Opinion ID: 2632354
Heading Depth: 2
Heading Rank: 2

Heading: Elements of Tax Fraud

Text: Idaho Code § 63-3068 states in relevant part: (a) Except as otherwise provided in this section, a notice of deficiency, as provided in section 63-3045, Idaho code, for the tax imposed in this chapter shall be issued within three (3) years from either the due date of the return, without regard to extensions, or from the date the return was filed, whichever is later [...] (c) In the case of a fraudulent return or a false return with the intent to evade the tax imposed in this chapter, or a willful attempt in any manner to defeat or evade the tax imposed in this chapter, a notice of deficiency may be issued, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time. In this case, the deficiency determination was issued more than three years after the filing of the return. Therefore, the tax may only be assessed under subsection (c) of the statute. In addition to asserting that the tax was owed, the Commission claimed the 50% fraud penalty set forth in I.C. § 63-3046(b). This section states: If any part of any deficiency is due to fraud with intent to evade tax, then fifty per cent (50%) of the total amount of the deficiency (in addition to such deficiency) shall be so assessed, collected and paid. I.C. § 63-3046(b). Therefore, the Commission must prove that the deficiency was due to fraud with intent to evade tax. There are no Idaho cases that set forth the elements necessary to prove tax fraud. The Board of Tax Appeals cited the traditional common law elements of fraudulent misrepresentation in its final order. The district court held that the common law elements of fraudulent misrepresentation did not apply in the tax fraud context. The intent of the Idaho Income Tax Act is to make the provisions of the Act insofar as possible ... identical to the provisions of the Federal Internal Revenue Code. I.C. § 63-3002. The Ninth Circuit has addressed the elements of civil tax fraud. In a case involving the 50 percent penalty of the Federal Internal Revenue Code, the Ninth Circuit stated that [i]n the context of the 50 percent penalty ... fraud is intentional wrongdoing on the part of the taxpayer with the specific intent to avoid a tax known to be owing. Conforte v. Commissioner, 692 F.2d 587, 592 (9th Cir.1982). The burden is on the Commissioner to establish fraud by clear and convincing evidence, but intent can be inferred from strong circumstantial evidence. Bradford v. Commissioner, 796 F.2d 303, 307, (9th Cir.1986)(citing Conforte, 692 F.2d at 592; Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 368, 87 L.Ed. 418, 423 (1943)). Federal law has also recognized badges of fraud, from which intent to defraud may be inferred. Bradford, 796 F.2d at 307. These badges of fraud include (1) understatement of income; (2) inadequate records; (3) failure to file tax returns; (4) implausible or inconsistent behavior; (5) concealing assets; and (6) failure to cooperate with tax authorities. Id. (citations omitted). It is therefore appropriate to adopt the definition of tax fraud as defined by federal courts, which is intentional wrongdoing on the part of the taxpayer with the specific intent to avoid taxes known to be owing. Conforte, 692 F.2d at 592. This wrongdoing may be proven through strong circumstantial evidence. Spies, 317 U.S. at 499, 63 S.Ct. at 368, 87 L.Ed. at 423; see also Bradford, 796 F.2d at 307; Pittman v. Commissioner, 100 F.3d 1308, 1319 (7th Cir. 1996).