Attempt
to Evade or Defeat Tax
8.00
ATTEMPT TO EVADE OR DEFEAT TAX
Updated
May 2001
8.01 STATUTORY LANGUAGE: 26 U.S.C. § 7201
8.02 GENERALLY
8.03 ELEMENTS OF EVASION
8.04 ATTEMPT TO EVADE OR DEFEAT
8.04[1] Attempt To Evade Assessment
8.04[2] Attempt To Evade Payment
8.05 ADDITIONAL TAX DUE AND OWING
8.05[1] Generally
8.05[2] Each Year -- Separate Offense
8.05[3] Substantial Tax Deficiency
8.05[4] Method of Accounting
8.05[5] Loss Carryback -- Not a Defense
8.05[6] Methods of Proof
8.05[7] Income Examples
8.06 WILLFULNESS
8.06[1] Definition
8.06[2] Proof of Willfulness
8.06[3] Examples: Proof of Willfulness
8.06[4] Willful Blindness
8.07 VENUE
8.08 STATUTE OF LIMITATIONS
8.09 LESSER INCLUDED OFFENSES
8.01 STATUTORY LANGUAGE: 26 U.S.C. § 7201
§7201. Attempt to evade or defeat tax
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
($500,000 in the case of a corporation), or imprisoned not more than 5
years, or both, together with the costs of prosecution.
*For offenses committed after December 31, 1984, the Criminal
Fine Enforcement Act of 1984 (P.L. 98-596) enacted 18 U.S.C. §
36231 which increased the maximum permissible
fines for both misdemeanors and felonies. For the felony offenses set
forth in section 7201, the maximum permissible fine for offenses
committed after December 31, 1984, is at least $250,000 for
individuals and $500,000 for corporations. Alternatively, if any
person derives pecuniary gain from the offense, or if the offense
results in pecuniary loss to a person other than the defendant, the
defendant may be fined not more than the greater of twice the gross
gain or twice the gross loss.
8.02 GENERALLY
The Supreme Court has stated that section 7201 includes two offenses:
(a) the willful attempt to evade or defeat the assessment of a tax and (b)
the willful attempt to evade or defeat the payment of a tax. Sansone v.
United States
, 380
U.S.
343, 354 (1965). Evasion of assessment entails
an attempt to prevent the government from determining a taxpayer's true tax
liability. Evasion of payment entails an attempt to evade the payment of
that liability. See
United States
v. Hogan, 861 F.2d 312, 315
(1st Cir. 1988);
United States
v. Dack, 747 F.2d 1172, 1174 (7th Cir.
1984). Although Sansone has been cited for the proposition that
evasion of payment and evasion of assessment constitute two distinct crimes,
see, e.g., United States v. Hogan, 861 F.2d at 315,
several circuits have recently rejected duplicity challenges to indictments
by holding that section 7201 proscribes only one crime, tax evasion, which
can be committed either by attempting to evade assessment or by attempting
to evade payment. See
United States
v. Mal, 942 F.2d 682, 686
(9th Cir. 1991);
United States
v. Dunkel, 900 F.2d 105, 107 (7th Cir.
1990), judgment vacated, 498
U.S.
1043 (1991), ruling on duplicity
issue reinstated on remand, 927 F.2d 955, 956 (7th Cir. 1991); United
States v. Masat, 896 F.2d 88, 91 (5th Cir. 1990), appeal after
remand, 948 F.2d 923 (5th Cir. 1991). Furthermore, although the First
Circuit initially expressed some skepticism concerning whether Masat
and Dunkel were consistent with Sansone, see United
States v. Waldeck, 909 F.2d 555, 557-58 (1st Cir. 1990), it subsequently
relied on Dunkel in rejecting a duplicity claim: "No matter how one
resolves the semantic question, moreover, it is beyond reasonable dispute
that the indictment charged [defendant] with a single, cognizable crime, and
that the jury convicted him of the same crime. See
United States
v. Dunkel, 900 F.2d 105, 107 (7th Cir. 1990)."
United States
v.
