Failure
to File
10.00
FAILURE TO FILE, SUPPLY INFORMATION OR PAY TAX
Updated
May 2001
10.01 STATUTORY LANGUAGE: 26 U.S.C. § 7203
10.02 GENERALLY
10.03 PERSON LIABLE
10.04 FAILURE TO FILE
10.04[1] Elements
10.04[2] Required by Law to File
10.04[2][a] Income Tax Returns
10.04[2][b] Section 6050I (Forms 8300)
10.04[3] Return Not Filed at Time Required by Law
10.04[3][a] What is a Return
10.04[3][b] Return Not Filed at Time Required by Law
10.04[4] Proof of Failure to File
10.04[5] Willfulness
10.04[5][a] Proof of Willfulness
10.04[5][b] Willful Blindness or Deliberate Ignorance
10.04[6] Tax Deficiency Not Necessary
10.04[7] Venue - Failure to File
10.04[8] Statute of Limitations
10.05 FAILURE TO PAY
10.05[1] Elements
10.05[2] Required by Law to Pay
10.05[3] Failure to Pay
10.05[4] Willful Failure to Pay
10.05[5] Venue
10.05[6] Statute of Limitations
10.06 SENTENCING
10.07 DEFENSES
10.07[1] Intent to Pay Taxes in Future
10.07[2] Absence of a Tax Deficiency
10.07[3] Delinquent Filing
10.07[4] Negligence
10.07[5] Civil Remedy Not Relevant
10.07[6] Inability to Pay
10.07[7] IRS Required to Prepare Returns
10.07[8] Marital and Financial Difficulties
10.07[9] Fear of Filing
10.07[10] Claim That Returns Were Mailed
10.07[11] Complicated Records
10.07[12] Paperwork Reduction Act
10.07[13] Other Defenses
10.08 LESSER INCLUDED OFFENSE/RELATIONSHIP TO TAX EVASION
10.01 STATUTORY LANGUAGE: 26 U.S.C. § 7203
§7203. Willful failure to file return, supply information, or
pay tax
Any person required under this title to pay any estimated tax or
tax, or required by this title or by regulations made under authority
thereof to make a return, keep any records, or supply any information,
who 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, shall, in addition to other
penalties provided by law, be guilty of a misdemeanor and, upon
conviction thereof, shall be fined* not more than $25,000 ($100,000 in
the case of a corporation), or imprisoned not more than 1 year, or
both, together with the costs of prosecution. In the case of any
person with respect to whom there is a failure to pay any estimated
tax, this section shall not apply to such person with respect to such
failure if there is no addition to tax under section 6654 or 6655 with
respect to such failure. In the case of a willful violation of any
provision of section 6050I, the first sentence of this section shall
be applied by substituting "felony" for "misdemeanor" and "5 years"
for "1 year."
*For offenses committed after December 31, 1984, the Criminal
Fine Enforcement Act of 1984 (P.L. 98-596) enacted 18 U.S.C. §
3623 [FN1] which increased the maximum permissible fines for both
misdemeanors and felonies. For the misdemeanor offenses set forth in
section 7203, the maximum permissible fine for offenses committed
after December 31, 1984, is at least $100,000 in the case of
individuals. As to corporations, the maximum permissible fine is at
least $200,000. For felony offenses in section 7203 involving willful
violations of section 6050I, the maximum permissible fine 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.
10.02 GENERALLY
Section 7203 covers four different situations -- each of which
constitutes a failure to perform in a timely fashion an obligation imposed
by the Internal Revenue Code: (1) failure to pay an estimated tax or tax;
(2) failure to make (file) a return; (3) failure to keep records; and, (4)
failure to supply information.
With the exception of cases involving willful violations of any
provision of section 6050I of the Internal Revenue Code, all of the offenses
under section 7203 are misdemeanors. Therefore, except for section 6050I
felonies, section 7203 prosecutions may be initiated either by information
or indictment. Reference should be made to Section 25.00, infra, for
additional discussion of violations of section 6050I.
The charge most often brought under section 7203 is the failure to
make (file) a return. A number of cases are also brought under section
7203 for failure to pay a tax. Note that the attempt to evade or defeat the
payment of a tax is a felony under section 7201 of the Code. Willfulness is
the same for both misdemeanor offenses and felony offenses under the
Internal Revenue Code. The difference in the offenses is that failure to
file or pay under section 7203 involves merely a failure to do something (an
omission), whereas there must be an affirmative act or a "willful
commission" to raise the offense to a section 7201 felony. Sansone v.
United States
, 380
U.S.
343, 351 (1965). Note also that, by its express
terms, section 7203 does not apply to a "failure to pay an estimated tax" if
there is no "addition to tax" pursuant to the rules provided for in section
6654 (Failure By Individuals To Pay Estimated Income Tax) and section 6655
(Failure By Corporation To Pay Estimated Tax).
Some cases have also been brought charging a failure to supply
information and these are noted below. The charge of failing to "keep any
records" is not commonly used and is not treated separately in this manual.
10.03 PERSON LIABLE
Each of the categories set forth in section 7203 specifies a distinct
and separate obligation. Failure to perform an obligation in any one of the
categories may constitute an offense. See Sansone v. United
States, 380
U.S.
343, 351 (1965). An offender may be charged with
failure to perform each obligation as often as the obligation arises.
See
United States
v. Harris, 726 F.2d 558, 560 (9th Cir.
1984) (defendant who failed to file for three years guilty of three
separate offenses rather than one continuing offense);
United States
v.
Stuart, 689 F.2d 759, 763 (8th Cir. 1982) (same).
Any "person" who fails to perform an obligation imposed by the
Internal Revenue Code and the applicable regulations may be liable for
prosecution under section 7203. The term "person" is "construed to mean and
include an individual, a trust, estate, partnership, association, company or
corporation." 26 U.S.C. § 7701(a)(1). Internal Revenue Code section
7343 extends the definition of "person" to include "an officer or employee
of a corporation, or a member or employee of a partnership who as such
officer, employee, or member is under a duty to perform the act in respect
of which the violation occurs." See
United States
v. Neal, 93
F.3d 219, 223 (6th Cir. 1996)(corporate officers liable under section 7203
for failure to file employer's quarterly tax return (Form 941)); Ryan v.
United States
, 314 F.2d 306, 309 (10th Cir. 1963).
10.04 FAILURE TO FILE
10.04[1] Elements
To establish the offense of failure to make (file) a return, the
government must prove three essential elements beyond a reasonable doubt:
1. Defendant was a person required to file a return;
2. Defendant failed to file at the time required by law; and,
3. The failure to file was willful.
United States
v. Hayes, 190 F.3d 939, 946 (9th Cir. 1999); United
States v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992);
United States
v.
Harting, 879 F.2d 765, 766-67 (10th Cir. 1989);
United States
v.
Williams, 875 F.2d 846, 850 (11th Cir. 1989);
United States
v.
Foster, 789 F.2d 457, 460 (7th Cir. 1986);
United States
v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984);
United States
v.
Buras, 633 F.2d 1356, 1358 (9th Cir. 1980).
10.04[2] Required by Law to File
10.04[2][a] Income Tax Returns
Various provisions of the Internal Revenue Code (and regulations
thereunder) specify the events which trigger the obligation to file a
return. Section 6012 of the Internal Revenue Code lists the persons and
entities required to make returns with respect to income taxes.
The receipt of a specified amount of gross income generally determines
whether an income tax return must be filed. See
United States
v.
