also Section
6.00 of this Manual, supra, on venue.
Reference should be made to
Chapter 7 of this Manual, supra, discussing the statute of
limitations in criminal tax cases.
The statute of limitations for a
failure to file a return is six years, except for information returns required
under Part III of subchapter A of Chapter 61 of the Internal Revenue Code.
26 U.S.C. § 6531(4). For information returns required by the Code, including
returns (Forms 8300) required under section 6050I, the period of limitations is
three years, as is the period of limitations for failure to supply information
or keep records. 26 U.S.C. § 6531.
The statute of limitations is
computed from the due date of the return. See Section 10.05[3][b], supra. In the case of an individual, this will
usually be April 15th, unless an extension of time within which to file is
granted (26 U.S.C. § 6081), in which case the limitations period is computed
from the extended compliance date. See generally United States v. Phillips, 843 F.2d 438
(11th Cir. 1988); United States v.
Goldstein, 502 F.2d 526, 529-530 (3d Cir. 1974). If April 15th fell
on a Saturday, Sunday, or legal holiday, the due date was the next succeeding
day that was not a Saturday, Sunday, or legal holiday. Note that taxpayers who
file at the Andover Service Center receive an extra day to file in those years
in which the filing date coincides with Patriots’ Day in Massachusetts, which
falls on the third Monday of April.
The statute of limitations is
tolled by the filing of an information or indictment. United States v. Saussy, 802 F.2d 849,
851 (6th Cir. 1986) (claim that information must be “verified” by affidavit or
other prior determination of probable cause rejected). The statute is also
tolled when the defendant is outside the United States or is a fugitive from
justice, 26 U.S.C. § 6531, and during certain summons enforcement proceedings,
26 U.S.C. § 7609(e).
To establish the offense of
failure to pay a tax, the government must prove beyond a reasonable doubt
that
(1) the defendant had a duty to pay a tax,
(2) the tax was not paid at the time required by law,
and
(3) the failure to pay was willful.
United States v.
Tucker, 686 F.2d 230, 232 (5th Cir. 1982); see Sansone v. United States, 380 U.S. 343,
351 (1965); In re Wray, 433 F.3d
376, 378 (4th Cir. 2005); United States v.
McGill, 964 F.2d 222, 239-40 (3d Cir. 1992) (“Willful failure to pay
tax under § 7203 contains two elements: 1) failure to pay a tax when due, and 2)
willfulness,” with the “‘failure to pay’ a tax element” subsuming both “a duty
to pay the tax” and “the tax was unpaid”); see also United States v. DeTar, 832 F.2d 1110,
1113 (9th Cir. 1987) (“The elements of that misdemeanor as applied to this case
are: (1) willfulness and (2) failure to pay the tax when due.”)
In the usual failure to pay
case, the taxpayer will have filed a return and then failed to pay the reported
tax liability. (If the taxpayer did not file a return, the more likely charge
would be failure to file the return.) When a return that shows a tax due and
owing is filed and less than the full amount of tax is paid, there are at least
two possible charges, depending on the facts -- an attempted evasion of payment,
in violation of 26 U.S.C. § 7201, or a failure to pay a tax, in violation of
26 U.S.C. § 7203. If there is an affirmative attempt to evade payment of the
tax, such as the concealment of assets or the use of nominees, the charge should
be brought under Section 7201. When the conduct is simply a failure to pay a tax
that was due and owing, the appropriate charge is a violation of Section 7203,
failure to pay a tax. See, e.g., Sansone v. United States, 380 U.S. 343,
351 (1965); United States v. Mal,
942 F.2d 682, 684 (9th Cir. 1991) (“What distinguishes [the felony offense of
evasion] from the misdemeanor offense of willful failure to file a return,
supply information, or pay taxes, which is set out in 26 U.S.C. § 7203, is the
requirement of an affirmative act.”).
Although most assessments are
based on filed returns, it is not necessary that the Service assess the tax as
due and owing. Indeed, a tax deficiency arises by operation of law on the date
the return is due: “when a return of tax is required under this title or
regulations, the person required to make such return shall, without assessment
or notice and demand from the Secretary, pay such tax to the internal revenue
officer with whom the return is filed, and shall pay such tax at the time and
place fixed for filing the return . . . .” 26 U.S.C. § 6151(a); see United States v. Drefke, 707 F.2d 978,
981 (8th Cir. 1983); see also United
States v. Ellett, 527 F.3d 38, 40 (2d Cir. 2008) (evasion of
assessment case); United States v.
