Is Tax Evasion a Felony

Is Tax Evasion a Felony Crime

Is Tax Evasion a Felony? When a person believes they may have committed a serious tax violation, one of the most common researched terms on the internet is “tax evasion” and whether it is a criminal offense.

Tax evasion is a criminal offense, and it is one of the tax crimes that the IRS and U.S. government in general seeks to enforce against Taxpayers.   That is because from the IRS’s perspective ,if a person intentionally or willfully seeks to evade tax, they are trying to steal money from the IRS by artificially reducing their tax liability, and the IRS wants payback.

We will summarize the criminal tax offense of tax evasion and why tax evasion is a felony.

How is Tax Evasion Defined

Tax Evasion is as crime which is defined in IRC 7201.

26 USC 7201 Evasion

“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, 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 5 years, or both, together with the costs of prosecution.”

DOJ Criminal Tax Manual

“Tax evasion” is a shorthand phrase that many people use for all manner of tax fraud. But the charge of tax evasion, in violation of 26 U.S.C. § 7201, is not necessarily the best one to bring against individuals defrauding the IRS.

Defendants frequently seek to exploit the fact that, in order to establish the crime of tax evasion, the government must prove the existence of a tax due and owing and willfulness. Prosecutors therefore should consider other charges, such as conspiring to defraud the United States, 18 U.S.C. § 371; filing false returns, 26 U.S.C. § 7206; or endeavoring to obstruct the IRS, 26 U.S.C. § 7212(a), as alternatives or supplements to the charge of tax evasion.

Criminal Willfulness

In the criminal context, the concept of Willfulness is not as abstract as it is in the civil context.

In other words, for criminal tax evasion, willfulness essentially requires “intent”.

When using the term willfulness in the civil context, it takes on a much looser meaning, and includes willful blindness or reckless disregard.

As provided by the DOJ Criminal Tax Manual

“Willfulness has been defined by the courts as a “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U.S. 192, 200-01 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973). Therefore, in order to establish willfulness, the government must establish that the defendant was aware of his or her obligations under the tax laws.

See United States v. Bishop, 264 F.3d 535, 546 (5th Cir. 2001); United States v. Buford, 889 F.2d 1406, 1409 (5th Cir. 1989); United States v. Conforte, 624 F.2d 869, 875 (9th Cir. 1980); United States v. Peterson, 338 F.2d 595, 598 (7th Cir. 1964). As the Seventh Circuit Court of Appeals has stated, there must be “proof that appellant knew he was violating a ‘known legal duty.’” United States v. Fitzsimmons, 712 F.2d 1196, 1198 (7th Cir. 1983).”

“Notwithstanding the alternative methods of proving willfulness set forth in Powell, the fact remains that the Supreme Court has definitively and unequivocally defined willfulness as the “voluntary, intentional violation of a known legal duty.” Thus, the government should never rely on any “alternative method” of proof that does not establish the defendant’s voluntary and intentional violation of a known legal duty. Similarly, juries should always be instructed that it is the government’s burden to prove that a defendant acted voluntarily and intentionally and violated a known legal duty.”

Misdemeanor Evasion Counterpart

While IRC 7201 is a felony, section 7203 is a misdemeanor.

IRC 7203 

“Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution.

In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure.

In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5 years” for “1 year”

IRC 7203 Misdemeanor 

When a person violates IRC 7203, that does not mean the person has committed tax evasion. While section 7201 specifically uses the word evasion, section 7203 does not use the term evasion.

“Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony”

The violations  listed under 7203 are more general in nature, and a misdemeanor violation under 7203 does equate to having committed tax evasion.

*Referring to it a 7203 violation as  “misdemeanor tax evasion” (as some cases have done) is not entirely accurate.

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