Tax Fraud Statute

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Find Our What You Need to Know if You are Facing Allegations of Tax Fraud

Brian Kuester
Attorney Brian Kuester
Tax Fraud Statute Team Lead
Former US Attorney
Former District Attorney
Ellen Comley
Attorney Ellen Comley
Defense Team Lead
Senior Counsel
Roger Bach
Roger Bach
Team Consultant
Former Special Agent (OIG)

If you or your company is under investigation for tax fraud, you need to be very careful about your situation. IRS Criminal Investigation (IRS CI) aggressively targets taxpayers suspected of fraud, and the U.S. Department of Justice (DOJ) routinely prosecutes individuals and companies for criminal violations of the Internal Revenue Code. These prosecutions lead to substantial liability and prison time in many cases.

Understanding What It Means to Face Allegations of Federal Tax Fraud

The federal tax fraud statute is extremely broad. It essentially prohibits any and all errors and omissions that result in the underreporting or underpayment of an individual or corporate taxpayer’s tax liability. This applies not only to income tax, but employment, gift, estate, and other federal taxes as well.

To be clear, while it is common to refer to the “tax fraud statute,” there are actually several anti-fraud laws under the Internal Revenue Code. When facing an IRS CI investigation or DOJ prosecution, it is critical to know the specific law (or laws) under which you or your company is being targeted. At The Criminal Defense Firm, our former DOJ prosecutors and IRS CI Special Agents are intimately familiar with how the federal government prosecutes tax fraud, and we rely on these insights to build and execute effective defense strategies.

The Federal Tax Fraud Provisions in the Internal Revenue Code

When investigating and prosecuting U.S. taxpayers for tax fraud, IRS CI and the DOJ rely on seven core sections of the Internal Revenue Code. These sections are:

1. Attempt to Evade or Defeat Tax (26 U.S.C. Section 7201)

Under 26 U.S.C. Section 7201, any individual or company that “willfully attempts in any manner to evade or defeat any tax imposed by [the Internal Revenue Code] or the payment thereof,” is guilty of a federal felony carrying up to a $100,000 fine ($500,000 for companies) and five years of imprisonment.

2. Willful Failure to Collect or Pay Over Tax (26 U.S.C. Section 7202)

Under 26 U.S.C. Section 7202, any individual or company that “willfully fails to collect or truthfully account for and pay over,” any tax owed is guilty of a federal felony carrying up to a $10,000 fine and five years of imprisonment. IRS CI and the DOJ primarily use this federal tax fraud statute to prosecute companies and their owners and executives for employment tax violations (i.e., failure to remit employees’ share of FICA taxes held in trust).

3. Willful Failure to File Return, Supply Information, or Pay Tax (26 U.S.C. Section 7203)

26 U.S.C. Section 7203 is the federal tax fraud statute that applies to estimated taxes and supporting documentation. Under this section of the Internal Revenue Code, any taxpayer that, “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,” is guilty of a federal misdemeanor carrying up to a $25,000 fine ($100,000 for companies) and one year in prison.

4. Fraudulent Statement or Failure to Make Statement to Employees (26 U.S.C. Section 7204)

26 U.S.C. Section 7204 applies specifically to employment tax fraud. If a company that is required to provide its employees with a statement of employment taxes collected and remitted fails to do so, the company (and its owners and executives) can face up to a $1,000 fine. Owners and executives can also face up to a year of federal imprisonment. Section 7204 applies specifically to “willful” violations, stating:

“[A]ny person required under the provisions of section 6051 to furnish a statement who willfully furnishes a false or fraudulent statement or who willfully fails to furnish a statement in the manner, at the time, and showing the information required under section 6051, or regulations prescribed thereunder, shall [be guilty].”

5. Fraudulent Withholding Exemption Certificate or Failure to Supply Information (26 U.S.C. Section 7205)

Under 26 U.S.C. Section 7205, employees can face criminal prosecution for tax fraud if they inaccurately report their withholdings to their employers. Section 7205(a) states, in part, “[a]ny individual required to supply information to his employer . . . who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld . . . shall . . . be fined not more than $1,000, or imprisoned not more than 1 year, or both.”

