8/7/2018 Criminal Tax Investigations: What to Do When Uncle Comes Knocking? National Conference ELEVATE National Conference 2018 Anaheim Eric L. Green Eric is a partner with Green & Sklarz, LLC in Connecticut and New York The focus is civil and criminal taxpayer representation Has served as adjunct faculty at the University of Connecticut School of Law Author of the Accountant’s Guide to IRS Collection (www.TGPublish.com/shop) Founder of Tax Rep LLC – www.taxrepllc.com Columnist for the Journal of Tax Practice & Procedure & Forbes Weekly Tax Rep Podcast in ITunes: https://itunes.apple.com/us/podcast/podcasts-tax-rep- llc/id1276903945?mt=2 Past Chair of the Executive Committee of the Tax Section of the Connecticut Bar Association Fellow of the American College of Tax Counsel ELEVATE National Conference 2018 Anaheim 1
8/7/2018 Offenses Involving Taxation The criminal tax laws are designed to protect the public interest in preserving the integrity of the nation’s tax system. Criminal tax prosecutions serve to punish the violator and promote respect for the tax laws. Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines. Recognition that the sentence for a criminal tax case will be commensurate with the gravity of the offense should act as a deterrent to would-be violators. Federal Sentencing Guidelines Manual Tax Crimes Title 26 U.S. Code • 7201 – Tax Evasion (liability and collectability) • 7202 – Willful Failure to Collect or Pay Over Tax (Payroll Tax) • 7203 – Failure to File a Tax Return, Supply Information or Pay Tax • 7206 – Fraud & False Statements • 7212 – Corruptly Endeavoring to Interfere with Administration of the Internal Revenue Laws 2
8/7/2018 Other “Tax” Crimes • Aiding & Abetting – 18 USC § 2 • Conspiracy to Defraud the Government – 18 USC § 286 • False, Fictitious or Fraudulent Claims – 18 USC § 287 • Conspiracy to Defraud the US ‐ 18 USC § 371 (also known as a Klein conspiracy) Related Crimes • Identity Theft – 18 USC § 1028(a)(7) • Wire Fraud – 18 USC § 1341 • Bank Fraud – 18 USC § 1344 • Perjury – 18 USC § 1001/1621 • False declarations before a grand jury – 18 USC § 1623 • Money Laundering ‐ 18 USC § 1956 • Structuring – 31 USC § 5324 3
8/7/2018 True or False: The IRS criminal Division has never had a less than 90% conviction rate on those cases taken to trial. True! 4
8/7/2018 26 USC 7201 ‐ tax evasion • Elements: • Additional tax due and owing • Affirmative act • Willfulness • Intentional violation of a known legal duty • Element of every tax crime 26 USC 7201 ‐ tax evasion 2 ways to violate this statute: • Attempt to evade assessment • Attempt to evade payment • Note: the statute makes criminal any attempt in any manner to evade or defeat the assessment or payment of taxes! 5
8/7/2018 Examples of affirmative acts • An affirmative act is “any conduct, the likely effect of which would be to mislead or conceal.” Spies v. United States , 317 U.S. 492, 499 (1943) • Examples: • “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,” Examples of affirmative acts from cases • False statements to IRS agents – very common • Instructing employees not to talk to IRS agents • Filing of a false Form W‐4 or false extension request claiming no tax is due and owing • Use of cash, not keeping business records, paying employees in cash and not reporting their wages • Use of “independent contractor” status to eliminate withholding of taxes • Diverting income into accounts in names of children 6
8/7/2018 Examples of affirmative acts of evasion of payment • Almost always involve some form of concealment of assets or the taxpayer’s ability to pay the tax due and owing • Placing assets in the names of others, dealing in cash, using nominees for businesses • Signing and submitting false financial statements (Forms 433) to the IRS • Passive non‐payment of taxes is not enough • Structuring! (like dealing in cash to avoid civil tax levies) IRC § 7202 ‐ Employment Tax Prosecutions Elements • Duty to collect, account for and pay over payroll taxes • Failure to collect or truthfully account for and pay over • Willfulness 7
8/7/2018 IRC § 7202 – Willful failure to Collect or Pay Over Tax • Background • Direct—employer’s taxes • Federal Unemployment Tax (FUTA) • Employer’s share of the employee’s Social Security and Medicare (FICA) IRC § 7202 ‐ Employment Tax Prosecutions • Fiduciary—withheld taxes • Employee’s share of Social Security and Medicare (FICA) • Employee’s income tax withholding 8
