10.00 FAILURE TO FILE, SUPPLY
INFORMATION OR PAY TAX
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[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
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] Civil Remedy Not Relevant
10.07[5] Inability to Pay
10.07[6] IRS Required to Prepare Returns
10.07[7] Marital and Financial Difficulties
10.07[8] Fear of Filing
10.07[9] Claim That Returns Were Mailed
10.07[10] Complicated Records
10.07[11] Paperwork Reduction Act
10.07[12] Other Defenses
10.08 LESSER INCLUDED OFFENSE/RELATIONSHIP TO
TAX EVASION
10.00 FAILURE TO FILE, SUPPLY
INFORMATION OR PAY TAX
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 (1)
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. The four categories set forth
in section 7203 are: (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
the above-referenced 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 fair 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. Stuart, 689 F.2d 759, 763
(8th Cir. 1982), cert. denied, 460 U.S. 1037 (1983)
(defendant who failed to file for three years guilty of three
separate offenses rather than one continuing offense);
United States v. Harris, 726 F.2d 558, 560 (9th Cir.
1984) (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."
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. Foster, 789 F.2d 457,
460 (7th Cir.), cert. denied, 479 U.S. 883 (1986);
United States v. Gleason, 726 F.2d 385, 388
(8th Cir. 1984); United States v. Vroman,
975 F.2d 669, 671 (9th Cir. 1992), cert. denied, 113 S. Ct.
1611 (1993); United States v. Buras,
633 F.2d 1356, 1358 (9th Cir. 1980); United States v.
Harting, 879 F.2d 175, 766-67 (10th Cir. 1989);
United States v. Williams, 875 F.2d 846,
850 (11th Cir. 1989).
10.04[2] Required by Law to File
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. "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. Wade, 585 F.2d 573, 574
(5th Cir. 1978), cert. denied, 440 U.S. 928 (1979);
United States v. Bell, 734 F.2d 1315, 1316
(8th Cir. 1984). 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.), cert. denied, 429 U.S. 822
(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.), cert. denied, 429 U.S. 918 (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), cert. denied, 348 U.S. 911 (1955). See
also United States v. Garguilo,
554 F.2d 59, 62 (2d Cir. 1977); United States v. Wade,
585 F.2d 573, 574 (5th Cir. 1978), cert. denied, 440 U.S.
928 (1979); 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. Siravo v. United States,
377 F.2d 469, 473 (1st Cir. 1967); United States v.
Francisco, 614 F.2d 617, 618 (8th Cir.), cert.
denied, 446 U.S. 922 (1980). See United
States v. Gillings, 568 F.2d 1307, 1310 (9th Cir.),
cert. denied, 436 U.S. 919 (1978). The burden then shifts
to the enterprise to come forward with evidence of offsetting
expenses. Siravo, 377 F.2d at 473-74;
United States v. Bell, 734 F.2d 1315, 1317
(8th Cir. 1984); United States v. Bahr,
580 F. Supp. 167, 170-71 (N.D. Iowa 1983). See also
Garguilo, 554 F.2d at 62;
Gillings, 568 F.2d at 1310.
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 (2) 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. 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 (2nd Cir. 1991). Nor does it violate the attorney-client
privilege. United States v. Leventhal,
961 F.2d 936 (11th Cir. 1992). Section 6050(I)(f)(1) and (2)
criminalize the willful failure to file a Form 8300. Section 7203
criminalizes the failure to file. 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), cert. denied, 113 S. Ct. 1611 (1993). 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[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.
"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." United
States v. Porth, 426 F.2d 519, 523 (10th Cir.),
cert. denied, 400 U.S. 824 (1970). The test is "whether the
defendants' returns themselves furnished the required information
for the I.R.S. to make the computation and assessment . . ."
United States v. Vance, 730 F.2d 736, 738
(11th Cir. 1984). See also United
States v. Schiff, 612 F.2d 73, 77 (2d Cir. 1979)
("conglomeration of papers filed with almost blank 1040");
United States v. Edelson, 604 F.2d 232, 234 (3d
1979); United States v. Reed, 670 F.2d
622, 623-24 (5th Cir.), cert. denied, 457 U.S. 1125 (1982);
United States v. Mosel, 738 F.2d 157, 158
(6th Cir. 1984); United States v. Verkuilen,
690 F.2d 648, 654 (7th Cir. 1982); United States v.
Green, 757 F.2d 116, 121 (7th Cir. 1985);
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 to derive that figure);
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. Kimball, 925 F.2d 356, 357 (9th Cir. 1991) (en
banc); United States v. Malquist,
791 F.2d 1399, 1401 (9th Cir.), cert. denied, 479 F.2d 954
(1986) (Form 1040 with word "object" written in all spaces
requesting information is not a return); United States
v. Crowhurst, 629 F.2d 1297, 1300 (9th Cir.),
cert. denied, 449 U.S. 1021 (1980); United States
v. Stillhammer, 706 F.2d 1072, 1075 (10th Cir. 1983);
United States v. Brown, 600 F.2d 248,
251-52 (10th Cir.), cert. denied, 444 U.S. 917 (1979)
("unknown" or claimed "Fifth Amendment" responses on Forms 1040 are
not returns). See also discussion at Section
40.02[2], infra.
The determination of what is an adequate return is a legal
question, and the district court properly may decide the question.
United States v. Moore, 627 F.2d 830, 834
(7th Cir. 1980), cert. denied, 450 U.S. 916 (1981);
United States v. Green, 757 F.2d 116, 121-22
(7th Cir. 1985) (if tax return does not contain any information
relating to a taxpayer's income from which a tax may be computed, it
cannot be classified as a return within the meaning of the Internal
Revenue Code). Some courts, however, have cautioned that such a
ruling may improperly invade the province of the jury. See
Section 40.02[3], infra. Therefore, 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."
United States v. Klee, 494 F.2d 394, 397
(9th Cir.), cert. denied, 419 U.S. 835 (1974). See
also United States v. Saussy,
802 F.2d 849, 854-55 (6th Cir. 1986), cert. denied,
480 U.S. 907 (1987) (jury instructions regarding whether form filed
constitutes return, and invocation of Fifth Amendment privilege).
Note, however, that the Ninth Circuit has held that a Form 1040
which contains only zeroes cannot form the basis for a section 7203
violation since the zeroes constitute information as to income from
which a tax could be computed. United States v. Long,
618 F.2d 74, 75 (9th Cir. 1980). The Long
court conclusion that a "return containing false or misleading
figures is still a return" suggests that a more proper charge could
be made pursuant to section 7206(1). Long,
618 F.2d at 75-76. Other circuits which have considered the issue
presented by Long have reject that court's
reasoning. In rejecting Long, the Seventh
Circuit concluded that "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." United States v. Moore,
627 F.2d 830, 835 (7th Cir. 1980), cert. denied, 450 U.S.
916 (1981). See also United States v.
Smith, 618 F.2d 280, 281 (5th Cir.), cert. denied,
449 U.S. 868 (1980) (returns which contained nothing but zeroes and
constitutional objections plainly did not even purport to disclose
the required information); 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.
Rickman, 638 F.2d 182, 184 (10th Cir. 1980)
(disagreement with the Long decision).
10.04[3][b] Return Not Filed at
Time Required by Law
The basis for a failure to file offense is 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.
In a number of instances 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 and 6076 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 Secretary is directed to prescribe the time "by regulations" for
filing any return, statement, or document required to be filed by
the Code or by regulations. 26 U.S.C. § 6071.
Because the time required by law for filing a return is crucial
to the offense, the government's failure in its charge to properly
allege the date when the legal duty to file arose may jeopardize a
prosecution. United States v. Bourque,
541 F.2d 290, 293-94 (1st Cir. 1976) (IRS regulations allow a new
corporation to determine its own fiscal year and therefore date
return due); United States v. Goldstein,
502 F.2d 526, 528 (3d Cir. 1974).
Pursuant to section 6081(a) of the Code, the Secretary is
authorized to grant a "reasonable extension of time" for filing any
return, declaration, statement, or other document required to be
filed for a period of up to six months. In general, individuals may
request an automatic extension (Form 4868) until August 15th. An
additional extension, until October 15th, may also be requested. A
corporation may have an automatic extension of six months for filing
a return if it meets the conditions set forth in the Code and
applicable regulations. 26 U.S.C. § 6081(b).
As a practical matter, this means that in any failure to file
case a search must be undertaken of IRS records, so that a
determination can be made as to whether the taxpayer has obtained an
extension of time in which to file. An attempt should always be made
to obtain the filed extension form from the IRS. Many professional
return preparers routinely keep in their files unsigned extensions
on behalf of their clients but an extension application signed by
the taxpayer provides evidence the taxpayer knew a return was due.
Moreover, because the extension application bears a perjury jurat, a
materially false signed extension application can form the basis for
a felony prosecution under 26 U.S.C. § 7206(1).
There can be no crime of failing to file an individual return by
April 15th if the taxpayer has obtained extensions of time in which
to file. See, Goldstein, 502 F.2d
526, reversing a conviction where Goldstein was indicted for failing
to file before April 15th, but at trial it developed that Goldstein
had applied for an extension and, thus, had no duty to file until
May 7th.
The following chart summarizes some of the filing requirements
for the most common taxpaying entities:
FILING REQUIREMENTS
TAXPAYER RETURN/FORM
GROSS INCOME DATE DUE
Individual 1040, 1040A 1987 $4,440 15th day of 4th month
(Single)* 1040EZ 1988 $4,950 after close of tax year
1989 $5,100
1990 $5,300
1991 $5,550
1992 $5,900
1993 $6,050
Married 1987 $7,560 Same
Filing 1040, 1040A 1988 $8,900
Jointly 1989 $9,200
1990 $9,550
1991 $10,000
1992 $10,600
1993 $10,900
Corporation 1120 N/A 15th day of 3rd month
after close of tax year
Sub S
Corporation 1120S N/A Same
Partnership 1065 N/A 15th day of 4th month
after close of tax year
Fiduciary 1041 $600 gross or 15th day of 4th month
(trust or any taxable after close of tax year
estate income) income
Person in 8300 receipt of 15th day after cash
Trade or (CTR) more than received
Business $10,000 cash
Employer 941 collected with- Quarterly - last day of
holding tax month following quarter**
(income and FICA)
Estate 706 Gross estate 9 months after date of
of $600,000 at death
time of death if
after 1986
* Note that the minimum amount for a married individual whose
spouse filed separately is less.
** If the corporation has already deposited full amount, there is
an additional 10 days in which to file.
10.04[4] Proof of Failure to File
The mechanics of establishing that there was a failure to file
are simple. It can be done either with a witness or by a
certification procedure. A combination of the two methods also may
be employed.
Witness Procedure If a witness is to be
used, a representative of the appropriate Service Center, i.e.,
one from the Service Center having custody of returns for the
required place of filing, is called to testify. The witness will
testify that he or she is a representative of the Director of the
Service Center, that he or she has custody of returns for a given
area, that the defendant was required to file with his or her
"office", that records are kept reflecting the returns filed, and
that a search of the records revealed that no return was filed by
the defendant. If this procedure is followed, the witness should
personally conduct or direct the search of the records. In addition,
the witness should be interviewed ahead of time, and it should be
brought out on the direct examination that the witness is not a tax
expert. This is important, and a failure to do this can lead to
confusion and a very uncomfortable witness. In some cases,
particularly those involving tax protestors with experienced
counsel, cross-examination concerning Service Center procedures and
various codes on IRS account transcripts may be extensive. The
questioning may also focus on the witness's knowledge that the
Service Center has lost or misplaced returns or that the
computerized taxpayer account system is faulty. Reference should be
made to the discussion of tax protestor prosecutions in Section
40.00, infra.
For two cases where the witness procedure was used, see
United States v. Greenlee, 517 F.2d 899,
902-03 (3d Cir.), cert. denied, 423 U.S. 985 (1975);
United States v. Wellendorf, 574 F.2d
1289, 1291 (5th Cir. 1978).
Certification Procedure A failure to
file by a given taxpayer can be established without a witness by
obtaining a certified transcript of account from the appropriate
Service Center stating that the taxpayer has not filed a return for
the year(s) in question. United States v. Spine,
945 F.2d 143 (6th Cir. 1991); United States v. Ryan,
969 F.2d 238 (7th Cir. 1992) (trial court's decision to admit IRS
computer printouts will be reversed only for abuse of discretion);
United States v. Farris, 517 F.2d 226,
227-29 (7th Cir.), cert. denied, 423 U.S. 892 (1975) (IRS
certified computer records admissible as self-authenticating
documents; Fed. R. Evid. 902(4)); United States v. Neff,
615 F.2d 1235, 1241-42 (9th Cir.), cert. denied, 447 U.S.
925 (1980); accord, United States v. Yakobov,
712 F.2d 20, 27 (2d Cir. 1983).
Proof of a negative is provided for by Rule 803(10) of the
Federal Rules of Evidence, which states that the proof can be by way
of testimony or in the form of a certification in accordance with
Rule 902 of the Federal Rules of Evidence.
10.04[5] Willfulness
Reference should be made to the discussion of willfulness in each
section of this manual involving crimes of willfulness, particularly
Section 8, supra, Attempt to Evade or Defeat
Tax.
Willfulness is the state of mind which must be proven to
establish intent, and whether the charge is a felony (e.g.,
evasion) or a misdemeanor (e.g., failure to file), the
willfulness or intent that must be established is the same.
United States v. Bishop, 412 U.S. 346, 361 (1973).
Willfulness in criminal tax violations means a "voluntary,
intentional violation of a known legal duty." Cheek v.
United States, 498 U.S. 192 (1991); United
States v. Pomponio, 429 U.S. 10, 12 (1976);
United States v. Bishop, 412 U.S. 346, 360 (1973);
United States v. Drape, 668 F.2d 22, 26
(1st Cir. 1982); United States v. Moon,
718 F.2d 1210, 1222 (2d Cir. 1983), cert. denied, 466 U.S.
971 (1984); United States v. Edelson,
604 F.2d 232, 235-36 (3d Cir. 1979); United States v.
Shivers, 788 F.2d 1046, 1048 (5th Cir. 1986);
United States v. Buckley, 586 F.2d 498, 503-04
(5th Cir. 1978), cert. denied, 440 U.S. 982 (1979);
United States v. Grumka, 728 F.2d 794, 796
(6th Cir. 1984); United States v. Ferguson,
793 F.2d 828, 831 (7th Cir.), cert. denied, 479 U.S. 358
(1986); United States v. Verkuilen,
690 F.2d 648, 655 (7th Cir. 1982); United States v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984);
United States v. Dahlstrom, 713 F.2d 1423, 1427
(9th Cir. 1983), cert. denied, 466 U.S. 980 (1984);
United States v. Rothbart, 723 F.2d 752, 754
(10th Cir. 1983). Particular reference should be made to the
discussion of the subjective standard for willfulness in Sections
8.00 and 40.00, supra.
Thus, in a failure to file prosecution, the government is
required to establish that the offender voluntarily and
intentionally failed to file returns which he knew were required to
be filed. United States v. Quimby,
636 F.2d 86, 90 (5th Cir. 1981). The government need not, however,
prove "evil motive or a bad purpose". United States v.
Powell, 955 F.2d 1206, 1211 (9th Cir. 1992). See
also United States v. Schafer,
580 F.2d 774, 781 (5th Cir.), cert. denied, 439 U.S. 970
(1978); Cooley v. United States, 501 F.2d
1249, 1252-53 (9th Cir. 1974), cert. denied, 419 U.S. 1123
(1975). The only bad purpose necessary to meet the willfulness
requirement of section 7203 is a deliberate intention not to file
returns that the offender knew ought to be filed. United
States v. Evanko, 604 F.2d 21, 23 (6th Cir. 1979),
cert. denied, 444 U.S. 1024 (1980); United States
v. Hawk, 497 F.2d 365, 366-69 (9th Cir.), cert.
denied, 419 U.S. 838 (1974); United States v. Brown,
600 F.2d 248, 258 (10th Cir.), cert. denied, 444 U.S. 917
(1979).
Similarly, demonstration of a good purpose is not a defense to a
charge of willful failure to file. If it is shown that the taxpayer
intentionally violated a known duty, the reason for doing so is
irrelevant. United States v. Dillon,
566 F.2d 702, 703 (10th Cir. 1977), cert. denied, 435 U.S.
971 (1978) (attempt to test constitutionality of income tax laws).
In United States v. McCorkle, 511 F.2d 482
(7th Cir.) (en banc), cert. denied, 423 U.S. 826
(1975), the court flatly rejected the defendant's argument that to
prove a willful failure to file the government had to establish an
intent to defraud. The jury instruction upheld by the court is
reprinted in a footnote to the opinion. See
McCorkle, 511 F.2d at 484 n.2. The
McCorkle case furnishes a good example of evidence
that is not admissible in defense of a failure to file, e.g.,
contemplating suicide, no funds available to pay taxes, fear of IRS
liens on property, involved in divorce, offering to pay civil
liabilities, and not keeping accurate records. 511 F.2d at 486.
See also United States v. Klee,
494 F.2d 394, 395 n.1 (9th Cir.), cert. denied, 419 U.S.
835 (1974) ("no necessity that the government prove that the
defendant had an intention to defraud it, or to evade the payment of
any taxes . . . .").
Willfulness is thus established when the government proves that
the failure to file was "voluntary and purposeful and with the
specific intent to fail to do that which he knew the law required."
United States v. Wilson, 550 F.2d 259, 260
(5th Cir. 1977); Cooley, 501 F.2d at 1253
n.4. But willfulness is not established if the government proves
only a "careless and reckless disregard" for the obligation to file.
United States v. Eilertson, 707 F.2d 108,
109-10 (4th Cir. 1983) (trial court improperly used pre-Bishop
"careless disregard" jury instruction). See
United States v. Wolters, 656 F.2d 523, 525 (9th Cir.
1981) (jury instruction sufficiently defined willful so as to
exclude "reckless disregard").
10.04[5][a] Proof of
Willfulness
Proof of willfulness may be, and usually is, shown by
circumstantial evidence alone. United States v. Schiff,
612 F.2d 73, 77-78 (2d Cir. 1979) (previously filed corporate and
personal returns; reminder by accountant); United States
v. Brown, 548 F.2d 1194, 1199 (5th Cir. 1977) (letters
from Service Center); United States v. Grumka,
728 F.2d 794, 796-97 (6th Cir. 1984); United States v.
Gleason, 726 F.2d 385, 388 (8th Cir. 1984);
United States v. Marabelles, 724 F.2d 1374, 1379
(9th Cir. 1984) (section 7201) (list of acts from which willfulness
can be inferred); Swallow v. United States,
307 F.2d 81, 83 (10th Cir. 1962), cert. denied, 371 U.S.
950 (1963) (section 7201).
Willfulness is suggested by a pattern of failing to file for
consecutive years in which returns should have been filed.
United States v. Greenlee, 517 F.2d 899, 903
(3d Cir.), cert. denied, 423 U.S. 985 (1975). This may
include years prior or subsequent to the prosecution period.
United States v. Farris, 517 F.2d 226, 229
(7th Cir.), cert. denied, 423 U.S. 892 (1975);
United States v. Upton, 799 F.2d 432, 433 (8th Cir.
1986).
Willfulness may also be shown by such acts as mailing tax protest
materials to the IRS, disregarding IRS warning letters, and filing
contradictory forms. United States v. Shivers,
788 F.2d 1046, 1048 (5th Cir. 1986) (defendant filed a W-4 claiming
he was exempt from withholding only four days after filing a W-4
claiming three allowances); see also
United States v. Upton, 799 F.2d 432, 433 (8th Cir.
1986) (defendant sent protestor materials to IRS);
United States v. Poschwatta, 829 F.2d 1477, 1481-82
(9th Cir. 1987), cert. denied, 484 U.S. 1064 (1988)
(willfulness shown by past failure to file, application for
extension of filing deadline, and knowledge of criminal penalties of
failure to file).
There is also an element of common sense in establishing
willfulness in a failure to file case. Thus, willfulness can be
shown by such factors as: the background of the defendant; the
filing of returns in prior years, United States v.
Shivers, 788 F.2d 1046, 1048 (5th Cir. 1986);
United States v. Birkenstock, 823 F.2d 1026, 1028
(7th Cir. 1987); Poschwatta, 829 F.2d at
1481; United States v. Bohrer, 807 F.2d
159, 161 (10th Cir. 1986); that the defendant was a college graduate
with accounting knowledge; that the defendant was familiar with
books and records and operated a business, United States
v. Segal, 867 F.2d 1173, 1179 (8th Cir. 1989); that
the defendant earned a large gross income, Bohrer,
807 F.2d at 161. See also United
States v. Ostendorff, 371 F.2d 729, 731 (4th Cir.),
cert. denied, 386 U.S. 982 (1967); United
States v. MacLeod, 436 F.2d 947, 949 (8th Cir.),
cert. denied, 402 U.S. 907 (1971).
In a similar vein, where the defendant received a standard Form
W-2, it has been held that:
the jury was entitled to view the W-2 Forms as reminders of the
duty to file received shortly before or during the period in which
filing was required.
United States v. Cirillo, 251 F.2d 638,
639 (3d Cir. 1957), cert. denied, 356 U.S. 949 (1958). The
Form W-2 does not serve as a return, whether filed by the taxpayer
or employer. Birkenstock, 823 F.2d at
1030. See also Section 40.14[16], infra.
Also, evidence that a defendant had filed returns in other years
when he claimed refunds while there was a substantial tax due for
the years he failed to file is relevant evidence and more than
enough to establish willfulness. Garguilo,
554 F.2d at 62.
10.04[5][b] Willful Blindness
Because willfulness requires a voluntary and intentional
violation of a known legal duty, it is a defense to a finding of
willfulness that the defendant was ignorant of facts which made the
conduct illegal. Such ignorance is not a defense, however, if the
defendant purposefully sought to avoid knowledge. See
United States v. Ramsey, 785 F.2d 184, 189
(7th Cir.), cert. denied sub nom. McCreary v.
United States, 476 U.S. 1186 (1986) (mail and wire
fraud). When a defendant claims ignorance as to facts necessary for
a finding of willfulness, the defendant's knowledge may be inferred
from conduct. Evidence that a defendant avoided knowledge of facts
that would alert the defendant to a duty under the tax laws may
prove knowledge circumstantially. The prosecution may argue that the
jury should infer guilty knowledge from the charade of deliberate
avoidance of knowledge. Ramsey, 785 F.2d
at 189. The use of an "ostrich instruction" -- also known as a
deliberate ignorance, conscious avoidance, willful blindness, or a
Jewell instruction (see
United States v. Jewell, 532 F.2d 697 (9th Cir.),
cert. denied, 426 U.S. 951 (1976) -- may be appropriate in
circumstances where the defendant claims a lack of knowledge and the
evidence supports a finding that the ignorance was intentional.
A number of courts have approved the use of such instructions
under proper circumstances. See, e.g.,
United States v. Picciandra, 788 F.2d 39, 46
(1st Cir.), cert. denied, 479 U.S. 847 (1986);
United States v. MacKenzie; 777 F.2d 811, 818-19
(2d Cir.), cert. denied, 476 U.S. 1169 (1986);
United States v. Callahan, 588 F.2d 1078 (5th Cir.
1979); United States v. Dube, 820 F.2d
886, 892 (7th Cir. 1987); United States v. Bussey,
942 F.2d 1241, 1246 (8th Cir.), cert. denied, 112 S. Ct.
1936 (1991) (post-Cheek decision);
United States v. Fingado, 934 F.2d 1163, 1166-67
(10th Cir.), cert. denied, 112 S. Ct. 320 (1991). However,
it has also been said that the use of such instructions is "rarely
appropriate." United States v. deFrancisco-Lopez,
939 F.2d 1405, 1409 (10th Cir. 1991) (relying on several 9th Circuit
cases). (3) Thus, it is advisable not
to request such an instruction unless it is clearly warranted by the
evidence in a particular case. Furthermore, the language of any
deliberate ignorance instruction in a criminal tax case must comport
with the government's obligation to prove the voluntary, intentional
violation of a known legal duty. The deliberate ignorance
instruction set forth in United States v. Fingado,
934 F.2d at 1166, appears to be suitable for a criminal tax case. (4)
Further, to avoid potential confusion with the meaning of
"willfulness" as it relates to the defendant's intent, it may be
wise to avoid use of the phrase "willful blindness," using instead
such phrases as "deliberate ignorance" or "conscious avoidance." (5)
10.04[6] Tax Deficiency Not
Necessary
The crime of failing to file a return is complete if a return was
required to be filed at a given date and the taxpayer intentionally
did not file a return. There is no requirement that the government
prove a tax liability, as long as the proof establishes that the
taxpayer had sufficient gross income to require the filing of a
return. Spies v. United States, 317 U.S.
492, 496 (1943); United States v. Wade,
585 F.2d 573, 574 (5th Cir. 1978), cert. denied, 440 U.S.
928 (1979). As a practical matter, evidence establishing a tax
deficiency usually will be offered as a part of the government's
evidence of willfulness but, as noted, this is technically not
necessary. See United States v. Schmitt,
794 F.2d 555, 560 (10th Cir. 1986) (evidence of tax liability
relevant and not prejudicial in failure to file case). See
also United States v. Hairston,
819 F.2d 971, 974 (10th Cir. 1987) (defendant not allowed to show
that he would have received refund to negate willfulness).
10.04[7] Venue - Failure to File
Reference should be made to the discussion of venue in Section
6.00, supra.
The general rule is that venue in a failure to file case is found
in any judicial district in which the taxpayer is required to file,
i.e., the district in which the crime was committed.
United States v. Rice, 659 F.2d 524, 526
(5th Cir. 1981); United States v. Quimby,
636 F.2d 86, 89 (5th Cir. 1981).
Section 6091 of the Code sets forth the places for filing
returns. In those instances where the Code does not provide for the
place of filing, the Secretary "shall by regulations" prescribe the
place for filing. 26 U.S.C. § 6091(a).
The general rule is that individual tax returns are to be filed
either in the internal revenue district where the taxpayer resides
or has his principal place of business, or at the Service Center
serving the internal revenue district where the taxpayer resides or
has his principal place of business. 26 U.S.C. § 6091(b); Treas.
Reg. § 1-6091-2 (26 C.F.R.); United States v. Garman,
748 F.2d 218, 219 (4th Cir. 1984), cert. denied, 470 U.S.
1005 (1985). "'Legal residence' means the permanent fixed place of
the abode which one intends to be his residence and to return to it
despite temporary residences elsewhere, or absences."
United States v. Calhoun, 566 F.2d 969, 973 (5th Cir.
1978). Note that, "(a)n individual employed (exclusively) on a
salary or commission basis . . . does not have a 'principal place of
business' within the meaning of this section." Treas. Reg.
§ 1.6091-2(a)(2) (26 C.F.R.).
One exception for individuals is that if the taxpayer's legal
residence is outside the United States or if his return bears a
foreign address, the return should be filed with the Director of
International Operations, Internal Revenue Service, Washington,
D.C., or the district director, or the director of Service Center,
depending on the return form or in the instructions issued with the
return. Treas. Reg. § 1.6091-3(b) (26 C.F.R.). Another exception is
that if an individual, although continuously present in the United
States, has no legal residence or principal place of business in any
internal revenue district, the return should be filed with the
District Director in Baltimore, Maryland. Treas. Reg.
§ 1-6091-2(a)(1) (26 C.F.R.).
For a corporation, the general rule is substantially the same as
for individuals, except that the "principal office or agency of the
corporation" is substituted for "legal residence." Treas. Reg.
§ 1.6091-2(b) (26 C.F.R.).
While no case exactly on point has been located, it would seem
that the place of performance is to be determined on the basis of
the taxpayer's legal residence or principal place of business at the
time the return was due, because 26 U.S.C. § 6091 is written in the
present tense.
Returns can also be filed by hand-carrying to the appropriate
Internal Revenue Service office (26 U.S.C. § 6091(b)(4)). The
regulations provide, for example, that an individual return "filed
by hand-carrying shall be filed with the district director (or with
any person assigned the administrative supervision of an area, zone,
or local office constituting a permanent post of duty within the
internal revenue district of such director) . . . ." Treas. Reg.
§ 1.6091-2(d)(1) (26 C.F.R.). The reference to the district director
or local office refers back to the district "in which is located the
legal residence or principal place of business" of the taxpayer.
Id.
As a practical matter, all of this means that venue in the usual
individual failure to file case can be placed in the district where
the appropriate Service Center is located, or in the district where
the taxpayer resides or has his principal place of business. Note,
however, that under the statute governing venue in continuing
offenses, 18 U.S.C. § 3237, specific reference is made to cases
brought pursuant to sections 7201, 7203, and 7206(1), (2), and (5).
Section 3237(b) provides that where an offense is described in
section 7203 or when venue for a prosecution of an offense described
in section 7201 or section 7206(1), (2), or (5) is based solely on a
mailing to the IRS and prosecution is begun in a judicial district
other than the judicial district in which the defendant resides, the
case may be transferred upon motion by the defendant to the district
in which he was residing at the time the offense was committed.
See also Section 6.00, supra, on venue in
this Manual.
10.04[8] Statute of Limitations
Reference should be made to Section 7.00, supra,
discussing the statute of limitations in criminal tax cases.
The statute of limitations for a failure to file a return is six
(6) years, except for information returns required under Part III of
subchapter A of Chapter 61 of the Internal Revenue Code. 26 U.S.C.
§ 6531(4). For information returns required by the Code, including
returns (Forms 8300) required pursuant to section 6050I, the period
of limitations is three (3) years, as is the period of limitations
for failure to supply information or keep records.
The statute of limitations is computed from the due date of the
return. See Section 10.04(3), supra. In the case
of an individual, this will usually be April 15th, unless an
extension of time in which to file is granted (26 U.S.C. § 6081), in
which event the statute is computed from the extended compliance
date. See United States v. Goldstein,
502 F.2d 526 (3d Cir. 1974); United States v. Pandilidis,
524 F.2d 644 (6th Cir. 1975), cert. denied, 424 U.S. 933
(1976).
The statute of limitations is tolled by the filing of the
information or indictment. United States v. Saussy,
802 F.2d 849, 851 (6th Cir. 1986), cert. denied, 480 U.S.
907 (1987) (claim that information must be "verified" by affidavit
or other prior determination of probable cause rejected). The
statute is also tolled when the defendant is outside the United
States or is a fugitive from justice, 26 U.S.C. § 6531, and during
certain summons enforcement proceedings, 26 U.S.C. § 7609(e).
10.05 FAILURE TO PAY
10.05[1] Elements
To establish the offense of failure to pay a tax, the government
must prove beyond a reasonable doubt that:
(1) The defendant had a duty to pay a tax;
(2) The tax was not paid at the time required by law; and,
(3) The failure to pay was willful.
United States v. Tucker, 686 F.2d 230,
232 (5th Cir.), cert. denied, 459 U.S. 1071 (1982). See
Sansone v. United States, 380 U.S. 343,
351 (1965). Prosecutions of a willful failure to pay "are rare".
United States v. Tucker, 686 F.2d at 233.
10.05[2] Required by Law to Pay
This element should not pose any undue difficulty. If the
taxpayer has not filed a return, the charge would be a failure to
file. However, when a return has been filed reflecting a tax due and
owing, there are at least two possible charges, depending on the
facts -- an attempted evasion of payment, in violation of 26 U.S.C.
§ 7201, or a failure to pay a tax, in violation of 26 U.S.C. § 7203.
The charge would be under section 7203 if there was no affirmative
attempt to evade the payment by, for example, the concealment of
assets or the use of nominees, but, rather, simply a failure to pay
a tax that was due and owing.
As to the time of payment, section 6151(a) of the Code sets forth
the general rule as follows:
Except as otherwise provided in this subchapter, when a return of
tax is required under this title or regulations, the person required
to make such return shall, without assessment or notice and demand
from the Secretary, pay such tax to the internal revenue officer
with whom the return is filed, and shall pay such tax at the time
and place fixed for filing the return . . . .
See United States v. Drefke,
707 F.2d 978, 981 (8th Cir.), cert. denied, 464 U.S. 359
(1983).
In the usual failure to pay case, the taxpayer will have filed a
return and then failed to pay the tax. While most assessments are
based on filed returns, it is not necessary that the Service assess
the tax as due and owing, because a tax deficiency arises by
operation of law on the date the return is due. 26 U.S.C. § 6151(a);
United States v. Voorhies, 658 F.2d 710,
714 (9th Cir. 1981) (an evasion of payment case but the principle is
applicable here). Otherwise stated, it is not necessary that there
be an administrative assessment before a criminal prosecution may be
instituted. Voorhies, 658 F.2d at 714-15.
Accord, United States v. Daniel,
956 F.2d 540, 542 (6th Cir. 1992); United States v. Dack,
747 F.2d 1172, 1174 (7th Cir. 1984).
10.05[3] Failure to Pay
The Internal Revenue Service will provide a qualified witness
and/or a certified transcript of account or a certificate of
assessments and payments establishing the failure to pay the tax. A
search of the Internal Revenue Service records should always include
a search as to whether any extensions of time have been granted.
While section 6151(a) of the Code provides that a tax is due at the
time of filing "without regard to any extension of time," the
reference to "any extension of time" merely fixes the date when the
tax is due -- not when it necessarily must be paid. If an extension
is granted, the tax would not have to be paid until the extended
date. See Voorhies, 58 F.2d at
713. See also the discussion in Section 10.04(4),
Proof of Failure to File.
10.05[4] Willful Failure to Pay
See the discussion of willfulness in Sections 8.06 and
10.04[4], supra.
In United States v. Andros, 484 F.2d
531 (9th Cir. 1973), the court, in sustaining a conviction for
willful failure to pay, took the position that to establish
willfulness the government must prove that the taxpayer had
sufficient funds to pay the tax and voluntarily and intentionally
did not do so. Id. at 531. But the court also stated that
willfulness connotes bad faith or evil intent in view of all the
financial circumstances of the taxpayer. This premise is no longer
viable after United States v. Pomponio,
429 U.S. 10 (1976).
In United States v. Tucker, 686 F.2d
230 (5th Cir.), cert. denied, 459 U.S. 1071 (1982), the
Fifth Circuit rejected the defendant's contention that the
government had to prove the defendant was financially able to pay
the tax when it became due, saying (686 F.2d at 233):
Tucker's second argument is that, in order to show willfulness
under Section 7203, the government must prove that the taxpayer was
financially able to pay his tax debt when it came due. Tucker argues
that he was unable to pay his taxes when due because his checking
accounts had either very low or negative balances, and because he
had no other assets available to satisfy the debt. He thus concludes
that his failure to pay was not willful. This argument borders on
the ridiculous. Every United States citizen has an obligation to pay
his income tax when it comes due. A taxpayer is obligated to conduct
his financial affairs in such a way that he has cash available to
satisfy his tax obligations on time. As a general rule, financial
ability to pay the tax when it comes due is not a prerequisite to
criminal liability under Section 7203. Otherwise, a recalcitrant
taxpayer could simply dissipate his liquid assets at or near the
time when his taxes come due and thereby evade criminal liability.
The court declined to follow the Ninth Circuit in
Andros, 484 F.2d 531, taking the position that the
language in Andros, to the effect that it
must be shown that a taxpayer has sufficient funds to pay the tax on
or about the day the tax was due, was dicta. Tucker,
686 F.2d at 233. Again, it would seem to be only common sense that a
taxpayer who has dissipated his assets on luxury items should not be
able to avoid criminal prosecution by showing that he had no funds
to pay the taxes he owed. See also Section 9.03,
supra.
10.05[5] Venue
Reference should be made to the discussion of venue in Sections
6.00 and 10.04[7], supra.
Generally, a person required to pay a tax must pay the tax at the
place fixed for filing the return. Venue would therefore normally be
in the district where the return was filed. As previously noted,
where there is no filing the charge normally would be a failure to
file rather than a failure to pay a tax.
10.05[6] Statute of Limitations
The statute of limitations is six years "for the offense of
willfully failing to pay any tax . . . at the time or times required
by law or regulations." 26 U.S.C. § 6531(4). See
United States v. Smith, 618 F.2d 280, 281-82
(5th Cir.), cert. denied, 449 U.S. 868 (1980).
The six-year period of limitations begins to run when the failure
to pay the tax becomes willful, not when the tax is assessed or when
payment is demanded. Andros, 484 F.2d at
532-33. See also United States v.
Pelose, 538 F.2d 41, 44-45 (2d Cir. 1976);
United States v. Sams, 865 F.2d 713, 716 (6th Cir.
1988), cert. denied, 491 U.S. 905 (1989) ("the limitation
period begins to run when the taxpayer manifests some act of willful
nonpayment").
10.06 SENTENCING
Reference should be made to Section 5.00 infra, which
discusses the application of the Federal Sentencing Guidelines to
criminal tax cases.
10.07 DEFENSES
There are a number of defenses that have been litigated and ruled
on by the courts. A list of some of the common defenses raised in
failure to file cases and their treatment by the courts follows.
10.07[1] Intent to Pay Taxes in
Future
The intent to report and pay taxes due in the future does not
constitute a defense and "does not vitiate" the willfulness required
for a failure to file or, for that matter, for an attempt to evade.
Sansone v. United States, 380 U.S. 343,
354 (1965).
10.07[2] Absence of a Tax
Deficiency
There is no requirement that the government establish a tax
liability, as long as the taxpayer had a gross income that required
the filing of a return. Spies v. United States,
317 U.S. 492, 496 (1943); United States v. Wade,
585 F.2d 573, 574 (5th Cir. 1978), cert. denied, 440 U.S.
928 (1979).
10.07[3] Delinquent Filing
The defense of filing late returns has been rejected in failure
to file cases. In addition, evidence offered by the defendant of
late filing and the late payment of taxes has been excluded.
United States v. Greenlee, 380 F. Supp. 652, 660
(E.D. Pa. 1974), aff'd., 517 F.2d 899, 903 (3d Cir.),
cert. denied, 423 U.S. 985 (1975); United States v.
Ming, 466 F.2d 1000, 1005 (7th Cir.), cert. denied,
409 U.S. 915 (1972).
The First Circuit, in United States v. Bourque,
541 F.2d 290, 294 (1st Cir. 1976), noted the principle that
"subsequent conduct cannot relieve a taxpayer from criminal
liability for failure to file tax returns on or before their due
date." In this connection, the Seventh Circuit has upheld the
exclusion of evidence by the defendant that he had eventually paid
his taxes, even though the government was allowed to prove the
amount of taxes the defendant owed for the years in issue.
United States v. Sawyer, 607 F.2d 1190 (7th Cir.
1979), cert. denied, 445 U.S. 943 (1980).
10.07[4] Civil Remedy Not Relevant
The fact that the government could proceed civilly, instead of
criminally, is "irrelevant to the issue of criminal liability and
the defendant is not entitled to an instruction that the government
could assess the taxes without filing criminal charges."
United States v. Buras, 633 F.2d 1356, 1360
(9th Cir. 1980); United States v. Merrick,
464 F.2d 1087, 1093 (10th Cir.), cert. denied, 409 U.S.
1023 (1972).
10.07[5] Inability to Pay
The Seventh Circuit has stated that a defendant is not entitled
to an instruction on inability to pay where no foundation was laid
in the evidence that the defendant lacked the money to pay his
taxes:
Lewis had money to pay the other expenses of his business; he
just assigned a lower priority to paying withholding taxes than to
meeting his other expenses. This does not "show inability to pay"
and the judge was not required to give an instruction that was
premised on such inability.
United States v. Lewis, 671 F.2d 1025,
1028 (7th Cir. 1982). See also, United States
v. Tucker, 686 F.2d 230, 233 (5th Cir.), cert.
denied, 459 U.S. 1071 (1982).
10.07[6] IRS Required to Prepare
Returns
Section 6020 of the Internal Revenue Code provides that if a
person fails to file a return or makes a willfully false return, the
Secretary "shall make such return from his own knowledge or from
such information as he can obtain." Courts have uniformly
disapproved the use of this section as a defense in failure to file
cases. See, e.g., United States v.
Powell, 955 F.2d 1206, 1213 (9th Cir. 1992);
United States v. Poschwatta, 829 F.2d 1477, 1483
(9th Cir. 1987), cert. denied, 484 U.S. 1064 (1988) ("[t]he
Secretary of Treasury's execution of a return on behalf of a
taxpayer does not relieve the taxpayer of his obligation to file a
return."). Accord, United States v. Lacy,
658 F.2d 396, 397 (5th Cir. 1981); Moore v. C.I.R.,
722 F.2d 193, 196 (5th Cir. 1984).
A defendant in the Eastern District of New York claimed that the
government was barred from prosecuting him for failure to file,
because he had filed partnership returns, which triggered the IRS's
duty to file individual returns for him under section 6020(b) of the
Code. Rejecting this defense and holding that the government was not
barred from prosecuting for a failure to file, the court stated that
the defendant's interpretation of the statutes was "inherently
implausible" and that section 6020(b) "cannot be interpreted as
foreclosing civil or criminal sanctions for acts or omissions of the
taxpayer." United States v. Harrison, 30
A.F.T.R. 72-5367 (E.D.N.Y. 1972), aff'd. without opinion,
486 F.2d 1397 (2d Cir. 1972), cert. denied, 411 U.S. 965
(1973).