6. Fraud and False Statements (26 U.S.C. Section 7206)

Along with Section 7201, 26 U.S.C. Section 7206 is one of the DOJ’s most potent weapons for combating federal tax fraud. Section 7206(1) imposes criminal penalties for U.S. taxpayers who commit tax fraud, while section 7206(2) imposes criminal penalties for tax preparers and others who assist taxpayers in defrauding the federal government:

  • 26 U.S.C. Section 7206(1) – “Any person who . . . [w]illfully 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 [shall be guilty].”
  • 26 U.S.C. Section 7206(2) – “Any person who [w]illfully aids or assists in, or procures, counsels, or advises the preparation . . . 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 [shall be guilty].”

Taxpayers and tax preparers are subject to the same penalties under Section 7206. Individuals can face up to a $100,000 fine and three years in prison, while companies can face a fine of up to $500,000.

7. Fraudulent Returns, Statements, or Other Documents (26 U.S.C. Section 7207)

Under 26 U.S.C. Section 7207, willfully filing a fraudulent return or submitting false substantiating documentation to the IRS is a stand-alone federal crime. Willfully filing a false return—regardless of any other circumstances involved—carries a $10,000 fine ($50,000 for companies) and a year of federal prison time.

FAQs: Defending Against Federal Tax Fraud Allegations

What Should I Do if I am Under Investigation (or My Company is Under Investigation) for Tax Fraud?

If IRS CI is looking into your tax history or you have received a subpoena or search warrant from the DOJ, you should engage experienced defense counsel immediately. Federal tax fraud investigations can present substantial risks for individual and corporate taxpayers, and you will need experienced counsel to help you present an effective defense and avoid unnecessary consequences.

How Can I Determine Which Federal Tax Fraud Statute Applies?

When you are under investigation for tax fraud, it isn’t always (or often) easy to determine which provisions of the Internal Revenue Code apply. IRS CI and the DOJ target companies and individuals under several provisions of the Code, all of which establish different crimes and require different evidence to substantiate charges. When you engage The Criminal Defense Firm to represent you, our lawyers and former IRS CI and DOJ agents will interface with the government on your behalf, and we will work quickly to gather the information we need to execute an effective defense.

Can I (or My Company) Also Face Prosecution for State Tax Fraud?

Yes, in addition to facing federal tax fraud allegations, companies and individuals will often face state tax fraud charges as well. IRS CI and the DOJ work in close coordination with state authorities in many cases. Federal tax fraud investigations can also lead to charges for other state and federal crimes; and, in the aggregate, these charges can present the risk for hundreds of thousands (if not millions) of dollars in fines and years or decades of imprisonment.

How Common is It to Face a Federal (or State) Tax Fraud Investigation?

IRS CI and the DOJ regularly target individual and corporate taxpayers for tax fraud. Combating tax fraud has become a top federal (and state) law enforcement priority in recent years, and IRS CI and the DOJ both routinely issue press releases touting their courtroom victories.

What Are Some Potential Defenses to Tax Fraud?

While there are several forms of tax fraud, there are also several potential defenses to tax fraud allegations. This is true under all relevant provisions of the Internal Revenue Code and under state tax laws. One common defense is lack of willfulness. Willfulness is a key element of the DOJ’s case in most federal tax evasion cases. If you did not willfully violate the law, then you aren’t guilty of criminal tax fraud (though you could still be liable for back taxes, interest, and other penalties).

Discuss Your Tax Fraud Case with a Senior Lawyer at The Criminal Defense Firm

To discuss the defenses you (or your company) can use to fight the government’s tax fraud allegations with a senior lawyer at The Criminal Defense Firm, call us at 866-603-4540 or contact us online now. We will make arrangements for you to speak with a senior member of our defense team in confidence as soon as possible.

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