Are there Criminal Penalties for Violations of the Federal Tax Laws?

A failure to pay taxes or abide by the rules and regulations of the Internal Revenue Service (IRS) can result in serious civil and criminal penalties. Federal income tax crimes are investigated by agents of the IRS’s Criminal Investigation Division. The more common tax crimes are tax evasion; willful failure to collect or pay over tax; failure to file a return; withholding violations; fraud and false statements; aiding and abetting; and fraudulent returns, statements and other documents.

Under section 7201 of the Internal Revenue Code (IRC), to establish a case for tax evasion, the government must prove that the taxpayer attempted to evade or defeat a tax or payment of a tax; an additional tax was due and owing; and the taxpayer acted willfully. The government must prove each of these elements beyond a reasonable doubt.

Section 7202 of the IRC covers the willful failure to collect or pay over taxes. Under section 7202 any person who is required to collect and pay over taxes (for example, withholding or excise taxes) who willfully fails to do so is guilty of a felony. Penalties include a fine of up to $10,000 or a prison sentence of up to 5 years or both.

Failing to file a return is covered by section 7203. Under this section the government must prove beyond a reasonable doubt that the taxpayer was required by law to file a return; that the taxpayer did not file a return within the given time period; and that the failure to file the return was because of a willful omission.

Under sections 7204 and 7205, which are rarely used, it is a misdemeanor crime for an employer to file a false or fraudulent W-2 or fail to file a W-2. It is also a misdemeanor for an employer to file a false or fraudulent W-4 or to fail to file a W-4.

Section 7206(1) covers the crime of false and fraudulent statements. The elements of this crime are that the defendant made and subscribed a tax return or other document that contains a written declaration that it was made under penalty of perjury when he or she knew it was materially false, and that the defendant acted with a willful, specific intent to violate the law.

Under section 7206(2), it is a crime for any person to willfully aid, assist in or advise the preparation or presentation of a tax return, claim or other document that is fraudulent or materially false, regardless of whether or not the individual who is required to present the return or other document is aware of or consents to the falsity or fraud. This section is typically used against people who prepare tax returns.

Section 7207 provides a punishment for any person who willfully delivers or discloses any return, statement or other document known to be fraudulent or materially false. This section sets forth that such a person shall be fined no more than $10,000 or be imprisoned for up to one year or both.

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