26 U.S. Code § 7206 - Fraud and False Statements
Reporting and paying income tax in the United States relies on an "honor" system, where the government expects individuals to disclose their tax information honestly.
Intentionally submitting a false federal tax return, known as "tax fraud," is a federal offense categorized under "fraud and false statements" in Title 26, Section 7206 of the U.S. Code. In essence, this law makes it illegal to make false or fraudulent statements on tax returns or related documents.
Suppose a successful business owner is running multiple high-revenue-generating establishments nationwide. To reduce his tax liability, he deliberately omits a significant portion of his income from one of his businesses on his federal tax return.
He intentionally includes false information about his expenses, inflating them to offset the income he has not reported. In this case, he can be charged under 26 U.S.C. 7206. If convicted of this crime, he could face up to three years in prison.
What Does Section 7206 Say?
26 U.S.C. 7206 says, "(1) Declaration under penalties of perjury - Willfully makes and subscribes any return, statement, or other document which contains or is verified by a written declaration that it is made under the penalties of perjury and which he does not believe to be true and correct as to every material matter; or
(2) Aid or assistance -
Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the Internal Revenue laws, of a return, affidavit, claim, or other document which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or
(3) Fraudulent bonds, permits, and entries -
Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the Internal Revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof."
Key Tax Fraud Takeaways
Title 26 U.S.C. 7206 essentially criminalizes the following actions:
- To create or subscribe to "any return, statement, or other document" that you claim to be true under penalty of perjury but believe is not entirely accurate.
- To help anyone in filing such a return or making such a statement, knowing the information is false (this section makes it a crime for tax preparers to file false returns for others intentionally);
- To intentionally simulate or unlawfully execute "any bond, permit, entry, or other document required by the provisions of the internal revenue laws" related to such a return.
- To hide property that the government has the authority to seize for tax payment or other obligations.
- To hide property or to alter or falsify records related to an "offer in compromise" with the IRS for settling a tax debt.
- To remove, deposit, conceal, or be involved in the removal, deposition, or covering of goods or commodities on which any tax is or will be imposed (Section 7206(4)).
What Evidence Is Necessary for a Conviction?
To secure a conviction for this crime, the prosecution must establish three key elements beyond a reasonable doubt.
- Material Falsification: The accused should have prepared and signed a return, statement, or other document containing false material information. In this context, 'material' refers to any data that could potentially influence the calculation of taxable income.
- False Belief: The prosecution must demonstrate that the accused did not genuinely believe that each claim in return was accurate. This aspect concerns intent, a crucial element in many criminal cases.
- Willful Violation: Finally, it must be demonstrated that the accused intentionally acted, meaning they were aware that their actions were illegal but chose to proceed regardless.
What Are the Federal Laws Related to This?
Chapter 75, Subchapter A, Part I of 26 U.S. Code contains various federal laws, including those related to 26 U.S.C. 7206 on fraud and false statements.
- 26 U.S.C. 7201 - Attempt to evade or defeat tax;
- 26 U.S.C. 7202 - Willful failure to collect or pay overtax;
- 26 U.S.C. 7203 - Willful failure to file a return, supply information, or pay tax;
- 26 U.S.C. 7204 - Fraudulent statement or failure to make a statement to employees;
- 26 U.S.C. 7205 - Fraudulent withholding exemption certificate or failure to supply information;
- 26 U.S.C. 7207 - Fraudulent returns, statements, or other documents;
- 26 U.S.C. 7208 - Offenses relating to stamps;
- 26 U.S.C. 7209 - Unauthorized use or sale of stamps;
- 26 U.S.C. 7210 - Failure to obey summons;
- 26 U.S.C. 7211 - False statements to purchasers or lessees relating to tax;
- 26 U.S.C. 7212 - Attempts to interfere with the administration of Internal Revenue laws;
- 26 U.S.C. 7213 - Unauthorized disclosure of information;
- 26 U.S.C. 7213A - Unauthorized inspection of returns or return information;
- 26 U.S.C. 7214 - Offenses by officers and employees of the United States;
- 26 U.S.C. 7215 - Offenses concerning collected taxes;
- 26 U.S.C. 7216 - Disclosure or use of information by preparers of returns
- 26 U.S.C. 7217 - Prohibition on executive branch influence over taxpayer audits and other investigations.
What Are the Penalties Under 26 U.S.C. 7206?
The federal government does not prosecute individuals for honest errors on their taxes. However, if there is substantial evidence that you intentionally filed false returns, the consequences of a conviction can be serious. A conviction could result in the following:
- A fine of up to $100,000, or $500,000 for corporations, plus the costs of prosecution and
- Imprisonment of up to three years.
It's important to recognize that submitting each false tax return may constitute a separate offense, which can increase the total penalties.
What Are the Possible Defenses?
If you're facing charges under 26 U.S.C. 7206, an experienced federal criminal defense attorney could utilize several defenses, as outlined below.
We might suggest there was no intention involved. Demonstrating willfulness is essential for prosecutors and is often the hardest element to establish.
If you can demonstrate that any inaccuracies resulted from honest mistakes, misunderstandings, or incorrect advice from a tax professional, even if you weren't aware you were breaking any laws-you might be able to prevent a conviction.
Maybe we can rely on the statute of limitations. Usually, the government has six years from the date the false return was filed to start prosecution. If this time has expired, the charges might be dismissed.
We may be able to negotiate a favorable plea agreement with the federal prosecutor. Reach out to us to review your case and discuss available legal options. The Hedding Law Firm is based in Los Angeles, California.
Related Content: