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Underpinning the vast power of the IRS to collect our tax money is the Internal Revenue Code (26 U.S.C), hereafter referred to as the IRC. Subtitle F, Chapter 75, Subchapter A, of the IRC lists the crimes and punishments for anyone convicted of violating our tax law.
The most common violations of the IRC are crimes of omission. The following is a brief discussion of Section 7203, Failure to File, Supply Information or Pay Tax.
Generally, there are four separate offenses described here:
1. Failure to pay the tax -- The person is required by law to pay a tax at a time required by law and willfully failed to pay the tax. Willfulness simply means an intentional, voluntary violation of a known legal duty.
2. Failure to file a return -- The person is required by law to file a return, again, at a time required by law, and willfully failed to file the return. Simply sending a tax form does not in itself constitute filing a return. The return must have sufficient information about income to allow computation of the tax that is due.
3. Failure to keep records - The person is required by law to maintain records and willfully failed to keep those records. Taxpayers must maintain permanent records to prove gross income, deductions and credits on the tax return.
4. Failure to supply information - The person is required by law to supply information at a time required by law and willfully failed to do so.
Penalties involved
Anyone convicted of the foregoing is guilty of a misdemeanor. An individual can face a fine of $25,000 ($100,000 in the case of a corporation) or go to prison for not more one year (or both), plus pay the costs of prosecution.
To prove tax evasion, the government must:
- show that there was actually a tax due
- prove that there was criminal intent involved in the evasion
- demonstrate that the income was actually taxable
As with any criminal charge, there are a variety of defenses. Common defenses to tax evasion include:
- Error or simple mistake. The taxpayer was mistaken about when the tax was due or what income had to be reported.
- Lack of evidence. The taxpayer failed to file a return due to forgetfulness.
- Entrapment. Some agent of the government compelled an innocent taxpayer to commit a crime that they would not ordinarily commit.
- Insanity. This is a tough sell in any court. The taxpayer must show insanity at the time of the offense or during the trial. The success rate for insanity defenses for tax evasion cases is low.
The average taxpayer who is negligent in filing tax returns has a low probability of being criminally prosecuted. The IRS has vast administrative powers to collect and can apply late penalties. On the other hand, the government used tax evasion to nail the gangster Al Capone.
Next: Crimes of Commission: Tax Perjury, Aiding Another and Hiding Assets