Huguenin, 950 F.2d 23, 26 (1st Cir. 1991).2 It
is the position of the Tax Division that section 7201 proscribes a single
crime -- attempted evasion of tax -- which can be committed by evading the
assessment of tax or by evading the payment of tax.
Regardless of whether they are viewed as separate offenses or as
different means of committing the same offense, both evasion of assessment
of taxes and evasion of payment of taxes require the taxpayer to take some
action, that is, to carry out some affirmative act for the purpose of the
evasion. There are any number of ways in which a taxpayer can attempt to
evade or defeat taxes or the payment thereof, and section 7201 expressly
refers to "attempts in any manner." The most common attempt to evade or
defeat assessment of a tax is the affirmative act of filing a false tax
return that omits income and/or claims deductions to which the taxpayer is
not entitled. As a result, the tax on the return is understated, and the
correct amount of tax is not reported by the taxpayer. By reporting a
lesser amount, there is an attempt to evade or defeat tax by evading the
correct assessment of the tax.
In evasion of payment cases, evading or defeating the correct
assessment of the tax is not the issue. Evasion of payment occurs only
after the existence of a tax due and owing has been established, either by
the taxpayer reporting the amount of tax due and owing, by the Internal
Revenue Service examining the taxpayer and assessing the amount of tax
deemed to be due and owing, or by operation of law on the date that the
return is due if the taxpayer fails to file a return and the government can
prove that there was a tax deficiency on that date. See United
States v. Daniel, 956 F.2d 540 (6th Cir. 1992). The taxpayer then seeks
to evade the payment of the taxes assessed as due and owing.3 As in
an attempt to evade and defeat a tax through evasion of assessment, it must
be established in an evasion of payment case that the taxpayer took some
affirmative action. Merely failing to pay assessed taxes, without more,
does not constitute evasion of payment.4 Generally, affirmative
acts associated with evasion of payment involve some type of concealment of
the taxpayer's ability to pay taxes or the removal of assets from the reach
of the Internal Revenue Service.
Historically, it is the crime of willfully attempting to evade and
defeat a tax through evasion of assessment, as opposed to willfully
attempting to evade the payment of a tax, that is the principal revenue
offense. Although the basic elements of the crime are relatively simple,
the proof can be difficult.
8.03 ELEMENTS OF EVASION
To establish a violation of section 7201, the following elements must
be proved:
1. An attempt to evade or defeat a tax or the payment
thereof. Sansone v.
United States
, 380
U.S.
343,
351 (1965); Spies v.
United States
, 317
U.S.
492,
498-99 (1943).
2. An additional tax due and owing. Sansone v. United
States, 380
U.S.
343, 351 (1965); Lawn v. United
States, 355
U.S.
339, 361 (1958);
3. Willfulness. Cheek v.
United States
, 498
U.S.
192,
195 (1991);
United States
v. Pomponio, 429
U.S.
10,
12 (1976);
United States
v. Bishop, 412
U.S.
346,
359 (1973); Sansone v.
United States
, 380
U.S.
343,
351 (1965);
Holland
v.
United States
, 348
U.S.
121,
139 (1954).
The government must prove each element beyond a reasonable doubt.
United States
v. Marashi, 913 F.2d 724, 735 (9th Cir. 1990);
United States v. Williams, 875 F.2d 846, 849 (llth Cir. 1989).
8.04 ATTEMPT TO EVADE OR DEFEAT
The means by which there can be an attempt to evade are unlimited. As
noted above, section 7201 expressly provides that the attempt can be "in any
manner." The only requirement is that the taxpayer take some affirmative
action with a tax evasion motive. Conversely, failing to act or do
something does not constitute an attempt. For example, failing to file a
return, standing alone, is not an attempt to evade. See Spies v.
United States
, 317
U.S.
492, 499 (1943);
United States
v. Nelson,
791 F.2d 336, 338 (5th Cir. 1986).
The general rule is that "any conduct, the likely effect of which
would be to mislead or to conceal" for tax evasion purposes constitutes an
attempt. Spies, 317
U.S.
at 499. Even an activity that would
otherwise be legal can constitute an affirmative act supporting a section
7201 conviction, so long as it is carried out with the intent to evade tax.
