Bank Account Signer Or Signor

Tax violations.

  I. INTRODUCTION
 II. CRIMINAL INVESTIGATIONS UNDER I.R.C. [section][section] 7201,
     7202, 7203, 7206, AND 7212(A)
     A. Policies and Procedures of IRS Investigations
        1. Purposes of IRS Investigations.
        2. Policies
        3. Constitutional Considerations
           a. Notice and Due Process Requirements
           b. Substantive Rights and IRS Internal Regulations
           c. Disclosure of Documents
        4. Statute of Limitations
     B. I.R.C. [section] 7201
        1. Elements
           a. Existence of a Tax Deficiency
           b. Affirmative Act Constituting Evasion
           c. Willfulness
        2. Defenses
           a. Lack of Deficiency
           b. Lack of Willfulness
           c. Third Party Liability/Reliance
           d. Selective Prosecution
        3. Relation to Other Tax Crimes
     C. I.R.C.[section]7202
        1. Willful Failure to Collect Tax
        2. Willful Failure to Account For and Pay Over Tax
        3. Elements
           a. Duty to Collect and/or Account For and Pay Over
              Tax
               i. The Statutory Duty
              ii. The Responsible Person
           b. Willfulness
        4. Defenses
     D. I.R.C. [section] 7203
        1. Elements
           a. Requirement to File a Return
           b. Failure to File a Return
           c. Willfulness
        2. Defenses
     E. I.R.C.[section]7206
        1. I.R.C. [section] 7206(1)
           a. Elements
                i. Signing a False Return or Document
               ii. Penalty of Perjury
              iii. Material Falsity
               iv. Willfulness
           b. Defenses
        2. I.R.C. [section] 7206(2)
           a. Elements
                i. Aiding and Assisting
               ii. Material Falsity
              iii. Willfulness
           b. Defenses
     F. I.R.C. [section] 7212(a)
        1. Elements
           a. Corruption, Force, or Threat of Force
           b. Endeavor to Obstruct the Administration of the IRS
        2. Defenses
     G. Sanctions Under the U.S. Sentencing Guidelines
        1. Violations of I.R.C. [section] 7201
        2. Violations of I.R.C. [section] 7202
        3. Violations of I.R.C. [section] 7203
        4. Violations of I.R.C. [section] 7206
        5. Violations of I.R.C. [section] 7212(a)
III. CRIMINAL CONSPIRACY INVESTIGATIONS UNDER 18 U.S.C. [section] 371.
     A. Elements
     B. Defenses
     C. Statute of Limitations

I. INTRODUCTION

This Article outlines the elements, defenses, and sentencing
consequences of selected criminal tax violations under the United States
Internal Revenue Code (“I.R.C.”) [section][section] 7201,
7202, 7203, 7206, and 7212(a).

Section II of this Article examines the policies and procedures of
Internal Revenue Service (“IRS”) investigations. Section II
also addresses the basic elements of, defenses to, and applicable
statutory punishments for five principal tax crimes: tax evasion under
[section] 7201, failure to collect tax under [section] 7202, willful
failure to file taxes under [section] 7203, “tax perjury” and
“aiding and assisting” tax fraud under [section] 7206, and
interference with the administration of internal revenue laws under
[section] 7212(a).

Section III of this Article details criminal investigations of
conspiracy to violate the tax laws under the defraud clause of 18 U.S.C.
[section] 371.

II. CRIMINAL INVESTIGATIONS UNDER I.R.C. [section][section] 7201,
7202, 7203, 7206, AND 7212(A)

Part A of this Section examines the policies and procedures of IRS
criminal investigations, constitutional considerations, and the statute
of limitations for I.R.C. violations. Parts B through F of this Section
address the elements of and defenses to each of the following offenses:
tax evasion, failure to collect tax, failure to file taxes, “tax
perjury” and “aiding and assisting” tax fraud, and
interference with the administration of internal revenue laws. Part G
explains the applicable punishments set forth in the United States
Sentencing Guidelines and various possible sentencing enhancements.

A. Policies and Procedures of IRS Investigations

1. Purposes of IRS Investigations

IRS agents in the Office of Criminal Investigation (CI) investigate
potential criminal violations of U.S. tax laws. (1) According to the
Internal Revenue Manual, the mission of CI is to foster confidence in
the tax system and to encourage compliance with the law. (2)

In order to maximize deterrence of tax violations, CI focuses on
individual participation in sophisticated criminal schemes, as well as
high-dollar financial transactions. (3) The IRS is also more likely to
audit a prominent taxpayer than a relatively obscure person. (4)
Furthermore, the IRS audits a much higher percentage of high-net worth
individuals than those with lower incomes. (5)

2. Policies

CI special agents are responsible for investigating possible
criminal violations of the I.R.C. and related provisions of Title 18 of
the United States Code. (6) Investigations begin in two ways: either as
a general investigation (“GI”) regarding “alleged
non-compliance within a specific category of individuals;” or as a
primary investigation (“PI”) into an allegation that an
identified “individual or entity is in noncompliance.” (7) A
GI may lead to a PI if the GI identifies an individual or entity
requiring “further evaluation for potential criminal
activity.” (8) If the PI indicates that “prosecution potential
exists,” CI initiates a subject criminal investigation
(“SCI”). (9) A PI and an SCI may be initiated simultaneously
if appropriate. (10)

When CI completes an investigation, it may refer the case to the
U.S. Department of Justice (“DOJ”) with a recommendation
either to institute criminal proceedings or to further investigate
through a grand jury. (11) Referral of a matter to the DOJ terminates
the authority of the CI office to employ the administrative
investigation process. (12)

The DOJ’s Tax Division generally authorizes prosecution in
criminal tax cases, (13) and also supports and coordinates tax
litigation. (14) U.S. Attorneys may assume responsibility for litigating
criminal tax cases. (15)

3. Constitutional Considerations

a. Notice and Due Process Requirements

Upon initial contact with the taxpayer who is an actual or
potential subject of an investigation, IRS guidelines mandate that
special agents identify themselves and advise the taxpayer of the
pending criminal investigation. (16) However, a Miranda warning or the
equivalent may not be constitutionally required, particularly if the
contact occurs in a non-custodial setting. (17)

b. Substantive Rights and IRS Internal Regulations

An agent’s failure to follow internal procedures may provide
evidence that a taxpayer’s constitutional fights were violated.
(18) For example, IRS regulations direct examiners and revenue officers
outside of CI to suspend examination or collection activity if it
appears that the taxpayer’s actions meet the criteria for a
criminal investigation. (19) The use of information gathered during such
continued investigation in a subsequent criminal proceeding may violate
the taxpayer’s Fourth Amendment protection against unreasonable
search and seizure and Fifth Amendment protection against
self-incrimination. (20) The burden is on the taxpayer, however, to show
that: (i) the tax auditor “affirmatively misled [the taxpayer] as
to the true nature of [the] investigation,” and (ii) the misleading
conduct “was a material factor in [the taxpayer’s] decision to
give information to the agents.” (21) Courts usually defer to the
judgment of a revenue agent in determining whether the investigation
should be turned over to CI, (22) creating difficulties for taxpayers
seeking to establish a constitutional violation. (23)

Moreover, evidence obtained in violation of IRS regulations is not
per se inadmissible. (24) The Supreme Court has reasoned that a rigid
exclusionary rule would deter the creation of regulations that protect
taxpayers. (25) When weighing admissibility, courts generally consider
whether a guideline violation demonstrates bad faith on the part of the
IRS. (26)

c. Disclosure of Documents

A taxpayer’s disclosure of documents to the IRS may implicate
constitutional protections under the Fourth and Fifth Amendments.

Although the Fifth Amendment protection against compelled testimony
may be invoked in any proceeding, (27) it does not shield from discovery
the contents of voluntarily prepared tax records merely because those
records contain incriminating information. (28) However, the “act
of produc[ing]” documents may involve the requisite “compelled
testimonial aspect” when the act itself represents a potentially
incriminating communication about the existence, possession, or
authenticity of the documents. (29) If so, the taxpayer may successfully
invoke the Fifth Amendment privilege against self-incrimination. (30)
The applicability of the privilege is determined on a
document-by-document basis. (31)

In evaluating a taxpayer’s Fifth Amendment claim, the court
should hold an in camera hearing (32) to examine each document and
determine if the taxpayer has a “reasonable cause” to fear
that criminal prosecution could result from the document’s use.
(33)

Under some circumstances, possession of a taxpayer’s records
by the IRS after disclosure may constitute a search or seizure within
the meaning of the Fourth Amendment. Should the taxpayer voluntarily
disclose documents to the IRS, she may revoke her consent at “any
time prior to the completion of the search.” (34) In cases where a
taxpayer initially grants consent and later revokes it, the IRS may only
use information obtained during the period of taxpayer consent. (35)

4. Statute of Limitations

Although crimes arising under the I.R.C. generally have a
three-year statute of limitations, the I.R.C. provides certain
exceptions that extend the limitations period to six years. (36) The
five I.R.C. sections covered in this Article–[section][section] 7201,
(37) 7202, (38) 7203, (39) 7206, (40) and 7212(a), (41)–each fall under
these exceptions. The statute of limitations begins to run on the date
the taxpayer files the fraudulent document or on the date of the last
affirmative act of evasion. (42) To satisfy the statute of limitations,
the government need only file a complaint supported by probable cause
within the limitations period. (43) The statute of limitations can be
tolled for tax evasion purposes if the accused is: (i) a fugitive; (44)
(ii) outside the United States; (45) or (iii) involved in related
enforcement proceedings. (46) These tolling provisions prevent a
defendant from raising procedural issues to delay a tax violation
proceeding beyond the statute of limitations period.

B. I.R.C. [section] 7201

Violations of the I.R.C. are prosecuted under an array of criminal
tax statutes. (47) Felony tax evasion, set forth in I.R.C. [section]
7201, (48) has been called the “capstone” of this system of
sanctions. (49)

1. Elements

To prove a [section] 7201 violation, the government must show: (i)
the existence of a tax deficiency; (ii) an affirmative act constituting
an evasion or attempted evasion of the tax; and (iii) willfulness. (50)
The government bears the burden of proving each element beyond a
reasonable doubt. (51)

a. Existence of a Tax Deficiency

Courts disagree about what constitutes a sufficient tax deficiency
under [section] 7201. Most circuits demand only a bare deficiency, (52)
while the Second, Fourth, Sixth, and Tenth Circuits require a
“substantial” deficiency. (53) The term
“substantial” refers to the “amount of the tax
evaded,” not the amount of unreported income. (54)

Because proof of unreported income is difficult to uncover, (55)
the existence of a deficiency may be demonstrated by the use of either
direct or circumstantial evidence. (56) “The government may choose
to proceed under any single theory of proof or a combination … of
circumstantial and direct proofs.” (57) While the government must
prove that a deficiency exists, it is not required to prove “the
extent of the deficiency with mathematical certainty,” (58) nor is
it required to prove the exact source of the unreported income. (59)

The most accurate means of proving a deficiency by direct evidence
is the “specific item method.” (60) Under this method, the
taxpayer’s books and records provide direct evidence that the
taxpayer did not report taxable transactions. (61)

In the absence of direct evidence, the government usually relies on
three methods to obtain circumstantial evidence of unreported taxable
income: (i) net worth; (ii) cash expenditures; and (iii) bank deposits.
(62)

The government can use the “net worth” method of proof to
establish tax evasion. (63) Under this method, the government must
establish the taxpayer’s opening net worth with “reasonable
certainty,” (64) but it does not have to establish with reasonable
certainty the net worth for the subsequent years under investigation.
(65) Nevertheless, because the “net worth” method relies
solely on circumstantial evidence, the court must ensure that the
government meets its burden of proof beyond a reasonable doubt. (66)

A “simple variant” of the “net worth” method is
the “cash expenditures” method. (67) Under this method, the
government seeks to demonstrate that the taxpayer’s expenditures
taken from taxable income exceed the income reported by the taxpayer.
(68) Rather than locating the exact source of unreported income, the
government merely needs to establish a “likely source” of
unreported income or negate “reasonably possible nontaxable sources
of income.” (69) The “cash expenditures” method does not
require the government to prepare a formal net worth statement, similar
to that used under the “net worth” method. (70)

The “bank deposits” method requires the government to
conduct a full investigation of the taxpayer’s bank accounts and
compare taxable deposits with reported income. (71) A jury may infer tax
evasion from the difference between the two amounts. (72)

In addition, an unchallenged IRS assessment of taxes serves as
prima facie evidence of a tax deficiency when a taxpayer who files no
return is charged with tax evasion. (73) If a taxpayer does not file a
return at all and refuses to give relevant information to the IRS, the
IRS is authorized by the I.R.C. to create and execute a substitute
return, which may then serve as prima facie evidence of a deficiency.
(74) Along these lines, the Eighth Circuit held that when a defendant
does not “timely challenge the assessed deficiencies, they [become]
administratively final,” and that “a formal tax assessment
that has become administratively final is prima facie evidence of the
asserted tax deficiency, and if unchallenged, it may suffice to prove
this element of the crime.” (75) The court emphasized, however,
that the IRS assessment only serves as prima facie evidence of a
deficiency and “may be challenged by the defendant accused of tax
evasion.” (76)

b. Affirmative Act Constituting Evasion

The Supreme Court interprets [section] 7201 to require a positive
attempt to evade or defeat payment of any tax. (77) Accordingly, an act
to evade tax must be one of commission rather than omission; (78) mere
“passive neglect” is insufficient to establish a violation.
(79) The “affirmative act” language has been broadly
construed, (80) and includes: (i) the filing of false returns; (81) (ii)
keeping two sets of books; (82) (iii) making false entries or
alterations; (83) (iv) making false invoices or documents; (84) (v)
destroying books or records; (85) (vi) concealing assets or covering up
sources of income; (86) (vii) handling one’s affairs to avoid
making records usually kept for transactions; (87) (viii) placing assets
in the names of others; (88) (ix) taking currency out of the country;
(89) (x) causing receipts or debts to be paid through and in the names
of others; (90) and (xi) conduct whose likely effect would be to mislead
or conceal. (91)

Generally, affirmative acts associated with evasion involve
concealing the taxpayer’s ability to pay taxes or the removal of
assets from the reach of the IRS. (92) An affirmative act may be
inferred even if the actions undertaken can be attributed to motivations
other than the intent to evade taxes. (93) Moreover, the argument that
the methods a taxpayer used were not likely to successfully mislead or
conceal the IRS is not a viable defense. (94)

c. Willfulness

The Supreme Court has defined “willfulness” as the
“voluntary, intentional violation of a known legal duty.” (95)
The willfulness requirement is closely related to the affirmative act
requirement because evidence of affirmative acts is often used to show
willfulness. (96)

To prove willfulness, the government must show the taxpayer had a
specific intent to commit the violation. (97) To make this showing, the
government must demonstrate more than mere carelessness on the part of
the defendant, (98) though it need not prove bad faith. (99)
Accordingly, an unreasonable misunderstanding of the law held in good
faith may negate a finding of willfulness. (100) However, courts may
hold sophisticated actors to a high standard regarding their knowledge
of the existence of a legal duty. (101) The defendant’s subjective
belief regarding the applicability of a legal duty is a question of
fact. (102)

Some courts have held that willfulness may be proven solely by
means of circumstantial evidence. (103) Willfulness can be inferred from
both the surrounding circumstances and the defendant’s affirmative
acts of evasion. (104) When applied, this inference often blurs the
distinction between willfulness and affirmative acts. (105)

2. Defenses

The four defenses to tax evasion charges under [section] 7201 are:
(i) lack of deficiency; (106) (ii) lack of willfulness; (107) (iii)
third party liability or reliance; (108) and (iv) selective prosecution.
(109)

a. Lack of Deficiency

First, the taxpayer may rebut the government’s charge of tax
evasion by showing the nontaxable nature of the income received. (110)
Moreover, in cases involving circumstantial evidence, the taxpayer may
identify errors in the government’s analysis to negate a tax
deficiency. (111) The taxpayer may also claim the government failed to
investigate and negate exculpatory leads furnished by the taxpayer.
(112) Furthermore, the taxpayer may negate an alleged deficiency by
proving a deduction or a credit not yet calculated. (113)

b. Lack of Willfulness

The taxpayer may also avoid conviction under [section] 7201 by
establishing that tax evasion was not willful. (114) Under the Supreme
Court’s decision in Cheek v. United States, (115) a good faith
belief that one is not violating the law negates willfulness, regardless
of the objective reasonableness of the belief. (116) In assessing a lack
of willfulness defense predicated on ignorance of the law, fact-finders
look to the taxpayer’s conduct, (117) past record of compliance,
(118) and sophistication and level of knowledge. (119) If a defendant
can show the statutory provision at issue is ambiguous or unsettled, he
may point to this ambiguity to support his lack of willful intent. (120)

A defendant may also negate willfulness by establishing negligence
(121) or mistake, (122) but bears a heavy burden in making this showing.
Neither a good faith disagreement with the goals and policies of the
law, nor a belief the statute is unconstitutional negates willfulness;
(123) nor does an intent to report income and pay taxes in the future.
(124) Courts have rejected a defendant’s inability to pay taxes
when due as a valid defense to a finding of willfulness. (125)

c. Third Party Liability/Reliance

The taxpayer may shift responsibility for an assessed deficiency to
a third party, such as a tax professional or lawyer. (126) Reliance on
the advice of such third parties does not establish a complete defense,
but acts to negate the willfulness element. (127) A successful claim of
reliance is established when a taxpayer demonstrates good faith reliance
on advice obtained after full disclosure of all the facts to which the
advice pertained. (128)

d. Selective Prosecution

A taxpayer who asserts the defense of selective prosecution argues
that the government based its decision to prosecute on reasons
proscribed by the Constitution. (129) To successfully assert this
defense, the defendant must show that the federal prosecutorial policy
had both a discriminatory effect and a discriminatory purpose or intent.
(130)

3. Relation to Other Tax Crimes

Because felony tax evasion under [section] 7201 is the
“capstone” of the criminal tax system, the elements of the
offense often overlap with the elements of lesser offenses under the
I.R.C. (131) Where criminal conduct meets the elements of both [section]
7201 and a lesser offense, and does not include an element particular to
the lesser offense but absent from [section] 7201, the government has
discretion to prosecute under either [section] 7201 or the lesser
offense. (132)

c. I.R.C. [section] 72O2

Section 7202, which applies primarily to employers, separately
criminalizes (i) willful failure to collect any tax required under the
I.R.C., and (ii) willful failure to truthfully account for and pay over
taxes. (133) Although these violations constitute two separate crimes,
(134) the elements of and defenses to the respective violations are
similar and will be discussed together.