Middleton, 246 F.3d 825, 841 (6th Cir. 2001) (stating that the assertion
that the filing of an income tax return is "voluntary" is frivolous because
26 U.S.C. § 6012(a)(1)(A) requires that every individual who earns a
threshhold level of income must file a tax return. "Gross income" is
broadly defined in section 61(a) of the Code to mean:
[A]ll income from whatever source derived, including (but not limited
to) the following items:
(1) Compensation for services, including fees, commissions,
fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
The amount of gross income which serves to trigger the filing requirement
has changed over the years. Consequently, care must be exercised to insure
that the amount of gross income received by the defendant was sufficient to
require the filing of a return in the particular year at issue. For taxable
years beginning after December 31, 1984, section 6012 provides a formula
based on gross income to determine whether an individual must make a return.
To meet its burden, the government need prove only that a person's
gross income equals or exceeds the statutory minimum.
United States
v.
Bell
, 734 F.2d 1315, 1316 (8th Cir. 1984);
United States
v.
Wade, 585 F.2d 573, 574 (5th Cir. 1978).. Where the government is
unable to present direct evidence of gross income, its burden may be
satisfied by means of an indirect method of proof.
United States
v.
Bianco, 534 F.2d 501, 503-06 (2d Cir. 1976) (evidence of expenditures in
excess of the statutory minimum plus evidence negating nontaxable sources);
United States v. Shy, 383 F. Supp. 673, 675 (D. Del. 1974) (net
worth).
Gross income is different and distinguishable from gross receipts.
"Gross receipts cannot be called gross income, insofar as they consist of
borrowings of capital, return of capital, or any other items which the IRS
Code has excluded from gross income."
United States
v. Ballard, 535
F.2d 400, 404 (8th Cir. 1976). See
United States
v.
Goldstein, 56 F.R.D. 52, 55 (D.
Del.
1972). Nevertheless, gross
receipts remaining, after appropriate adjustment, may properly reflect gross
income. Clark v.
United States
, 211 F.2d 100, 102 (8th Cir. 1954).
See also United States v. Wade, 585 F.2d 573, 574 (5th
Cir. 1978);
United States
v. Garguilo, 554 F.2d 59, 62 (2d Cir.
1977); Ballard, 535 F.2d at 405.
For manufacturing, merchandising, or mining enterprises, where the
filing requirement is predicated upon gross income, gross income is
determined, in part, by subtracting the cost of goods sold from gross
receipts or total sales. Treas. Reg. § 1.61-3 (26 C.F.R.);
Ballard, 535 F.2d at 400, 404-05. To meet its burden, the government
need prove only that gross receipts exceed the cost of goods sold by an
amount sufficient to trigger the reporting requirement.
United States
v.
Francisco, 614 F.2d 617, 618 (8th Cir. 1980); Siravo v. United
States, 377 F.2d 469, 473 (1st Cir. 1967). See
United States
v. Gillings, 568 F.2d 1307, 1310 (9th Cir. 1978). The burden then
shifts to the enterprise to come forward with evidence of offsetting
expenses.
United States
v.
Bell
, 734 F.2d 1315, 1317 (8th Cir.
1984); Siravo, 377 F.2d at 473-74;
United States
v. Bahr,
580 F. Supp. 167, 170-71 (N.D.
Iowa
1983). See also
Gillings, 568 F.2d at 1310; Garguilo, 554 F.2d at 62;.
The government need not cite in the indictment or information the
provision of the Code which requires the filing of the particular return
involved.
United States
v. Vroman, 975 F.2d 669, 671 (9th Cir. 1992).
It is enough that an indictment allege the elements of section 7203 "with
sufficient clarity to apprise [the defendant] of the charges against him and
is drawn with sufficient specificity to foreclose further prosecution upon
the same facts." Vroman, 975 F.2d at 671.
10.04[2][b] Section 6050I (Forms 8300)
Effective January 1, 1985, 26 U.S.C. § 6050I requires any person
engaged in a trade or business who receives more than $10,000 in cash in one
transaction (or two or more related) transaction(s) to file an information
return (Form 8300). The return is due the 15th day after the cash is
received.