United States
v. Jungles, 903 F.2d 468, 474 (7th Cir. 1990)
(taxpayer's entry into an "independent contractor agreement," although a
legal activity in and of itself, satisfied "affirmative act" element of
section 7201); see also
United States
v. Carlson, 235
F.3d 466, 469 (9th Cir. 2000) (establishing bank accounts using false social
security numbers with intent to evade taxes), cert. denied,
121 S.Ct. 1627 (2001);
United States
v. Conley, 826 F.2d 551 (7th
Cir. 1987) (use of nominees and cash with intent to evade payment of taxes).
Although the government must prove some affirmative act constituting
an attempt to evade, it need not prove each act alleged. See
United States
v. Mackey, 571 F.2d 376 (7th Cir. 1978), where the
government introduced evidence of six affirmative acts and the court pointed
out that proof of one act is enough. "[T]he prosecution need not prove each
affirmative act alleged." Mackey, 571 F.2d at 387. See
Conley, 826 F.2d at 556-57. Cf.
United States
v. Miller,
471 U.S. 130 (1985) (government's proof of only one of two fraudulent acts
alleged in mail fraud indictment was not fatal variance since indictment
would still make out crime of mail fraud even without the second alleged
act).
8.04[1] Attempt To Evade Assessment
Filing a false return is the most common method of attempting to evade
the assessment of a tax. See, e.g.,
United States
v. Habig, 390
U.S.
222 (1968); Sansone v.
United States
, 380
U.S.
343 (1965). However, the requirement of an attempt to evade is met by any
affirmative act undertaken with a tax evasion motive, regardless of whether
a false return has been filed. The Supreme Court "by way of illustration,
and not by way of limitation," set out examples of what can constitute an
"affirmative willful attempt" to evade in Spies, 317
U.S.
at 499:
keeping a double set of books, making false entries or alterations, or
false invoices or documents, destruction of books or records,
concealment of assets or covering up sources of income, handling of
one's affairs to avoid making the records usual in transactions of the
kind, and any conduct, the likely effect of which would be to mislead
or to conceal.
Failing to file a return, coupled with an affirmative act of evasion
and a tax due and owing, has come to be known as a Spies-evasion, an
example of which is found in United States v. Goodyear, 649 F.2d 226
(4th Cir. 1981). The Goodyears failed to file a tax return for the year in
question and later falsely stated to Internal Revenue Service agents that
they had earned no income in that year and were not required to file a
return. The false statements to the agents were the affirmative acts of
evasion supporting the Goodyears' section 7201 convictions.
Goodyear, 649 F.2d at 228. Similarly, a false statement on an
application for an extension of time to file a tax return that no tax is
owed for the year is sufficient.
United States
v. Klausner, 80 F.3d
55, 62 (2d Cir. 1996).
False statements to Internal Revenue Service agents are frequently
alleged as affirmative acts of evasion. See, e.g., United
States v. Higgins, 2 F.3d 1094, 1097 (10th Cir. 1993);
United States
v. Frederickson, 846 F.2d 517, 520-21 (8th Cir. 1988) (holding that
repeated false statements to IRS agents were sufficient to support a jury
finding of at least one affirmative act); United States v. Ferris,
807 F.2d 269, 270-71 (1st Cir. 1986);
United States
v. Neel, 547 F.2d
95, 96 (9th Cir. 1976);
United States
v. Calles, 482 F.2d 1155, 1160
(5th Cir. 1973). But cf.
United States
v. Romano, 938
F.2d 1569 (2d Cir. 1991) (considering defendant's overall cooperative
attitude during customs inspection, defendant who was stopped trying to
transport $359,500 to
Canada
did not commit affirmative act of evasion when
he initially admitted having only $30,000 to $35,000 in cash and only
gradually acknowledged the full amount to
U.S.
customs officials).
It makes no difference whether the false statements are made before,
simultaneously with, or after the taxpayer's failure to file a return.