Silkman, 220 F.3d 935, 937 (8th Cir. 2000) (evasion of assessment
case); United States v. Voorhies,
658 F.2d 710, 714 (9th Cir. 1981) (evasion of payment case). Otherwise stated,
it is not necessary that there be an administrative assessment before a criminal
prosecution may be instituted. Voorhies, 658 F.2d at 714-15;
accord United States v.
Daniel, 956 F.2d 540, 542 (6th Cir. 1992)(evasion case); United States v. Dack, 747 F.2d 1172,
1174 (7th Cir. 1984)(evasion case).
The Internal Revenue Service
will provide a qualified witness and/or a certified transcript of account or a
certificate of assessments and payments establishing the failure to pay the tax.
Section 6151(a) of the Code provides that the tax must be paid at the time and
place fixed for filing “determined without regard to any extension of time for
filing the return.”
One early case, United States v. Andros, 484 F.2d 531
(9th Cir. 1973), took the position that, to establish willfulness in a failure
to pay prosecution, the government must prove that the taxpayer had sufficient
funds to pay the tax and voluntarily and intentionally did not do so. Id. at 533-34. The Andros court grounded its
sufficient-funds requirement on the Supreme Court’s statement in United States v. Bishop, 412 U.S. 346
(1973), that “willfulness connotes ‘bad faith or evil intent’ or ‘evil motive
and want of justification in view of all the financial circumstances of the
taxpayer.’” 484 F.2d at 534 (quoting Bishop, 412 U.S. at 360). The statement
that willfulness connotes bad faith or evil intent in view of all the financial
circumstances of the taxpayer is no longer viable after United States v. Pomponio, 429 U.S. 10,
12 (1976). See United States v.
Easterday,
564 F.3d 1004, 1011 (9th Cir. 2009) (holding that in light of Supreme Court
precedent, including Pomponio, Andros is “no longer binding authority for
the proposition that a defendant’s ability to pay his tax liability is relevant
to the determination of willfulness under 26 U.S.C. § 7202”).
The Fifth and Sixth Circuits
specifically declined to follow Andros. In United States v. Tucker, 686 F.2d 230
(5th Cir. 1982), the Fifth Circuit rejected the defendant’s contention that the
government had to prove that the defendant was financially able to pay the tax
when it became due:
Tucker’s second argument is that, in order to show
willfulness under § 7203, the government must prove that the taxpayer was
financially able to pay his tax debt when it came due. Tucker argues that he was
unable to pay his taxes when due because his checking accounts had either very
low or negative balances, and because he had no other assets available to
satisfy the debt. He thus concludes that his failure to pay was not willful.
This argument borders on the ridiculous. Every United States citizen has an
obligation to pay his income tax when it comes due. A taxpayer is obligated to
conduct his financial affairs in such a way that he has cash available to
satisfy his tax obligations on time. As a general rule, financial ability to pay
the tax when it comes due is not a prerequisite to criminal liability under §
7203. Otherwise, a recalcitrant taxpayer could simply dissipate his liquid
assets at or near the time when his taxes come due and thereby evade criminal
liability.
United States v.
Tucker, 686 F.2d at 233. In declining to follow the Ninth Circuit in
Andros, the Tucker court observed that it was not
bound by the dicta in that case. Tucker, 686 F.2d at 233. The Sixth
Circuit specifically adopted the rationale of Tucker and rejected the language in
Andros, finding that a taxpayer’s
inability to pay his or her taxes generally was not a defense to a tax crime.
United States v. Ausmus, 774 F.2d
722, 724-25 (6th Cir. 1985). As the Ausmus
court observed, if inability to pay was a defense to the offense of
willful failure to pay, “a recalcitrant taxpayer could spend his money as fast
as he earns it and evade criminal liability while not paying taxes as long as
his bank balance is zero when the taxpayer’s taxes are due.” Ausmus, 774 F.2d at 725. See
also Section
9.04, supra.
Proper venue for a criminal
prosecution is a protected Constitutional right. United States v. Cabrales, 524 U.S. 1, 6
(1998) (“The Constitution twice safeguards the defendant’s venue right: Article
III, § 2, cl. 3, instructs that ‘Trial of all Crimes . . . shall be held in the
State where the said Crimes shall have been committed’; the Sixth Amendment
calls for trial ‘by an impartial jury of the State and district wherein the
crime shall have been committed.’”). Rule 18 of the Federal Rules of Criminal
Procedure requires that, “[e]xcept as otherwise permitted by statute or by these
rules, the prosecution shall be had in a district in which the offense was
committed.” Thus, a defendant in a criminal trial has the right to be tried in
the district where the offense took place. The “‘locus delicti must be
determined from the nature of the crime alleged and the location of the act or
acts constituting it.’” United States v.