1. Willful Failure to Collect Tax

The crime of willful failure to collect a tax requires proof of
three elements: (i) a legal duty to collect a tax; (ii) failure to
collect that tax; and (iii) willfulness. (135) Prosecutions for a
willful failure to collect taxes are relatively infrequent because most
employers investigated by the IRS withhold the required amounts from
employees’ wages, but then fail to pay over those collected amounts
to the government. (136)

2. Willful Failure to Account For and Pay Over Tax

The crime of willful failure to truthfully account for and pay over
a tax has three elements: (i) a legal duty to account for and pay over a
tax; (ii) a failure to truthfully account for and pay over that tax; and
(iii) willfulness. (137)

3. Elements

a. Duty to Collect and/or Account For and Pay Over Tax

Establishing a taxpayer’s duty to collect and/or account for
and pay over tax requires a finding that, as an employer: (i) the
taxpayer had a statutory duty to withhold tax funds from the
employees’ paychecks, and (ii) the taxpayer was a
“person” within that business entity responsible for ensuring
that the entity collected, accounted for, and paid over the funds. (138)

i. The Statutory Duty

Under federal income tax provisions, an employer’s payroll tax
liability includes: (i) Federal Insurance Contribution Act
(“FICA”) payments, which include the employee’s
contribution to Social Security and Medicaid; (139) (ii) Federal
Unemployment Tax Act (“FUTA”) payments; (140) and (iii)
required withholdings in connection with employee income taxes. (141)
Rather than actually “collecting” a tax, employers simply
retain part of their employees’ wages already in the
employer’s possession. (142)

The employer is the trustee for these funds and bears the
responsibility of transmitting to the IRS the taxes owed by its
employees. (143) Once an employer withholds taxes from an
employee’s wages, the IRS credits the withholdings to the employee
regardless of whether the employer pays them over to the government.
(144)

Once the employer retains the taxes, it generally need not separate
the withheld sums from other business funds until paying the taxes over
to the Treasury. (145) To prevent an employer’s illegal use of
withheld funds, however, the IRS may in some circumstances order the
employer to deposit all retained tax funds in a separate account within
two days of collection. (146)

ii. The Responsible Person

Once a statutory duty to collect and/or account for and pay over a
tax is established, the government must identify the person responsible
for compliance with [section] 7202. (147) However, neither the I.R.C.
nor Treasury Regulations provide a clear definition of a
“responsible person” for purposes of [section] 7202. (148)

Courts have adopted a broad interpretation of the statute, holding
that a “responsible person” is identified by her “status,
duty, and authority” within the business. (149) In making this
determination, courts look to the “totality of the
circumstances” (150) and regularly consider the individuals’s
power or authority within the organization. (151) Generally, courts are
more concerned with the significance of the individual’s control
over corporate affairs than with the individual’s title or job
description. (152)

Although a company may contain more than one responsible person,
the existence of other responsible persons within the business does not
relieve any party of her individual duty. (153) A person can be found
“responsible” under [section] 7202 even if the company no
longer employs the person at the end of the quarter when the taxes
become due. (154) Similarly, a person can be found
“responsible” under [section] 7202 even if the company did not
employ her at the time the taxes were collected. (155) Furthermore, a
responsible person is not relieved of her duties under [section] 7202
even if the company instructs her not to collect or pay over the taxes.
(156)

b. Willfulness

Willfulness is a “voluntary, intentional violation of a known
legal duty.” (157) Under [section] 7202, willfulness means that the
responsible person (i) knew of the company’s obligation to pay
withholding taxes and (ii) allowed or caused company funds to be used
for other purposes instead. (158) Willfulness requires that the
responsible person knew that the taxes due were not being paid, (159)
but does not require that the responsible person act out of an
“evil motive” or with an “intent to defraud.” (160)

4. Defenses

The primary defense to alleged violations of [section] 7202 is the
good faith lack of knowledge of the legal duty to collect or pay over
taxes. Good faith reliance on a “qualified tax preparer” or
other professional is also a valid defense. (161) Inability to pay is
not a valid defense.

