Title 26 - Criminal Offenses Under the Internal Revenue Code

Tax crimes are defined in Chapter 75 of the IRC of 1986, entitled Crimes, Other Offenses, and Forfeitures. In addition, an offense under 26 USC 6050I may be subject to criminal sanctions. Unless otherwise indicated, the following penal sections of the IRC apply to all taxes imposed by Title 26. The subsections that follow provide links to the statute and in some instances the elements of the offense and common law interpretations.

Title 26 USC 6050I requires trades and businesses to file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business when in receipt of more than $10,000 in cash from one transaction or two or more related transactions.

Title 26 USC 6050I(f) prohibits structuring transactions to evade these reporting requirements.

For more information concerning the penalties associated with a violation of 26 USC 6050I, see subsection 9.1.3.3.4.

As of January 1, 2002, pursuant to the provisions of the USA Patriot Act, Form 8300 has a dual filing requirement under both Titles 26 and 31 (see 31 USC 5331). Therefore, care must be taken to ensure that disclosure of Forms 8300 and information extracted from these forms is made under the appropriate guidelines. For further information, see IRM 9.3.1, Disclosure.

Title 26 USC 7201 prohibits willfully attempting in any manner to evade or defeat any tax or the payment thereof.

Under 26 USC 7201, a violation of the statute is punishable by a maximum fine of $100,000 ($500,000 in the case of a corporation), or imprisonment of not more than five years, or both, together with the costs of prosecution. However, the criminal fine provisions under 18 USC 3571 increase the maximum permissible fines for a violation of 26 USC 7201 to not more than $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.

Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between avoidance and evasion is fine, yet definite. One who avoids tax does not conceal or misrepresent. He/she shapes events to reduce or eliminate tax liability and, upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are. For example, the creation of a bona fide partnership to reduce the tax liability of a business by dividing the income among several individual partners is tax avoidance. However, the facts of a particular investigation may show that an alleged partnership was not, in fact, established and that one or more of the alleged partners secretly returned his/her share of the profits to the real owner of the business, who, in turn, did not report this income. This would be an instance of attempted evasion.

Whether the offense at issue involves the evasion or defeat of the assessment of a tax or of its payment, the elements of 26 USC 7201 are the same. However, the courts have interpreted the terms differently in some instances. These differences are noted in the explanations below. The elements of the offense are:

An additional tax due and owing

An affirmative attempt in any manner to evade or defeat any tax, or the payment thereof

Willfulness

The following paragraphs provide additional details concerning each element of the offense.

The government must establish that at the time the offense was committed the defendant owed more tax than he/she reported. However, the government is not required to prove the precise amount of tax evaded. Rather, the government may satisfy its obligation by showing that the amount of tax evaded was substantial. "Substantial" is a relative term and need not be measured in terms of gross and net income or by any particular percentage of the tax shown to be due and payable.