Cabrales, 524 U.S. at 6-7 (quoting United States v. Anderson, 328 U.S. 699,
703 (1946)).
Generally, a person required to
pay a tax must pay the tax at the place fixed for filing the return. See
26 U.S.C. § 6151 (“Except as otherwise provided . . ., when a return of tax is
required . . ., the person required to make such return shall . . . pay such tax
to the internal revenue officer with whom the return is filed, and shall pay
such tax at the time and place fixed for filing the return (determined without
regard to any extension of time for filing the return.”). Venue would therefore
normally be in the district in which the return was filed. As previously noted,
if no return has been filed, the charge normally would be a failure to file
rather than a failure to pay a tax. It is unclear whether there is venue for a
failure to pay prosecution in the jurisdiction in which the taxpayer resides if
there is no filed return.
The statute of limitations is
six years “for the offense of willfully failing to pay any tax . . . at the time
or times required by law or regulations.” 26 U.S.C. § 6531(4). See United States v. Smith, 618 F.2d 280,
281-82 (5th Cir. 1980). Generally, the statute of limitations begins to run when
the crime is complete, i.e., when every element of the crime has been committed.
See Toussie v. United
States, 397 U.S. 112, 115 (1970). In United States v. Sams, 865 F.2d 713 (6th
Cir 1988), the Sixth Circuit addressed the specific question of when the statute
of limitations in a failure to pay case begins to run.
In Sams, the defendant filed his 1979 tax
return late and failed to pay the tax due and owing. 865 F.2d at 714. The
defendant was convicted of, inter alia, willful failure to pay income tax
for 1979. Id. At trial and on appeal, the defendant claimed that the
statute of limitations had expired on the charge because the rules of Section
6513 govern the applicable period of limitations. 865 F.2d at 714-15. Section
6513 provides in part that “the last day prescribed for filing the return or
paying the tax shall be determined without regard to any extension of time
granted the taxpayer.” 26 U.S.C. § 6513(a). The Sams court observed, however, that in
United States v. Habig, 390 U.S.
222 (1968), “the Supreme Court held that section 6513(a) is applicable only in
situations where ‘a return is filed or a tax is paid before the statutory
deadline.’” 865 F.2d at 715 (quoting Habig, 390 U.S. at 225). Noting the
Habig Court’s statement that
“[t]here is no reason to believe that § 6531, by reference to the ‘rules of
section 6513’ expands the effect and operation of the latter beyond its own
terms so as to make it applicable to situations other than those involving early
filing or advance payment,” Habig,
390 U.S. at 225, the Sams court
concluded that “section 6513 does not provide the applicable limitations period”
when the defendant “neither paid his taxes in advance nor filed an early
return.” 865 F.2d at 715.
The Sams court then considered what
constitutes the appropriate “starting date” for the statute of limitations under
section 6531. Noting the general rule that a criminal statute of limitations
begin to run when every element of the crime has been committed and pointing out
that one element of the offense of failure to pay tax is willfulness, the Sixth
Circuit “agree[d] with the Ninth Circuit that the statute of limitations ‘begins
to run not when the taxes are assessed or when payment is demanded, but rather
when the failure to pay the tax becomes wilful . . . .’” 865 F.2d at 715-16
(quoting United States v. Andros,
484 F.2d 531, 532 (9th Cir. 1973) (citations omitted)). The court accordingly
held that “the limitations period for willfully failing to pay income taxes
cannot be determined by any general rule. Rather, the limitations period begins
to run when the taxpayer manifests some act of willful nonpayment.” United States v. Sams, 865 F.2d at 716.
Accordingly, the six-year period
of limitations begins to run when the failure to pay the tax becomes willful,
not when the tax is assessed or when payment is demanded. United States v. Andros, 484 F.2d at
532-33; United States v. Sams,
865 F.2d at 716. Thus, it appears that there is some flexibility on the question
of when the statute of limitation begins to run and when the six year statute of
limitations expires. However, it is common in tax cases to use evidence of past
filing or payment history to establish willfulness. Consequently, the government
generally would proceed on the theory that the crime was complete on the date
that the payment was due and the taxpayer failed to pay, i.e., April 15, unless
there was evidence to establish that willfulness occurred after that date.
Reference should be made to
Section
43.00, infra, which
discusses the application of the advisory Federal Sentencing Guidelines to
criminal tax cases. Note, however, that costs of prosecution must be included in
the punishment imposed for a violation of Section 7203. See United States v. May, 67 F.3d 706, 707
(8th Cir. 1995).