Attorneys are not exempted from section 6050I's requirement that a
Form 8300 must be filed each time a person engaged in a trade or business
receives more than $10,000 in cash in the course of such trade or business.
See Lefcourt v.
United States
, 125 F.3d 79 (2d Cir. 1997)
(discussion of attorney's obligation to identify client on Form 8300 in
civil context). This requirement, as applied to attorneys, does not
violate the Fourth, Fifth, or Sixth Amendments.
United States
v.
Goldberger & Dubin, P.C., 935 F.2d 501 (2d Cir. 1991). Nor does it
violate the attorney-client privilege.
United States
v. Leventhal,
961 F.2d 936 (11th Cir. 1992). Section 7203 criminalizes the failure to
file a Form 8300. See, e.g.,
United States
v. Olivo, 69 F.3d
1057 (10th Cir. 1995), opinion supplemented on rehearing, 80 F.3d
1466 (10th Cir. 1996).
10.04[3] Return Not Filed at Time Required by Law
10.04[3][a] What is a Return
The mere fact that an individual or entity files a tax form does not
necessarily satisfy the requirement that a return of income be filed. For
example, tax protestors or individuals who receive illegal source income
sometimes file the correct form but do not provide meaningful or complete
information. Such filings may include assertions of various constitutional
privileges.
Most courts take the approach that a form which does not contain
sufficient financial information to allow the calculation of a tax liability
is not a "return" within the meaning of 26 U.S.C. 7203. See, e.g.,
United States v. Kimball, 925 F.2d 356, 357 (9th Cir. 1991) (en
banc); United States v. Upton, 799 F.2d 432, 433 (8th Cir. 1986)
(where taxpayer included bottom line assertion of liability, but did not
include information from which that figure was derived);
United States
v.
Malquist, 791 F.2d 1399, 1401 (9th Cir. 1986) (Form 1040 with word
"object" written in all spaces requesting information is not a return);
United States
v. Green, 757 F.2d 116, 121 (7th Cir. 1985); United
States v. Goetz, 746 F.2d 705, 707 (11th Cir. 1984);
United States
v. Mosel, 738 F.2d 157, 158 (6th Cir. 1984);
United States
v.
Vance, 730 F.2d 736, 738 (11th Cir. 1984);
United States
v.
Grabinski, 727 F.2d 681, 686-87 (8th Cir. 1984) (taxpayer must divulge
"sufficient financial circumstances" to determine tax liability); United
States v. Stillhammer, 706 F.2d 1072, 1075 (10th Cir. 1983); United
States v. Verkuilen, 690 F.2d 648, 654 (7th Cir. 1982);
United States
v. Reed, 670 F.2d 622, 623-24 (5th Cir. 1982);
United States
v.
Crowhurst, 629 F.2d 1297, 1300 (9th Cir. 1980);
United States
v.
Edelson, 604 F.2d 232, 234 (3d Cir. 1979);
United States
v.
Brown, 600 F.2d 248, 251-52 (10th Cir. 1979) (Forms 1040 containing
responses of "unknown" or "Fifth Amendment" are not returns); United
States v. Porth, 426 F.2d 519, 523 (10th Cir. 1970) ("A taxpayer's
return which does not contain any information relating to the taxpayer's
income from which the tax can be computed is not a return within the meaning
of the Internal Revenue Code or the regulations adopted by the
Commissioner"). See also discussion at Section 40.02[2],
infra.
When a form is filed containing only constitutional objections or
asterisks, there is little problem in applying this test and concluding that
the form does not constitute a return of taxes. Difficulties arise,
however, when the document filed contains all zeros or minimal monetary
amounts. The Ninth Circuit has taken the position that a Form 1040 with
zeros on all lines calling for the report of financial information is a
return because a tax liability, albeit an incorrect one, can be computed
from zeros.
United States
v. Long, 618 F.2d 74, 75 (9th Cir. 1980).