The good faith lack of knowledge defense is justified by the
complexity of the I.R.C., which can make it “difficult for the
average citizen to know and comprehend the extent of the duties and
obligations imposed by the tax laws.” (162) Lack of knowledge
therefore effectively negates the element of willfulness. (163) However,
a defendant’s good faith belief that the tax laws themselves are
unconstitutional or otherwise invalid does not negate the willfulness
requirement. (164)

Financial inability of the taxpayer to pay the tax due is not a
valid defense under [section] 7202. (165) Courts have reasoned that
“a recalcitrant taxpayer could spend his money as fast as he earns
it and evade criminal liability while not paying taxes as long as his
bank balance is zero when the taxpayer’s taxes are due.” (166)

D. I.R.C. [section] 7203

Under [section] 7203, taxpayers may be prosecuted for a misdemeanor
if they willfully fail to fulfill one or more of the following
obligations: (i) pay an estimated tax; (ii) pay a tax; (iii) file a tax
return; (iv) keep legally required tax records; or (v) supply required
tax related information. (167)

For illustrative purposes, this Section focuses on the offense of
willfully failing to file a tax return. Because the same elements also
apply to failure to pay an estimated tax, failure to pay a tax, failure
to keep legally required tax records, and failure to supply required tax
related information, serial analysis of each violation of [section] 7203
(and the defenses thereto) is unnecessary.

1. Elements

To establish a [section] 7203 offense for failure to file a tax
return, the government must prove each of the following elements beyond
a reasonable doubt: (i) requirement to file a return; (ii) failure to
file a return; and (iii) willfulness. (168)

a. Requirement to File a Return

A person who earns more than the statutorily determined minimum
amount of gross income must report the income by filing a tax return and
paying taxes on the taxable portion of that income. (169)

b. Failure to File a Return

The mere act of filing a return does not necessarily meet the
requirements of [section] 7203. (170) For example, failing to provide
any information, (171) providing insufficient information, (172) failing
to sign a return, (173) or failing to file other required forms (174) is
equivalent to failing to file a return.

c. Willfulness

Under [section] 7203, willfulness is a voluntary, intentional
violation of a known legal duty. (175) Section 7203 does not require an
affirmative act, but only a “willful omission” of a required
legal duty. (176) Willfulness requires proof of a specific intent to
violate the law, “more than a showing of careless disregard for the
truth.” (177)

2. Defenses

A defendant accused of a [section] 7203 violation may assert the
defense of reliance on counsel or an accountant to negate willfulness,
(178) provided the defendant disclosed all pertinent facts to competent
counsel. (179)

Other specific defenses are available to negate the element of
willfulness. (180) For instance, in Garner v. United States, (181) the
Supreme Court held a good faith claim of privilege under the Fifth
Amendment, even if erroneous, may be a defense to the element of
willfulness. (182) To establish this defense, the defendant must: (i)
claim the privilege applies to a specific question (183) and (ii) show a
real danger of compelled self-incriminaton. (184)

As a general matter, the defendant cannot use the Fifth Amendment
privilege against self-incrimination as a blanket defense for failing to
file a return. (185)

E. I.R.C. [section] 7206

Under [section] 7206, it is a violation for taxpayers to willfully
file false documents, or to assist others in the same action. (186) The
two principal criminal provisions of [section] 7206 are [section]
7206(1), the “tax perjury” statute, and [section] 7206(2), the
“aiding and assisting” statute. (187)

1. I.R.C. [section] 7206(1)

Under [section] 7206(1), it is unlawful for anyone to willfully
file a return that she does not believe to be true and correct as to
every material matter. (188)

a. Elements

The government must prove four elements to convict a taxpayer of
violating [section] 7206(1): (i) the defendant made and subscribed a
return, statement, or other document which was false as to a material
matter; (ii) the return, statement, or other document contained a
written declaration that it was made under the penalties of perjury;
(iii) the defendant did not believe the return, statement, or other
document to be true and correct as to every material matter; and (iv)
the defendant acted with willfulness with the specific intent to violate
the law. (189)

i. Signing a False Return or Document

To prove this element, the government must show the taxpayer
subscribed to a false document. (190) A document includes not only a tax
return, but also any verified return, statement, or other document
submitted to the IRS. (191) The taxpayer’s signed name on a form
establishes prima facie evidence that the taxpayer signed the document.
(192) The taxpayer has the burden of rebutting this presumption. (193)