United States
v. Copeland, 786 F.2d 768, 770 (7th Cir. 1985).
See also United States v. Beacon Brass Co., 344
U.S.
43, 45-46 (1952); United States v. Dandy, 998 F.2d 1344 (6th Cir.
1993);
United States
v. Becker, 965 F.2d 383, 386 (7th Cir. 1992)
(indictment does not fail for alleging that affirmative acts occurred on or
about filing due date when they in fact occurred earlier);
United States
v. Winfield, 960 F.2d 970, 973 (11th Cir. 1992) (allegation that
defendant made false statements six years after failure to file satisfies
affirmative act element); United States v. Mal, 942 F.2d 682, 684
(9th Cir. 1991). The affirmative act must, however, have been committed
with the intent to evade taxes owed for the year charged.
United States
v. Voigt, 89 F.3d 1050, 1089-91 (3d Cir. 1996).
Courts have uniformly held that the filing of a false Form W-4
constitutes an affirmative act of evasion.
United States
v. DiPetto,
936 F.2d 96 (2nd Cir. 1991);
United States
v. Williams, 928 F.2d 145,
149 (5th Cir. 1991);
United States
v. Waldeck, 909 F.2d 555 (1st
Cir. 1990);
United States
v. Connor, 898 F.2d 942, 944-45 (3d Cir.
1990);
United States
v. Copeland, 786 F.2d 768 (7th Cir. 1985).
Moreover, a false W-4 filed prior to the prosecution years is an affirmative
act in each year that it is maintained, since the taxpayer is under a
continuing obligation to correct intentional misrepresentations on the form.
Williams, 928 F.2d at 149 (defendant properly convicted of tax
evasion regarding years 1983-85 where false Form W-4 claiming 50 exemptions
was filed in 1983 and remained in effect through the prosecution years);
United States
v. King, 126 F.3d 987, 990-93 (7th Cir. 1997); United
States v. DiPetto, 936 F.2d at 96.
In cases involving failures to file tax returns and filing false
Forms W- 4, which typically involve tax protestors, the Tax Division
determines whether to bring misdemeanor (sections 7203 and 7205) or felony
(section 7201) charges based on the totality of the circumstances of the
case. Circumstances to consider include the egregiousness of the
individual's actions (e.g., if the defendant is a tax protestor,
whether the individual is a leader or simply a follower), the extent of any
tax protest problem in the jurisdiction, and the favorableness or
unfavorableness of the relevant case law in the jurisdiction where there is
venue.
The Seventh Circuit has held that instructing an employer to pay one's
income to a warehouse bank constitutes an affirmative act of evasion.
United States
v. Beall, 970 F.2d 343, 346-47 (7th Cir. 1992). The
court held also that the government need not prove the defendant received
any of the money, so long as the defendant earned it. Beall, 970
F.2d at 345. See also United States v. Carlson, 235 F.3d 466,
477 (9th Cir. 2000) (opening and using bank accounts with false social
security numbers, places of birth, and dates of birth could easily have
misled or concealed information from the IRS), cert. denied,
121 S.Ct. 1627 (2001);
United States
v. Valenti, 121 F.3d 327, 333
(7th Cir. 1997) (use of cash, not keeping business records, paying employees
in cash and not reporting their wages to the IRS, advising employees they
did not have to pay taxes); United States v. Jungles, 903 F.2d 468,
474 (7th Cir. 1990) (employee use of "independent contractor" agreement and
Mid-America Commodity and Barter Association warehouse bank to evade income
tax are affirmative acts).
A false return does not need to be signed to be treated as an
affirmative act of evasion as long as it is identified as the defendant's
return.
United States
v. Robinson, 974 F.2d 575, 578 (5th Cir. 1992)
(Fifth Circuit rejected defendant's claim of variance between indictment's
allegation that she filed a false return and evidence proving she filed an
unsigned Form 1040, stating, "[t]he government did not have to prove that
the false Form 1040 was a 'return' in order to show an affirmative act of
evasion"); United States v. Maius, 378 F.2d 716, 718 (6th Cir.
