The IRS TAX CRIMES HANDBOOK states that there are two kinds of tax evasion: (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. Meaning, if a defendant Transfers Assets to prevent the IRS from determining his true tax liability, he/she has attempted to Evade Assessment; if he/she does so after a tax liability has become due and owing, he/she has attempted to Evade Payment.
[a] Evasion of ASSESSMENT. This is the affirmative act of filing a false return that omits income and/or claims deductions to which the taxpayer is NOT entitled. The tax reported on the return is willfully understated and creates a deficiency. Such willful under reporting constitutes an attempt to evade or defeat tax by evading the correct assessment of the tax.
[b] Evasion of PAYMENT. This offense occurs after the existence of a tax due and owing has been established (either by the Taxpayer reporting the amount of tax or by the IRS assessing the amount of tax deemed to be due and owing) and involves an affirmative act of concealment of money or assets from which the tax could be paid.
What is the “Attempt”?
In a Taxpayer’s attempt to evade assessment, the Taxpayer must undertake action; engage in an “affirmative” act for the purpose of attempting to evade or defeat the assessment of a tax. Examples of “affirmative acts” are:
Need Tax Deficiency for Tax Evasion
In a Tax Evasion case, the Government must demonstrate the existence of a tax that is due and owed. Meaning, the Government must prove a tax deficiency in order to prove tax evasion. The government has to verify that the income from which the tax deficiency resulted was taxable income. Some examples of taxable income not specified in the Internal Revenue Code (IRC) are:
1. Campaign contributions used for personal purposes
2. Loans received with no intent to repay
5. Extortion Proceeds
6. Fraud Income
How does the Government define “willfulness”?
The IRC defines willfulness as: "voluntary, intentional violation of a known legal duty." For purposes of tax evasion, the sixteen examples provided in the IRS Handbook make it easier to understand the concept of willfulness:
There is a Statute of Limitations
There is a six-year limitation period for the offense of willfully attempting to evade or defeat any tax under IRC Section 6531(2). The rule is that the limitation period begins to run 6 years from the date of the last affirmative act that took place or the statutory due date of the return, whichever is later.
How about Attempting to evade the payment of taxes?
Affirmative acts of evasion of payment almost always involve some form of concealment of money or assets with which the tax could be paid or the removal of assets from the reach of the IRS. Failing to pay assessed taxes, without more, does not constitute evasion of payment (it may constitute willful failure to pay taxes under IRC Section 7203). In the absence of an affirmative act, obstinate refusal to pay taxes due and the possession of the funds needed to pay the taxes is insufficient for an evasion charge. Affirmative acts of evasion of payment involve schemes to deal in currency, place assets in the names of others, transfer assets abroad or omit assets on a Form 433-A, Collection Information Statement. Examples include:
Don’t be a victim of your own making
Willfully attempting to evade taxes is a felony. Paying taxes due after the criminal investigation commences does not negate willfulness. The IRS published the Tax Crimes Handbook as a resource for Criminal Tax Attorneys in advising their clients regarding criminal tax matters. If you are a Taxpayer with tax obligations, it is best to consult with your specialized tax representative.