8/7/2018 IRC § 7202 ‐ Employment Tax Prosecutions • Different than IRC Sections 6672 or 3505 • IRC Section 7202 makes it a felony for the willful failure to collect, account for and pay over the employment taxes Primary criminal statutes • Willful failure to collect or pay over tax (26 U.S.C. Section 7202) — felony statute • Offenses with respect to collected taxes (26 U.S.C. Section 7215) — misdemeanor IRC § 7202 ‐ Employment statute Tax Prosecutions 9
8/7/2018 IRC § 7202 ‐ Employment Tax Prosecutions Other charging options may include the following • False Subscription (26 U.S.C. Section 7206(1)) • Tax Evasion (26 U.S.C. Section 7201) • Conspiracy (18 U.S.C. Section 371) IRC § 7202 ‐ Employment Tax Prosecutions • The duty falls on the employer—duty is non‐delegable • Section 7202 duties to withhold, account for and pay over are inseparable • The breach of any one is an offense 10
8/7/2018 IRC § 7202 ‐ Employment Tax Prosecutions • IRC §7202 does not require proof of an affirmative/overt act — paying other creditors instead of the IRS establishes willfulness • Applies only to fiduciary taxes • The employer’s portion may be charged as tax evasion under IRC §7201 or treated as relevant conduct for sentencing IRC § 7202 ‐ Employment Tax Prosecutions • Criminal Cases (§7202) v. Civil Trust Fund Cases (§6672) • Recidivism • Opening a series of companies that fail to pay • Personal benefit reaped by the owner/operator/responsible party • Toys • Planes, boats, exotic autos • Claiming benefits on personal returns 11
8/7/2018 IRC § 7203 – Failure to File a Return, Supply Information or Pay Tax There are four separate offenses described in I.R.C. § 7203: • Failure to pay an estimated tax or tax ; • Failure to make (file) a return ; • Failure to keep records ; and, • Failure to supply information . IRC § 7203 – Failure to Keep Records Elements of the offense: • Person required by law to maintain books and records; and, • The willful failure to maintain books and records. 12
8/7/2018 IRC § 7203 – Failure to Supply Information Elements of the offense: • Person required by law to supply information; • Failure to supply information at the time required by law; and, • Willfulness. IRC § 7206 – Fraud and False Statements • False or fraudulent statements made by a taxpayer to the IRS and those professionals who aid or assist • Typically results from a taxpayer falsely inflating deductions or under reporting income • Does not require proof of a tax deficiency 13
8/7/2018 IRC § 7206(1) ‐ Declaration under the Penalties of Perjury Elements of the Offense • Making and subscribing a return, statement, or other document which was false as to a material matter; • Made under the penalties of perjury; • Did not believe it to be true and correct; and, • The maker did so willfully, with the specific intent to violate the law. IRC § 7206(2) ‐ Aiding or Assisting the Preparation of a False or Fraudulent Document Elements of the Offense: • The defendant aided or assisted in, or procured, counseled, or advised the preparation or presentation of a return, affidavit, claim, or other document which involved a matter arising under the Internal Revenue laws. • The return, affidavit, claim, or other document was fraudulent or false as to a material matter. • Willfulness. 14
8/7/2018 IRC § 7206(4) ‐ Removal or Concealment with Intent to Defraud Elements of the Offense • The defendant removes deposits, or conceals; • Goods or commodities where a tax is or shall be imposed, or any property upon which levy is authorized by I.R.C. § 6331; and • Intent to evade or defeat the assessment or collection of any tax imposed by Title 26. I.R.C. § 7212 – Attempts to Interfere with the Administration of Internal Revenue Laws • I.R.C. § 7212(a) contains two clauses which describe two separate offenses. • Corrupt or forcible interference. The first clause prohibits threats or forcible endeavors to interfere with any officer or employee of the United States who is acting in an official capacity pursuant to Title 26. • Corrupt endeavors to impede. The second clause is generally known as the "omnibus clause" and prohibits any act which obstructs or impedes, or endeavors to obstruct or impede, the due administration of the tax laws. 15
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