About Fraudulent Statements & False Tax Returns: IRS Overview

Fraudulent Statements & False Tax Returns 

What are Fraud & False Tax Statements Under 26 USC 7206: Internal Revenue Code section 7206 is a tax crime statute that deals with Fraud and False Statements. A violation of IRC 7206 can be very serious — and result in fines, penalties and imprisonment — although usually prisosn sentences for 7206 violations are not as bad as Tax Evasion under Internal Revene Code 7201, which is a more serious felony. A common question our Tax Attorneys receive (often) is what is Tax Fraud — and what does it mean to be in criminal violation for making a fraudulent or false statement to the IRS. When a person willfully makes a fraudulent or false statement regarding their taxes — they may become subject to tax fraud charges under 26 USC 7206. Unlike tax evasion, which requires an affirmative act in an attempt to evade or defeat tax or the assessment of tax — 26 USC 7206 is more broad — and encompasses many more different types of situations in which a person may find themselves on the wrong side of the law. Let’s take a look at the crime of Fraudulent Statements & False Tax Returns:

26 USC 7206 Fraud and False Statement

Internal revenue Section 7206 provides the statute for Fraudulent Statements & False Tax Returns. It is a felony, which is a serious violation and have implications beyond just fines, penalties and imprisonment. A Fraud conviction can follow a Taxpayer in future years to come.

• • Any person who—

(1) Declaration under penalties of perjury

• • • • Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or

(2) Aid or assistance

• • • • Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; or

(3) Fraudulent bonds, permits, and entries

• • • • Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof; or

(4) Removal or concealment with intent to defraud

• • • • • Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or

(5) Compromises and closing agreements

• • • • • • In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully—

      • (A) Concealment of property

        • • • Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or

      • (B) Withholding, falsifying, and destroying rec­ords

        • • • Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax; shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

What does this Mean

It means that when an individual willfully makes a false statement, and that was made under penalty of perjury — at the time he does not believe the statement made was true and correct — is guilty of a felony. The general fine and imprisonment is less than tax evasion.

Elements to Fraudulent Statements & False Tax Returns

The elements of a crime refer to the specific requirements the government must prove in order perjury to convict a taxpayer are having committed the crime. As provided in the criminal tax manual:

The elements of a Section 7206(1) offense are as follows:

• • • The defendant made and subscribed a return, statement, or other document which was false as to a material matter;

    • The return, statement, or other document contained a written declaration that it was made under the penalties of perjury;

    • The defendant did not believe the return, statement, or other document to be true and correct as to every material matter; and

    • The defendant falsely subscribed to the return, statement, or other document willfully, with the specific intent to violate the law.

Cases

• United States v. Bishop, 412 U.S. 346, 350 (1973); United States v. Hills, 618 F.3d 619, 634 (7th Cir. 2010); United States v. Griffin, 524 F.3d 71, 75-76 (1st Cir. 2008); United States v. Marston, 517 F.3d 996, 999 n.3 (8th Cir. 2008); United States v. Clayton, 506 F.3d 405, 410, 413 (5th Cir. 2007) (per curiam); United States v. Pirro, 212 F.3d 86, 89 (2d Cir. 2000); United States v. Scholl, 166 F.3d 964, 979-80 (9th Cir. 1999); United States v. Peters, 153 F.3d 445, 461 (7th Cir. 1998); United States v. Gollapudi, 130 F.3d 2 See infra, for sample indictment forms charging Section 7206(1) violations, including a sample “open ended” indictment. – 3 – 9080535.1 66, 71-72 (3d Cir. 1997); United States v. Monus, 128 F.3d 376, 386-87 (6th Cir. 1997); United States v. Aramony, 88 F.3d 1369, 1382 (4th Cir. 1996); United States v. Owen, 15 F.3d 1528, 1532 (10th Cir. 1994); United States v. Kaiser, 893 F.2d 1300, 1305 (11th Cir. 1990).

Common Fraudulent Statements & False Tax Violations

There’re many reasons why a person could be charged for making false statements regarding the tax returns and other tax matters. Here is a list of certain cases as provided by the criminal tax manual regarding false statements:

• • • While most Section 7206(1) prosecutions involve income tax returns, there are some reported cases involving false documents other than tax returns. See, e.g., United States v. Pansier, 576 F.3d 726, 736 (7th Cir. 2009) (false Forms 8300 filed against IRS agents); United States v. Droms, 566 F.2d 361, 362-63 (2d Cir. 1977) (per curiam) (financial information statement submitted to the IRS for settlement purposes); United States v. Cohen, 544 F.2d 781, 782-83 (5th Cir. 1977) (false statement made in an offer in compromise, Form 656); Jaben v. United States, 349 F.2d 913, 915-16 (8th Cir. 1965) (application for extension of time for filing).

    • Note that these three cases are merely examples of the use of the statute: in none of them was the application of Section 7206(1) to the particular type of false document actually challenged by the defense.

    • In United States v. Carrabbia, 381 F.2d 133, 134-35 (6th Cir. 1967), however, the defendant specifically argued that his conviction on a charge under § 7206(1) was invalid because the statute did not apply to a Form 11-C, a renewal application to allow him to continue in the business of accepting wagers for the ensuing governmental fiscal year, that was alleged to be false. The court of appeals rejected the defendant’s argument, concluding that the defendant’s conduct fell within the ambit of § 7206(1). 381 F.2d at 136.

 Violations of Fraudulent Statements & False Tax Returns is Serious

It is important to note that not all fraudulent and/or false statements involving taxes is fraud. And, not all fraud and false statements is criminal. Willfulness in the criminal arena is not the same as civil willfulness — and since it is a crime, the US Government must prove their case beyond a reasonable doubt.

International Tax Lawyers Represent Clients Worldwide

Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure and the Streamlined Procedures.

Contact our firm for assistance.