Tax Enforcement The Failure To File Or Pay Tax: A Criminal Offense

Many taxpayers are unaware of the potentially serious criminal charges that may await them if they fail to file a tax return or pay taxes. Known as the Failure to File Returns or Pay Tax Statute, IRC § 7203 sets forth four possible offenses:
  1. willful failure to pay an estimated tax or other tax except for an estimated return declaration;
  2. willful failure to file a return;
  3. willful failure to keep records; and
  4. willful failure to supply information.
(Source: IRC § 7203)

The taxpayer who falls into one of the four categories "shall, in addition to other penalties provided by law, be guilty of a misdemeanor". (Source: IRC § 7203)

Summary: The Failure to File Tax Offense

Failure to file is one of the criminal offenses set forth in IRC § 7203. Notably, the statute requires that the failure to file the tax return was "willful" – so mere inadvertence or carelessness is not punishable under the statute. In order to establish willful failure to file a return under section 7203, the government must show three things: (1) the taxpayer was required by law to file a return for the taxable year; (2) the taxpayer failed to file the return at the time required by law; and (3) the failure was willful. In establishing its case against the taxpayer, the government is typically able to very easily show that the first two elements of the crime are present. Unlike the tax evasion statute found in IRC § 7201, the government does not have to show that there is an additional tax due and owing; however, this element is usually present none the less and the government rarely prosecutes taxpayers who fail to file, yet owe nothing. (United States v. Power, 68-2 USTC ¶ 9443 (D. Wis. 1968).)

Establishing Willfulness Under the Failure to File Statute

According to the Supreme Court's decisions in Bishop and Pomponio, "willful" in both tax felony and misdemeanor statutes (such as the failure-to-file statute) has the same meaning: "a voluntary, intentional violation of a known legal duty." In Cheek v. United States, the Supreme Court further explained the legal standard for willfulness, holding that a good faith, but mistaken belief about the law need not be objectively reasonable in order to provide a valid defense to willfulness. (Cheek v. United States, 498 US 192 (1991).)

In practice, however, a judge or jury is more likely to find that the taxpayer has a valid defense where the taxpayer's mistake about the law is actually objectively reasonable. If a taxpayer's mistaken belief is peculiar or far outside the judge or juror's typical experience, they will be less likely to find that the taxpayer has established a valid defense to willfulness. In many cases prosecuted under section 7203, the taxpayer has previously filed tax returns but then failed to do so for a number of years. In those situations, it is typically easy for the government to show that the taxpayer was aware of the obligation to file tax returns, and willfulness can easily be established. For this reason it is particularly important that you understand and plan a strategy that accounts for the tax payers history, beliefs, circumstances surrounding the tax years in question and precedents set by previous cases of successful defense against similar tax crimes.

The Failure to Pay Tax Offense

Another offense prosecuted under IRC § 7203 is the willful failure to pay tax. To prove its case against a taxpayer for willful failure to pay tax, the government must show that (1) the taxpayer was required by law to pay a tax; (2) the taxpayer failed to pay the tax during the time period required by law; and (3) the taxpayer's failure to file was willful. The main element of this crime is the willfulness component – the government must be able to demonstrate that the taxpayer had the ability to pay the tax but intentionally and deliberately decided not to pay. (Spies v. United States, 317 US 492, 498 (1943).) In demonstrating willfulness, the government will attempt to show that a taxpayer's pattern of behavior is enough to prove willfulness, but this evidence is not always conclusive or persuasive. Other means of proving willfulness include showing that the taxpayer made lavish expenditures in the timeframe leading up to the tax due date. (United States v. Andros, 484 F2d 531 (9th Cir. 1973).)

The Willful Failure to Supply Information

Yet another charge that may be brought upon taxpayers under IRC § 7203 is the willful failure to supply information. To prove its case for this offense, the government must show: (1) the person was under a duty to supply the information; (2) the person failed to supply the information required by law or regulations; and (3) the failure to supply information was willful. As with other charges involving willfulness, the government can meet its burden by showing that the person was aware of a requirement to provide information, yet deliberately and intentionally chose not to do so. In making this showing, the government may use evidence that the taxpayer failed to supply certain information despite repeated requests by the IRS. In that situation, the taxpayer would likely be clearly held to have an awareness of the duty to provide information, and willfulness would be inferred. However, even with awareness the taxpayer may still be able to mount a valid defense by showing that the failure to supply information, while erroneous, was based on a good faith belief that the refusal to provide information was justified. (Source: Pappas v. United States, 216 F2d 515 (10th Cir. 1954).)

How a Tax Attorney Can Help

If you are under investigation by the IRS for criminal tax evasion then you must consult with an experienced tax attorney. This is not a situation that you want to attempt to resolve without professional and expert counsel.
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About author
William Hartsock
For over 30 years as a tax attorney William D Hartsock, Esq. "The Tax Lawyer", has provided clients with the most aggressive representation available under the law. Currently, Mr. Hartsock is the Chairman of the San Diego County Bar Association, Pro Se Program and founder of a full service tax law firm comprised of tax specialists located in Del Mar, CA, primarily serving high net worth individuals and mid-size to large corporations.


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