Source: http://profbrunettistaxnews.blogspot.com/2013_05_01_archive.html
Timestamp: 2017-07-24 08:45:11
Document Index: 679683523

Matched Legal Cases: ['§6651', '§6651', '§6651', '§7206', '§7201', '§7201', '§7201', '§7203', '§7206', '§7206', '§7201', '§7206', '§7201', '§7206', '§6047', '§7206', '§7207', '§7201', '§7207', '§7207']

Prof. Brunetti's Tax News: May 2013
Heidi Fleiss: Heidi Fleiss was sentenced in 1997 on tax evasion charges in connection with her high-profile prostitution ring. She served part of her seven-year sentence in prison and a halfway house. While some celebrities engage in various attempts to avoid paying taxes, from filing false returns to hiding money overseas, regardless of the method or fame of the individual, the government can force those guilty of tax fraud to pay back taxes and penalties, and serve time in confinement—a costly lesson for an avoidable mistake.
Civil Tax Penalties The failure to pay penalties are set forth in §6651 relating to the general penalty;
A taxpayer who fails to pay a tax that is required to be (but was not) shown on a return within 21 days after the date of the IRS's notice and demand for that tax is subject to a penalty under §6651(a)(3). The notice is the IRS's notice to the taxpayer that it has assessed an additional amount in excess of the amount that has been shown on the return and its demand that the taxpayer pay this assessed amount. The grace period is only 10 business days if the amount for which the notice and demand is made is $100,000 or more. Computation of the Penalty
The penalty is imposed at the rate of .5% for each month (or part thereof) that the assessment remains unpaid, up to a maximum of 25%. Where the tax is being paid in installments pursuant to an installment agreement with the IRS, the rate is reduced to .25% for any month in which the installment agreement is in effect if the individual taxpayer filed the tax return in a timely manner, including extensions. The rate is increased under §6651(d) following receipt of a notice of levy or a notice of a jeopardy assessment.
The Accuracy-Related Penalty The accuracy-related penalty for underpayments is imposed at the rate of 20% on the portion of any underpayment of tax required to be shown on a return attributable to any of the following:
As discussed above, the accuracy-related penalties do not apply to any portion of an underpayment on which the fraud penalty is imposed. In addition, the fraud penalty — like the accuracy-related penalty — applies only when a return has been filed. Evidence of Fraud:
The taxpayer's knowledge of the tax law is an important factor in determining whether fraud has been committed. 4. Criminal Prosecution
A conviction or guilty plea in a criminal prosecution brought under §7206(1) — making false statements on a return — does not collaterally estop the taxpayer from asserting a defense to the fraud penalty for the same taxable year, although the conviction may be considered as evidence of the taxpayer's intent to evade payment of a tax known to be due and owing. The civil fraud penalty can be imposed upon a taxpayer even though he is acquitted in a criminal fraud prosecution. Because the civil penalty carries a lesser burden of proof, collateral estoppel does not apply. There is also no double jeopardy, even when the civil fraud penalty is imposed on a taxpayer who is ordered to pay a criminal fine after a criminal conviction. Tax Crimes
Tax evasion, the most well known of crimes under the Internal Revenue Code, is a felony defined in §7201 as the willful attempt to evade or defeat any tax imposed by Title 26. The basic elements of a prima facie case are: (1) the existence of a tax deficiency, (2) an affirmative act constituting an evasion or attempted evasion of the tax, and (3) willfulness. Conviction under §7201 requires an affirmative act evidencing an intent to conceal income from the imposition of tax. “Congress intended some willful commission in addition to the willful omissions that make up the list of misdemeanors.” For example, filing a false return could be a felonious evasion under §7201, while failing to file a return is a misdemeanor under §7203.
Direct proof of willfulness is often unavailable. Circumstantial evidence of this element of the crime may consist of, inter alia, failure to report a substantial amount of income, a consistent pattern of underreporting large amounts of income, and the expenditure of large amounts of cash that cannot be reconciled with reported income. An “affirmative willful attempt” can be inferred from, inter alia, keeping false account books and records, destruction of records, concealment of assets or income, avoidance of usual transactional records, and any other act likely to mislead or conceal. The Internal Revenue Manual sets forth a list of potential “badges of fraud” that might be deemed to constitute a willful attempt. IRM 4.10.6.2.2 (5-14-99). Fraud, as distinguished from negligence, is always intentional. One of the elements of fraud is an intent to evade tax. Some of the indications of fraud are as follows: A. False explanations regarding understated or omitted income;
Section 7202 proscribes the willful failure to collect or pay over tax. This section provides penalties to ensure that employers comply with their obligation to withhold federal wage and FICA taxes and pay over to the government the sums withheld. In order to sustain a conviction under this section, both the failure to truthfully account for and the failure to pay over must be willful. Under the Code, upon conviction, a defendant may be fined, or imprisoned not more than five years, or both, and made to pay the costs of prosecution. The maximum fine is $250,000 for individuals and $500,000 for corporations
Section 7206, a felony provision, is violated by, inter alia, any person who willfully makes any document under the Internal Revenue laws that he does not believe to be true and correct and any person who willfully aids or assists in the preparation of any document under the Internal Revenue laws that is fraudulent or false. It is the most frequently charged criminal tax violation. In a prosecution brought under §7206, venue lies in the district in which the return was signed, or in which the return was filed, or in which the acts of aiding and assisting took place. Upon conviction the defendant may be fined, or imprisoned not more than three years, or both, and made to pay the costs of prosecution. Under the Criminal Fine Enforcement Act of 1984, the maximum fine is $250,000 for individuals and $500,000 for corporations.
The requisite elements of an offense under §7206(1) are: (1) a belief that the return, statement or other document is not true and correct; (2) willfulness; (3) materiality; and (4) the making and subscribing of the document in question under penalty of perjury. The perjury is deemed to occur when the false entry is made, even if it is never relied upon. This statute is used by the government where it is possible to prove the falsity of a return but where it would be difficult to establish the requirement of §7201 that the falsification was motivated by tax evasion. Thus, §7206 is a lesser included offense of §7201. As §7206(1) proscribes the making and subscribing of a return, only the taxpayer himself may be prosecuted under this provision.
Section 7207, a misdemeanor, is violated by any person “who willfully delivers or discloses to the Secretary [of the Treasury] any list, return, account, statement, or other document,” or other disclosures regarding private foundations 114 or information required as to certain retirement and bond-sharing plans under §6047(b), “known by him to be fraudulent or to be false as to any material matter.” Section 7207 differs from the more serious §7206(1) in that the latter requires a subscription under penalties of perjury while the former does not; liability can attach under §7207 even when the taxpayer delivers a document prepared and signed by another person. 118 Moreover, while attempted evasion under §7201 requires an actual tax deficiency, the §7207 offense does not; the fact that a false statement does not actually influence the IRS is immaterial.
In a prosecution brought under §7207, venue is proper in the judicial district in which the false document is delivered or disclosed to the IRS. Upon conviction of this misdemeanor, the defendant may be fined up to $10,000 ($50,000 in the case of a corporation), or imprisoned not more than one year, or both. Under the Criminal Fine Enforcement Act of 1984, the maximum fine is $100,000 for individuals and $200,000 for corporations. Statute of Limitations
Section 6531 actually creates a general three-year limitation period for prosecution of tax crimes, but the six-year “exceptions” encompass virtually all tax crimes prosecuted with any frequency. • Defrauding or attempting to defraud the United States in any manner, whether by conspiracy or not;