1967); Gariepy v.
United States
, 220 F.2d 252, 259 (6th Cir. 1955);
Montgomery
v.
United States
, 203 F.2d 887, 889 (5th Cir.
1953). Nor does the fact that the return was signed by someone other than
the defendant preclude a finding that the defendant knew of its falsity and
had it filed in an attempt to evade.
United States
v. Fawaz, 881
F.2d 259, 265 (6th Cir. 1989).
A return or other tax document signed with the defendant's name
creates a rebuttable presumption that the defendant actually signed it and
had knowledge of its contents. 26 U.S.C. § 6064; United States v.
Kim, 884 F.2d 189, 195 (5th Cir. 1989);
United States
v. Brink,
648 F.2d 1140, 1143 (8th Cir. 1981);
United States
v. Harper, 458
F.2d 891, 894-95 (7th Cir. 1971);
United States
v. Wainwright, 413
F.2d 796, 801-02 (10th Cir. 1970).
8.04[2] Attempt To Evade Payment
The affirmative acts of evasion associated with evasion of payment
cases almost always involve some form of concealment of the taxpayer's
ability to pay the tax due and owing or the removal of assets from the reach
of the IRS. Obstinately refusing to pay taxes due and possession of the
funds needed to pay the taxes, without more, do not meet the
requirement of the affirmative act necessary for an evasion charge.
Examples of affirmative acts of evasion of payment include: placing
assets in the names of others; dealing in currency; causing receipts to be
paid through and in the name of others; causing debts to be paid through and
in the name of others; and paying creditors instead of the government.
Cohen v.
United States
, 297 F.2d 760, 762, 770 (9th Cir. 1962).
See also United States v. Carlson, 235 F.3d 466, 477
(9th Cir. 2000) (opening and using bank accounts with false social security
numbers, places of birth, and dates of birth could easily have misled or
concealed information from the IRS), cert. denied, 121 S.Ct.
1627 (2001);
United States
v. Gonzalez, 58 F.3d 506, 509 (10th Cir.
1995) (signing and submitting false financial statements to the IRS);
United States
v. Pollen, 978 F.2d 78, 88 (3d Cir. 1992); United
States v. Beall, 970 F.2d 343, 346-47 (7th Cir. 1992) (defendant
instructed employer to pay income to a tax protest organization); United
States v. McGill, 964 F.2d 222, 233 (3d Cir. 1992) (defendant concealed
assets by using bank accounts in names of family members and co-workers);
United States
v. Brimberry, 961 F.2d 1286, 1291 (7th Cir. 1992)
(defendant falsely told IRS agent that she did not own real estate and that
she had no other assets with which to pay tax);
United States
v.
Daniel, 956 F.2d 540, 543 (6th Cir. 1992) (defendant used others' credit
cards, used cash extensively, placed assets in others' names); United
States v. Conley, 826 F.2d 551, 553 (7th Cir. 1987) (defendant concealed
nature, extent, and ownership of assets by placing assets, funds, and other
property in names of others and by transacting business in cash to avoid
creating a financial record); United States v. Shorter, 809 F.2d 54,
57 (D.C. Cir. 1987) (defendant maintained a "cash lifestyle" in that he
conducted all of his personal and professional business in cash, possessed
no credit cards, never acquired attachable assets, and maintained no bank
accounts, ledgers, or receipts or disbursements journals);
United States
v. Hook, 781 F.2d 1166, 1169 (6th Cir. 1986) (defendant did not file a
false return or fail to file, but concealed assets);
United States
v.
Voorhies, 658 F.2d 710, 712 (9th Cir. 1981) (defendant removed money
from the
United States
and laundered it through Swiss banks). But
see McGill, 964 F.2d at 233 (mere failure to report the
opening of an account in one's own name and in one's own locale is not an
affirmative act).
8.05 ADDITIONAL TAX DUE AND OWING
8.05[1] Generally
A tax deficiency is an essential element of an evasion case. The
absence of a tax deficiency means that there may be a false return case, or
some other kind of case, but not an evasion case.
