A person includes an individual, trust, estate, partnership, association, company or corporation. Code Sec. 7701(a)(1) . A person, for purposes of the criminal provisions of the Code includes 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 ¶73,434 . Code Sec. 7343 .
OBSERVATION: Although most evasion prosecutions involve income taxes, Code Sec. 7201 applies also to evasion of transfer taxes (estate and gift taxes) and excise taxes.
The Supreme Court has said that the elements of the crime of tax evasion under Code Sec. 7201 are willfulness, the existence of a tax deficiency, and an affirmative act constituting an evasion or attempted evasion of the tax.
The Supreme Court held that a controlling shareholder (S) accused of criminal tax evasion could argue for nontaxable return-of-capital treatment for corporate distributions without producing evidence that when the distributions occurred, either he or the corporation intended a return of capital. The could held that if the corporation had no earnings and profits (E&P) the distributions did not give rise to a deficiency, with the result that there was no tax evasion. The Supreme Court rejected the Ninth Circuit's view that evidence of contemporaneous intent was required in order for a distribution to be treated as a return of capital.
The Eighth Circuit held that judicial statements that there must be a tax deficiency in evasion cases do not mean that there must be a “deficiency” in the technical sense (i.e., an excess of tax imposed over the tax shown on the return) since there is no such requirement in Code Sec. 7201 . Such statements are judicial shorthand signifying that there must be a tax due and owing. Thus, a taxpayer's filing of accurate returns did not preclude prosecution for his later willful acts of attempting to evade payment of taxes on those returns in the Schoppert case, cited at ¶72,015.11(25) .
The crime of a conspiracy to commit tax evasion is an offense distinct from the commission of tax evasion, see ¶72,014.03 .
A taxpayer's good faith reliance on the expert advice of an attorney or accountant may negate the element of willfulness necessary for a tax evasion conviction.
The burden of proof in a criminal tax prosecution is on the government to establish, beyond a reasonable doubt, the guilt of the defendant, see ¶72,014.11. The IRS will consider voluntary disclosure along with all other factors in an investigation in determining whether criminal prosecution will be recommended, see ¶72,014.15 . Assessment of a criminal penalty without conviction has been held improper. For included offenses in tax evasion cases.
In a criminal prosecution for tax evasion, the government can establish willful failure to report income through various methods in order to prove the taxpayer's guilt. The government may rely on the taxpayer's increased net worth to prove unreported income. The use of the increase-in-net-worth method to prove tax evasion has been approved by the Supreme Court, see ¶72,014.12 .