There are a number of defenses
that have been litigated and decided by the courts. A list of some of the common
defenses raised in failure to file and failure to pay cases, and how the courts
have treated those defenses, follows.
The intent to report and pay
taxes due at some time in the future does not constitute a defense and “does not
vitiate” the willfulness required for a failure to file or, for that matter, for
an attempt to evade. Sansone v. United
States, 380 U.S. 343, 354 (1965).
There is no requirement that the
government prove a tax liability in a failure to file case, as long as the
taxpayer had a gross income that required the filing of a return. Spies v. United States, 317 U.S. 492,
496 (1943); United States v. Wade,
585 F.2d 573, 574 (5th Cir. 1978).
The purported defense of filing
late returns has been rejected in failure to file cases. In addition, evidence
offered by the defendant of late filing and the late payment of taxes has been
excluded. United States v. Ming,
466 F.2d 1000, 1005 (7th Cir. 1972); United
States v. Greenlee, 380 F. Supp. 652, 660 (E.D. Pa. 1974),
aff’d., 517 F.2d 899, 903 (3d Cir. 1975). In this connection, the Seventh
Circuit has upheld the exclusion of evidence offered by the defendant that he
had eventually paid his taxes, even though the government was allowed to prove
the amount of taxes the defendant owed for the years in issue. United States v. Sawyer, 607 F.2d 1190
(7th Cir. 1979).
Because failure to file and
failure to pay are specific intent crimes, negligence is insufficient to
establish willfulness. The government must prove that the defendant acted
purposefully, as distinguished from inadvertently, negligently, or mistakenly.
United States v. Collins, 457 F.2d
781, 783 (6th Cir 1972); United States v.
Matosky, 421 F.2d 410, 413 (7th Cir. 1970).
The fact that the government
could proceed civilly, instead of criminally, is “irrelevant to the issue of
criminal liability and the defendant is not entitled to an instruction that the
government could assess the taxes without filing criminal charges.” United States v. Buras, 633 F.2d 1356,
1360 (9th Cir. 1980); accord United
States v. Merrick, 464 F.2d 1087, 1093 (10th Cir. 1972).
See the detailed discussion of
inability to pay as a defense to a willful failure to pay in Section 10.06[4],
supra.
In general, a taxpayer’s
inability to pay his taxes is not a defense to a tax crime. United States v. Ausmus, 774 F.2d 722,
724-25 (6th Cir. 1985); United States v.
Tucker, 686 F.2d 230, 233 (5th Cir. 1982). Although, the Ninth
Circuit formerly suggested that, to establish willfulness in a failure to pay
prosecution, the government must prove that the taxpayer had sufficient funds to
pay the tax and voluntarily and intentionally did not do so, United States v. Andros, 484 F.2d 531,
533-34 (9th Cir. 1973), it held otherwise in United States v.
Easterday,
564 F.3d 1004
(9th Cir. 2009). See also United States v. Gilbert, 266 F.3d 1180,
1185 (9th Cir. 2000) (rejecting argument that “failure to pay over the
withholding tax was not willful because [the business owned by defendant] did
not have the funds to pay the taxes,” because defendant’s “act of paying wages
to his employees instead of remitting withholding taxes to the IRS, shows that
he voluntary and intentionally” committed a tax offense).
Code Section 6020(b) provides
that if a person fails to file a return or makes a willfully false return, the
Secretary “shall make such return from his own knowledge and from such
information as he can obtain.” 26 U.S.C. § 6020(b). Section 6020(b), however,
does not require the Internal Revenue Service to prepare tax returns for
individuals who fail to file, nor does it excuse the taxpayer from criminal
liability for that failure. See United States
v. Cheek, 3 F.3d 1057, 1063 (7th Cir. 1993); In re Bergstrom, 949 F.2d 341, 343 (10th
Cir. 1991); United States v.
Barnett, 945 F.2d 1296, 1300 (5th Cir. 1991); United States v. Schiff, 919 F.2d 830,
832 (2d Cir. 1990); United States v.
Verkuilen, 690 F.2d 648, 657 (7th Cir. 1982) (“the law does not
require the Secretary to do so and the Secretary’s discretion in this matter in
no way reduces the obligation of the individual taxpayers to file their
returns.”); United States v.
Millican, 600 F.2d 273, 278 (5th Cir. 1979) (“no merit to [the
defendant’s] claim of entitlement to an instruction that the Internal Revenue
Service was under a duty pursuant to 26 U.S.C.A. section 6020(b)(1) to prepare
his tax return.”); United States v.