The tax deficiency need not be for taxes due and owing by the
defendant but may be for taxes due and owing by some other taxpayer.
United States v. Wilson, 118 F.3d 228, 236 (4th Cir. 1997) (attorney
convicted of attempting to evade a client's taxes);
United States
v.
Townsend, 31 F.3d 262, 266-67 (5th Cir. 1994) (motor fuels excise tax
owed by someone other than defendant).
For purposes of trial preparation and the trial itself, tax
computations prepared by the Internal Revenue Service are furnished to the
prosecuting attorney. In addition, a revenue agent or special agent is
assigned to the case to make any additional tax computations necessitated by
changes during preparation and at the trial. In any hard-fought case, it is
more often the case than not that trial developments will necessitate a
change in the figures set forth in the indictment.
Although a tax deficiency must be established in all section 7201
cases, the proof can often be much simpler in an evasion of payment case.
Thus, if the taxpayer has filed a return and not paid the tax reported as
due and owing, the reporting of the tax is a self-assessment of the tax due
and owing. The tax due and owing is established by the introduction of the
return. By the same token, if the Service has assessed the tax, then proof
of the tax due and owing can consist of merely introducing the Internal
Revenue Service's certificate of assessments and payments assessing the tax
due and owing. A certificate of assessments and payments is prima facie
evidence of the asserted tax deficiency, which, if unchallenged, may suffice
to prove the tax due and owing.
United States
v. Silkman, 220 F.3d
935, 937 (8th Cir. 2000), cert. denied, 121 S.Ct. 889 (2001);
United States
v. Voorhies, 658 F.2d 710, 715 (9th Cir. 1981).
The amount of tax deficiency in a particular case may include
penalties and interest. 26 U.S.C. § 6671(a) (the phrase "'tax' imposed
by this title" also refers to the penalties and liabilities provided by this
subchapter [Subtitle F, Chapter 68B]); 26 U.S.C. § 6665(a)(2) (the
phrase "'tax' imposed by this title" also refers to the additions to the
tax, additional amounts, and penalties provided by this chapter [Subtitle F,
Chapter 68A]); 26 U.S.C. § 6601(e)(1) (the phrase "tax imposed by this
title" also refers to interest imposed by that section on such tax).
But see, United States v. Wright, 211 F.3d 233, 236
(5th Cir.) (dictum), cert. denied, 121 S.Ct. 274 (2000). As a
practical matter, the inclusion of penalties and interest as part of the tax
deficiency will be relevant only in evasion of payment cases where it can be
proved that the defendant was aware of the obligation for the additional
amount of penalties and interest. During the collection process the IRS may
send a taxpayer a notice and demand for payment setting forth the amount of
tax, penalties, and interest for which a taxpayer is liable on a specific
date.
It is not essential that the Service has made an assessment of taxes
owed and a demand for payment in order for tax evasion charges to be
brought.
United States
v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992).
In Daniel, the defendant argued that there was no tax deficiency
since no assessment or demand for payment had been made. The court rejected
this reasoning, holding that a tax deficiency arises by operation of law on
the date that the return is due if the taxpayer fails to file a tax return
and the government can show a tax liability. Daniel, 956 F.2d at
542. See also United States v. Hogan, 861 F.2d 312,
315-16 (1st Cir. 1988) (no need to make a formal assessment of tax liability
when government finds tax due and owing).
8.05[2] Each Year -- Separate Offense
Because income taxes are an annual event, an alleged evasion of
assessment must relate to a specific year and it must be shown that the
income upon which the tax was evaded was received in that year. United
States v. Boulet, 577 F.2d 1165, 1167-68 (5th Cir. 1978).5
Consequently, in most evasion of assessment cases, each tax year charged
stands alone as a separate offense. Thus, a charge that a taxpayer
attempted to evade and defeat taxes for the years 1990, 1991, and 1992 would
constitute three separate counts in an indictment.