(Note that under Long, the filing of such a document could be charged
under 26 U.S.C. 7206(1) as the filing of a false return. Long, 618
F.2d at 75-76). Other courts have refused to follow Long. See,
e.g.,
Mosel
, 738 F.2d at 158 (we align ourselves with those
circuits which have specifically considered and rejected the Ninth Circuit's
decision in Long); United States v. Moore, 627 F.2d 830, 835
(7th Cir. 1980). See also United States v. Rickman,
638 F.2d 182, 184 (10th Cir. 1980) (disagreement with the Long
decision); United States v. Smith, 618 F.2d 280, 281 (5th Cir.1980).
Those courts do not reject Long's premise that a tax liability can be
computed from zeros. Rather, they focus on the question whether the form
submitted was intended to convey the sort of information required to be
submitted to the government.
Moore
, 627 F.2d at 835 ("there must be
an honest and reasonable intent to supply the information required by the
tax code," and "when it is apparent that the taxpayer is not attempting to
file forms accurately disclosing his income, he may be charged with failure
to file a return"); Smith, 618 F.2d at 281 (returns which contained
nothing but zeros and constitutional objections plainly did not even purport
to disclose the required information).
Some decisions suggest that the determination of what is an adequate
return is a legal question, and the district court properly may decide the
question.
United States
v. Green, 757 F.2d 116, 121-22 (7th Cir.
1985);
United States
v.
Moore
, 627 F.2d 830, 834 (7th Cir. 1980);
United States v. Klee, 494 F.2d 394, 397 (9th Cir. 1974) (a return
that contained "absolutely no information" about the defendant's tax status
but merely stated "all details available on proper demand" is not a return,
and the "court was right in telling the jury so"). Other courts, however,
have cautioned that such a ruling may improperly invade the province of the
jury. See Section 40.02[3], infra. In view of the Supreme
Court's reasoning in United States v. Gaudin, 515 U.S. 506 (1995),
where the Court held that materiality in a prosecution under 18 U.S.C. 1001
is an element of the offense and must be submitted to the jury, the safer
practice would be to submit to the jury, under proper instructions, the
question of whether the form the defendant filed is a "return" within the
meaning of 26 U.S.C. 7203.
10.04[3][b] Return Not Filed at Time Required by Law
Section 7203 presupposes that the government is entitled to have a
required return filed on time. In the leading case of Spies v. United
States, 317
U.S.
492, 496 (1943), the Supreme Court noted the importance
given to timely filing:
Punctuality is important to the fiscal system, and these are
[criminal] sanctions to assure punctual as well as faithful
performance of these duties.
Generally, the Internal Revenue Code sets forth the time when a given
return must be filed. Thus, section 6072 of the Code prescribes the time
for filing income tax returns. See Treas. Reg. §§
1.6072-1, 1.6072-2 (26 C.F.R.).
Individuals on a calendar year basis are required to file on or before
the 15th day of April following the close of the calendar year. 26 U.S.C.
§ 6072(a). Corporations are generally required to file on or before
the fifteenth day of the third month following the close of the taxable
year, i.e., March 15th for a calendar year corporation. 26 U.S.C.
§ 6072(b). Sections 6075(a) and (b) fix the time for filing other
returns, such as estate and gift tax returns, and windfall profit tax
returns. Forms 8300 are due the 15th day after the cash is received.
See Treas. Reg. § 1.6050I-1(e) (26 C.F.R.).
When the last day for filing a return falls on a Saturday, Sunday, or
a legal holiday, the return will be considered timely filed if it is filed
on the next day which is not a Saturday, Sunday, or legal holiday. 26
U.S.C. § 7503. Thus, if a return is due on April 15th and April 15th
falls on a Saturday or a Sunday, the return would not be due until the
following Monday, unless the Monday is a legal holiday, in which event, a
return would not be due until the next day -- Tuesday.
Where the Code does not fix a time for the filing of a return, the
Se
