26 U.S.C. § 7201 – Attempt to Evade or Defeat Tax
Suppose you willfully attempt to evade or defeat a federal tax, known as “tax evasion.” In that case, you might face criminal charges under 26 U.S.C. 7201.
The federal crime of tax evasion occurs when an individual or a business entity intentionally underpays or fails to pay their tax obligations.
The federal government can pursue tax evasion cases through civil or criminal means. Civil remedies are the preferred option in most cases, but federal prosecutors will seek an indictment for the more severe tax fraud cases.
Federal prosecutors sometimes charge someone with 18 U.S.C. 371 conspiracy related to tax crimes. A conspiracy is an agreement with others to commit a crime, and at least one person involved engages in overt acts to further the conspiracy.
Most people know that the Internal Revenue Service (IRS), part of the Department of Treasury, is the primary federal agency collecting taxes and processing tax returns.
Still, the IRS also will investigate alleged tax-related crimes. They have special agents that will investigate tax evasion cases and seek to uncover other related crimes, such as identity theft.
Some other entities that investigate tax fraud include the California Department of Tax and Fee Administration (CDTFA), the Franchise Tax Board (FTB), and the Employment Development Department (EDD).
The most common behaviors leading to tax evasion charges include under-reporting income, lying on a tax return, and failing to file a tax return.
Tax evasion is a serious white-collar crime carrying huge fines and possible federal jail times, depending on the case details. Let's review this federal law further below.
Tax Evasion – Defined
26 U.S.C. 7201 says, “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000, or $500,000 in the case of a corporation, or imprisoned not more than five years, or both, together with the costs of prosecution.”
Notably, the failure to file a tax return is not generally a crime of tax evasion. Instead, it requires an affirmative act, where you intentionally violate a known legal duty.
Suppose you make false statements on an income tax return. In that case, you could face charges under 26 U.S.C. 7206(1), which says, “Any person who 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.”
Simply put, this law covers a situation where you knowingly and willfully sign and submit a tax return containing false statements intending to violate a legal duty. A false statement, including omitting information, is considered “material” if it could influence an IRS audit, investigation, or verify income.
What Are the Common Methods of Tax Evasion?
The term “tax evasion” refers to deliberate activity involving non-payment of taxes, and the most common methods include the following:
- Filing a return with false information – Any regular inconsistencies and false claims will often initiate a tax audit by the IRS;
- Under-reporting or omitting income – Not reporting income or claiming less than received on a tax return is illegal;
- False high deductions – If you have high deductions, it could reduce tax obligations, but the IRS is well aware of this common method;
- Failure to file a tax return – You still have a legal obligation to pay taxes even when you decide not to file a tax return;
- False residency – People who live in California might falsely claim residency in another state with fewer taxes to avoid tax liability;
- Fake transactions to conceal income - Phony transactions on alleged expenses will sometimes trigger an investigation of each one;
- Transfer assets – Intentionally allocating assets to another account to pay less on taxes is also a way to face tax evasion charges;
- Suspicious businesses – Frequent opening and closing businesses to intentionally void paying taxes is also illegal under tax laws.
Notably, a significant difference exists between an honest mistake and a deliberate fraudulent action on a tax return. Often, the IRS will adjust the return and notify you to pay the difference, but in more severe cases, tax evasion will carry significant fines and possible criminal charges.
What Are the Related Federal Laws?
26 U.S. Code Part I General Provisions has numerous federal statutes that are related to 18 U.S.C. 7201 attempt to evade or defeat tax, including the following:
- 18 U.S.C. 7202 – Willful failure to collect or pay over tax;
- 18 U.S.C. 7203 – Willful failure to file return or supply information;
- 18 U.S.C. 7204 – Fraudulent statement or failure to make a statement;
- 18 U.S.C. 7205 – Fraudulent withholding exemption certificate;
- 18 U.S.C. 7206 – Fraud and false statements;
- 18 U.S.C. 7207 – Fraudulent returns, statements, or other documents;
- 18 U.S.C. 7208 – Offenses relating to stamps;
- 18 U.S.C. 7209 – Unauthorized use or sale of stamps;
- 18 U.S.C. 7210 – Failure to obey a summons;
- 18 U.S.C. 7211 – False statements to purchasers or lessees;
- 18 U.S.C. 7212 – Attempts to interfere with internal revenue laws;
- 18 U.S.C. 7213 – Unauthorized disclosure of information;
- 18 U.S.C. 7213A – Unauthorized inspection of returns or information;
- 18 U.S.C. 7214 – Offenses by employees of the United States;
- 18 U.S.C. 7215 – Offenses concerning collected taxes;
- 18 U.S.C. 7216 – Disclosure of information by preparers of returns;
- 18 U.S.C. 7217 – Prohibition on executive branch influence over taxpayer audits and other investigations.
What Are the Penalties for 26 U.S.C. 7201?
- The maximum punishment for an individual is five years in federal prison, a $100,000 fine, or both;
- A corporation convicted of tax evasion will face a maximum penalty of $500,000 rather than $100,000 for individuals;
- Individuals and corporations convicted under 26 U.S.C. 7201 must also reimburse the government for the cost of prosecution, which is the money spent by federal law enforcement and prosecutors for the investigation and indictment of tax evasion cases in federal court.
Notably, a federal sentencing judge has substantial discretion in setting the appropriate sentence based on the specific offense characteristics and the defendant's prior criminal history.
For example, while the maximum sentence for individuals is five years in prison and a high fine, effective sentencing advocacy can impact the sentencing court. This is especially true for a first-time offender.
What Are the Defenses for 26 U.S.C. 7201?
The federal government will usually thoroughly investigate a tax fraud case before an indictment. This means a federal criminal defense lawyer could have an opportunity to negotiate before a filing to prevent formal charges.
Perhaps we can negotiate to avoid an arrest and pretrial detention spent in federal custody. Perhaps by showing that you accept responsibility, you can receive a lenient penalty instead of getting arrested and brought into a federal courtroom.
Perhaps we can argue there was a lack of intent. A prosecutor must prove, beyond a reasonable doubt, that you intended to defraud the federal government.
Perhaps we can argue that you made a mistake on a tax document, such as a miscalculation, but it does not rise to tax fraud.
If you or a family member is under investigation or indicted for violating 26 U.S.C. 7201 tax evasion laws, contact our law firm by phone or contact form to review the case details.
We will use our experience and expertise in federal court to assist you in securing the best possible outcome in your case. We provide legal representation throughout the United States on federal criminal matters. The Hedding Law Firm is located in Los Angeles, California.