Evasion of payment, on the other hand, often involves single acts
which are intended to evade the payment of several years of tax due the
government. Thus, in evasion of payment cases, it is sometimes permissible
to charge multiple years of tax due and owing in one count. United
States v. Shorter, 809 F.2d 54, 56-57 (D.C. Cir. 1987). In
Shorter, the court approved the use of a single count to cover
several years of tax evaded when charged "as a course of conduct in
circumstances such as those . . . where the underlying basis of the
indictment is an allegedly consistent, long-term pattern of conduct directed
at the evasion of taxes" for those years. Shorter, 809 F.2d at 56.
For the twelve years covered by the single count in the indictment, the
defendant in Shorter had conducted all of his personal and
professional business in cash, avoided the acquisition of attachable assets,
and failed to record receipts and disbursements. These activities
demonstrated a continuous course of conduct, and each affirmative act of
evasion was intended to evade payment of all taxes owed, or anticipated, at
the time. The court noted that the same evidence used to prove one
multi-year count would be admissible to support twelve single year counts.
Shorter, 809 F.2d at 57. See also United States v.
Pollen, 978 F.2d 78 (3d Cir. 1992) (each of four counts covered the same
seven years but indictment not multiplicitous when each count alleged a
different affirmative act); United States v. England, 347 F.2d 425
(7th Cir. 1965) (defendants charged with one count of evasion of payment of
taxes owed from three consecutive years).
Questions concerning the unit of prosecution often lead to challenges
to the indictment. In United States v. Pollen, 978 F.2d 78 (3d Cir.
1992), the defendant made several international transfers of hundreds of
thousands of dollars in attempts to evade payment of seven years' taxes.
Some of these transfers were made in one year. The four counts of the
indictment each specified all seven years, but each alleged a distinct
affirmative act. The court held that "section 7201 permits a unit of
prosecution based on separate significant acts of evasion." Pollen,
978 F.2d at 86. Therefore, separate counts of an indictment may relate to
evasion of payment for the same years without raising a multiciplicity
problem, provided each count alleges a different affirmative act.
8.05[3] Substantial Tax Deficiency
Tax evasion prosecutions are not collection cases and it is not
necessary to charge or prove the exact amount of the tax that is due and
owing. United States v. Thompson, 806 F.2d 1332, 1335-36 (7th Cir.
1986); United States v. Harrold, 796 F.2d 1275, 1278 (10th Cir.
1986); United States v. Citron, 783 F.2d 307, 314-15 (2d Cir. 1986);
United States v. Buckner, 610 F.2d 570, 573-74 (9th Cir. 1979);
United States v. Marcus, 401 F.2d 563, 565 (2d Cir. 1968).
It is enough to prove that the defendant attempted to evade a
substantial income tax, even though the actual amount of tax that he owes
may be greater than the amount charged in the criminal case. Indeed, the
criminal tax figures will almost invariably be lower than the civil tax
figures since, for example, items turning on reasonably debatable
interpretations of the Tax Code which increase the tax due and owing are not
included in the criminal case. In other words, any doubts as to taxability
are resolved in favor of the defendant in a criminal case even though they
may ultimately be resolved against him or her civilly.
As noted, it is enough in a criminal case to prove that the defendant
attempted to evade a substantial income tax. And as long as the amount
proved as unreported is substantial, it makes no difference whether that
amount is more or less than the amount charged as unreported in the
indictment. United States v. Johnson, 319 U.S. 503, 517-18 (1943);
United States v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.),
cert. denied, 530 U.S. 1230 (2000); United States v.
Plitman, 194 F.3d 59, 65-66 (2d Cir. 1999); United States v.
Marcus, 401 F.2d 563, 565 (2d Cir. 1968); Swallow v. United
States, 307 F.2d 81, 83 (10th Cir. 1962). See, e.g.,
United States v. Burdick, 221 F.2d 932, 934 (3d Cir. 1955), upholding
a conviction where the indictment charged $33,000 as unreported taxable
income and the proof at trial established only $14,500 as unreported.
Similarly, in United States v. Costello, 221 F.2d 668, 675 (2d Cir.