Tarrant, 798 F. Supp. 1292, 1302-03 (E.D. Mich. 1992).
When a defendant raises this
argument during trial, the court may properly instruct the jury that while
Section 6020(b) “authorizes the Secretary to file for a taxpayer, the statute
does not require such a filing, nor does it relieve the taxpayer of the duty to
file.” United States v. Stafford,
983 F.2d 25, 27 (5th Cir. 1993); accord United States v. Powell, 955 F.2d 1206,
1213 (9th Cir. 1992). However, an instruction pertaining to section 6020(b)
“must not be framed in a way that distracts the jury from its duty to consider a
defendant’s good-faith defense.” Powell, 955 F.2d at 1213. It is
advisable to request that an instruction on the meaning of Section 6020(b) be
coupled with a reminder to the jury that the issue in a criminal tax case is not
the validity of the defendant’s interpretation of §6020(b), but whether the
defendant had a good faith belief that his or her actions were in compliance
with the tax laws. Powell, 955
F.2d at 1213; see also Tarrant,
798 F. Supp at 1302-03 (defendant allowed to testify as to an alleged good faith
belief that he was relieved from the obligation of filing returns because
Section 6020(b) states that the IRS will make out returns for individuals who
fail to do so).
The refusal of the trial judge
to allow an attorney charged with a failure to file to introduce evidence of
marital and financial difficulties has been upheld on the grounds that “evidence
of financial and domestic problems are not relevant to the issue of willfulness”
as used in Section 7203. Bernabei v. United
States, 473 F.2d 1385, 1385 (6th Cir. 1973).
A claim that a return was in
fact mailed to the IRS may constitute a defense to a charge under 26 U.S.C. §
7203. In United States v.
Greenlee, 517 F.2d 899, 901-03 (3d Cir. 1975), the defendant
testified that he had mailed his 1970 tax return to the IRS, although the IRS
had no record of having received the return. During its case in chief, the
prosecution offered a thorough explanation by a representative of the
appropriate Service Center regarding the manner in which returns were received
and processed, coupled with evidence that the Service Center had no record of
receiving the return. Id. at 902. The defendant was convicted. Id.
at 901. The court of appeals found that whether the return had been filed was a
question of fact for the jury and that, while a jury could find that a return
not received by the Internal Revenue Service had in fact been mailed, the jury
could also reject such testimony. Id. at 903. Noting its limited function
in reviewing the sufficiency of the evidence on appeal, the Third Circuit
affirmed. Id.
The Paperwork Reduction Act,
44 U.S.C. § 3512 (a)(1) (“PRA”), provides that no person shall be subject to any
penalty for failing to provide information if an agency’s request does not
display an Office of Management and Budget (OMB) number. Tax returns are agency
requests within the scope of the PRA and bear OMB numbers. However, return
instruction booklets do not bear OMB numbers, and tax defiers have attempted to
manufacture a defense on this basis. The absence of an OMB number from tax
return instruction booklets does not excuse the duty to file the return.
See United States v. Ryan,
969 F.2d 238, 240 (7th Cir. 1992) (IRS instruction booklets merely assist
taxpayers rather than independently request information); United States v. Holden, 963 F.2d 1114,
1116 (8th Cir. 1992). It is also unnecessary for an expiration date to appear on
a return. Salberg v. United
States, 969 F.2d 379, 384 (7th Cir. 1992) (year designation,
e.g., “1990” is sufficient); see also United States v. Patridge, 507 F.3d 1092,
1094 (7th Cir. 2007) (Paperwork Reduction Act does not repeal section 7203 and
there is no inconsistency between section 7203 and the Paperwork Reduction Act).
See also Section
40.05[12], infra.
In United States v. Dunkel, 900 F.2d 105,
107-08 (7th Cir. 1990), vacated and remanded on other grounds, 498 U.S.
1043 (1991), rev’g on other grounds, 927 F.2d 955 (7th Cir. 1991), a
defendant claimed that the requirement to “make a return” was unconstitutionally
vague. The defendant posited different interpretations of the word “make,”
including to “construct a return out of raw materials.” Dunkel, 900 F.2d at 107. The Seventh
Circuit had little sympathy for this frivolous argument and rejected it by
stating that “statutes are not unconstitutional just because clever lawyers can
invent multiple meanings.” Dunkel,
900 F.2d at 108.
In charging and sentencing
determinations, the question sometimes arises whether 26 U.S.C. § 7203 is a
lesser included offense of attempted evasion under 26 U.S.C. § 7201. Reference
should be made to the detailed discussion of this issue in Section 8.11, supra.
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