In United States v. Millican, 600 F.2d
273, 278 (5th Cir. 1979), cert. denied, 445 U.S. 915
(1980), the court held that there was "no merit to Millican's claim
of entitlement to an instruction that the Internal Revenue Service
was under a duty pursuant to 26 U.S.C.A. section 6020(b)(1) to
prepare his tax return."
In a similar vein, the Seventh Circuit upheld a jury instruction
on section 6020(b) which stated that while the law permits the
Secretary to prepare a return, "the law does not require the
Secretary to do so and the Secretary's discretion in this matter in
no way reduces the obligation of the individual taxpayers to file
their returns." United States v. Verkuilen,
690 F.2d 648, 656 (7th Cir. 1982).
10.07[7] Marital and Financial
Difficulties
The refusal of the trial judge to allow an attorney charged with
a failure to file to introduce evidence of marital and financial
difficulties has been upheld on the grounds that "evidence of
financial and domestic problems are not relevant to the issue of
willfulness" as used in section 7203. Bernabei v. United
States, 473 F.2d 1385 (6th Cir.), cert. denied,
414 U.S. 825 (1973). See also United
States v. Greenlee, 517 F.2d 899, 903 (3d Cir.),
cert. denied, 423 U.S. 985 (1975).
10.07[8] Fear of Filing
Saying it was "no defense," the Second Circuit upheld the refusal
of the trial judge to instruct the jury that it must acquit if it
found the defendant did not file his returns because of a fear of
incriminating himself for prior violations. United
States v. Egan, 459 F.2d 997, 998 (2d Cir.), cert.
denied, 429 U.S. 875 (1972).
10.07[9] Claim That Returns Were
Mailed
A jury could find that returns not received by the Internal
Revenue Service were in fact mailed as claimed by a defendant. But a
thorough explanation by a representative of the appropriate Service
Center respecting the manner in which returns are received and
processed, coupled with evidence that the Service Center never
received the returns, is sufficient to support a conviction under
section 7203. United States v. Greenlee,
517 F.2d 899, 903 (3d Cir.), cert. denied, 423 U.S. 985
(1975).
10.07[10] Complicated Records
While characterizing the defense as "lame" and upholding the
conviction on failure to file charges, the Sixth Circuit held that
it was error not to permit the defendant to introduce in evidence
some of his records to corroborate his claim that the records were
so complicated he could not file accurate returns on time.
United States v. Dark, 597 F.2d 1097, 1099-1100
(6th Cir.), cert. denied, 444 U.S. 927 (1979).
10.07[11] Paperwork Reduction Act
The Paperwork Reduction Act, 44 U.S.C. § 3512 (PRA), provides
that no person shall be subject to any penalty for failing to
provide information if an agency's request does not display an
Office of Management and Budget (OMB) number. Tax returns are agency
requests within the scope of the PRA and bear OMB numbers. However,
return instruction booklets do not bear OMB numbers and tax
protestors have attempted to manufacture a defense on this basis.
The absence of an OMB number from tax return instruction booklets
does not excuse the duty to file the return. United
States v. Ryan, 969 F.2d 238, 240 (7th Cir. 1992) (IRS
instruction booklets merely assist taxpayers rather than
independently request information); United States v.
Holden, 963 F.2d 1114, 1116 (8th Cir.), cert.
denied, 113 U.S. 419 (1992). Also, it is not necessary that an
expiration date appear on a return. Salberg v. United
States, 969 F.2d 379, 384 (7th Cir. 1992) (year
designation, e.g., "1990" is sufficient). See also Section
40.14[20], infra.
10.07[12] Other Defenses
In United States v. Dunkel, 900 F.2d
105, 107-08 (7th Cir. 1990), vacated and remanded on other
grounds, 111 S. Ct. 747 (1991), rev'g on other grounds,
927 F.2d 955 (7th Cir.), a tax protestor defendant claimed that the
requirement to "make a return" was unconstitutionally vague. The
defendant posited different interpretations of the word "make,"
including to "construct a return out of raw materials."
Dunkel, 900 F.2d at 107. The Court had little sympathy
for this frivolous argument and rejected it by stating that
"statutes are not unconstitutional just because clever lawyers can
invent multiple meanings." Dunkel,
900 F.2d at 108.
10.08 LESSER INCLUDED
OFFENSE/RELATIONSHIP TO TAX EVASION
In charging and sentencing determinations, the question sometimes
arises whether section 7203 is a lesser included offense of section
7201, tax evasion. Reference should be made to the detailed
discussion of this issue in Section 8.09, supra.
Footnotes:
1. Changed to 18 U.S.C. § 3571, commencing
Nov. 1, 1986.
2. The term "cash" includes foreign currency
and, to the extent provided in regulations prescribed by the
Secretary of the Treasury, any monetary instrument (whether or not
in bearer form) with a face amount of not more than $10,000. 26 U.S.C.
§ 6050I(d)(1) & (2). Treas. Reg. § 1.6050I-1(c)(1) (26 C.F.R.). The
term generally does not include a check drawn on the account of the
writer.
3. But see United States
v. Rodriguez, 983 F.2d 455, 457 (2d Cir. 1993) (Second
Circuit more willing than Ninth Circuit to authorize use of this
type of instruction).
4. Out of an abundance of caution, however, a
prosecutor may wish to utilize the instruction set out in
United States v. MacKenzie, 777 F.2d 811, 818 n.2
(2d Cir. 1985), cert. denied, 476 U.S. 1169 (1986).
5. It is suggested that any time a deliberate
ignorance or conscious avoidance instruction is given, the
prosecutor should also insure that the jury is expressly directed
not to convict for negligence or mistake.
Source of material:
http://www.usdoj.gov/tax/readingroom/criminal/taxc10.htm#10.04[3][b]