1955), aff'd, 350 U.S. 359 (1956), the court upheld a conviction
where the bill of particulars alleged $244,000 gross income as unreported
and $288,000 was proved at trial. In United States v. Citron, 783
F.2d 307 (2d Cir. 1986), the court upheld an "open-ended" 7201 indictment
that did not even allege precise amounts of unreported income or tax due but
rather alleged that the defendant had attempted to evade "a large part" of
the income tax due and that the tax due was "substantially in excess" of the
amount he reported. Citron, 783 F.2d at 314-15.
Since the government only has to prove that a substantial tax was due
and owing, any bill of particulars that is filed should note that proof of
an exact amount is not required and any figures furnished in a bill of
particulars represent only an approximation. Whether a tax deficiency is
substantial is a jury question and the cases suggest that relatively small
sums can be deemed substantial. United States v. Gross, 286 F.2d 59,
61 (2d Cir. 1961) (unreported income of $2500 deemed "substantial");
United States v. Nunan, 236 F.2d 576, 585 (2d Cir. 1956) ("A few
thousand dollars of omissions of taxable income may in a given case warrant
criminal prosecution."). See also United States v.
Davenport, 824 F.2d 1511, 1517 (7th Cir. 1987) ($3,358 in taxes due
sufficient to support taxpayer's conviction); United States v.
Cunningham, 723 F.2d 217 (2d Cir. 1983) (additional tax of $2,617 as
compared to a total tax due of $33,539 held to be substantial); United
States v. Siragusa, 450 F.2d 592, 595-96 (2d Cir. 1971) (taxes of
$3,956, $900 and $2,209 in three successive years held to be substantial).
The Ninth Circuit has held that there is no substantiality requirement
for a section 7201 violation. United States v. Marashi, 913
F.2d 724 (9th Cir. 1990). The court held that both section 7201 and its
predecessor, section 145(b) of the 1939 Code, prohibit attempts to evade
"any tax" and impose no minimum amount in their language. Marashi,
913 F.2d at 735. As a result, the court reasoned, the trier of fact needs
to find only "some tax deficiency" to warrant a conviction. Marashi,
913 F.2d at 736.
8.05[4] Method of Accounting
The general rule is that in computing income, the government must
follow the same method of accounting as that used by the taxpayer.
Fowler v. United States, 352 F.2d 100, 103 (8th Cir. 1965);
United States v. Vardine, 305 F.2d 60, 64 (2d Cir. 1962). Conversely,
if the defendant has used a particular method of reporting income, then the
defendant is bound by that choice at trial. Thus, a defendant cannot report
his income on a cash basis and then defend at trial by showing that on an
accrual basis unreported income would be far less than the government proved
on a cash basis. Clark v. United States, 211 F.2d 100, 105 (8th Cir.
1954); see also United States v. Helmsley, 941 F.2d 71 (2d
Cir. 1991) (defendant having used one depreciation method during the
prosecution years cannot recalculate her taxes under another depreciation
method during trial).
In a similar vein, if the taxpayer has used a hybrid method of
accounting, then the taxpayer "is hardly in a position to complain when the
computation employing that method is introduced to prove specific items of
omitted income." United States v. Lisowski, 504 F.2d 1268, 1275 (7th
Cir. 1974); Morrison v. United States, 270 F.2d 1, 4 (4th Cir.
1959).
8.05[5] Loss Carryback -- Not a Defense
A defendant will sometimes argue that there is no tax deficiency and
hence no evasion because a loss carryback from a subsequent year wipes out
the tax deficiency in the prosecution year. A defendant may admit not
reporting certain income in 1989, but argue that he is not guilty of
attempting to evade, because a 1990 loss carryback eliminates any tax
deficiency for 1989. This defense is not valid; the "lucky loser argument"
was expressly rejected in Willingham v. United States, 289 F.2d 283,
287 (5th Cir. 1961). The crime was complete when, with willful intent, a
false and fraudulent return was filed -- any adjustment from a loss in a
subsequent year does not change in any way the fraud committed in the