Venue for a prosecution under [section] 7206 “lies in any
district in which a false tax return was made and subscribed or
filed,” (194) and in some cases can lie anywhere that the defendant
supplied the preparer with information. (195) Thus, venue can be
established where the tax information was prepared, (196) where the tax
forms were filed, (197) or where the defendant supplied the relevant
information. (198) The government has the burden of establishing venue
by a preponderance of the evidence. (199)

ii. Penalty of Perjury

The tax document must contain a declaration, made under penalty of
perjury, that the document is true, correct, and complete. (200) Current
income tax forms, such as Form 1040, contain the requisite perjury
statement. (201)

iii. Material Falsity

The government must also prove that the defendant did not believe
the return, statement, or other document to be true and correct as to
every material matter. (202) A false statement is material if it has
“the potential for hindering the IRS’s efforts to monitor and
verify the tax liability” in question. (203) Generally, a material
matter includes an improper identification of a source of income, (204)
or a misstatement, understatement, or false statement regarding the
amount of any income tax figure. (205) Supplying correct but incomplete
information is also considered a material falsity. (206) Materiality
does not depend on the monetary amount involved. (207) Materiality does
not depend on a taxpayer’s lawful duty to file the pertinent form.
(208) Falsity can be established through circumstantial evidence. (209)

In United States v. Gaudin, (210) the Supreme Court held that
materiality, in the context of a prosecution under 18 U.S.C. [section]
1001, is a mixed question of law and fact to be determined by a jury.
(211) While there has been some disagreement among appellate courts as
to whether the Gaudin holding applies to prosecutions under [section]
7206, (212) the Supreme Court, in Neder v. United States, suggested that
it is appropriate for a jury to determine materiality under [section]
7206(1). (213)

iv. Willfulness

Willfulness requires a voluntary, intentional violation of a known
legal duty. (214) A good faith mistake does not constitute a willful
violation of I.R.C. [section] 72060). (215)

b. Defenses

The most effective defenses against [section] 7206(1) are those
that negate willfulness. (216) Reliance on a third party for tax return
preparation or tax advice constitutes a justifiable defense, provided
the taxpayer supplied complete, truthful information to the third party
and acted in good faith on the third party’s advice. (217) Third
parties encompassed by this defense include accountants, (218) tax
return preparers, (219) auditors, (220) and other
“professionals.” (221) Critical to this defense are issues of
taxpayer veracity and the degree of information disclosed to the third
party, both of which are decided by the jury. (222)

A taxpayer will not be found guilty of tax perjury if the
information provided is the literal truth, even if the truth is
misleading. (223) Most of the cases dealing with “literal
truth” involve the misrepresentation of income by the use of the
wrong tax form. (224) Although filing the wrong form may not be a
violation of [section] 7206(1), providing incomplete information on the
correct form may constitute a violation. (225)

2. I.R.C. [section] 7206(2)

Under [section] 7206(2), it is unlawful to “aid or
assist” a taxpayer in the preparation of a false tax return. (226)

a. Elements

The aiding and assisting statute requires three elements for
conviction: (i) an act of aiding and assisting in the preparation of a
return, affidavit, claim, or other document; (ii) material falsity; and
(iii) willfulness. (227)

i. Aiding and Assisting

The statute does not limit liability to individuals directly
responsible for preparing a fraudulent return. (228) To be guilty under
[section] 7206(2), a person need only take some affirmative action that
encourages the taxpayer to mislead the IRS. (229) A person can be
convicted of aiding and assisting in the preparation of false tax
returns under [section] 7206(2) even though she did not actually prepare
the tax return. (230) Liability under the statute attaches to any person
who knowingly participates in preparation of a false tax return, such as
tax preparers, (231) accountants, (232) lawyers, (233) and clerical
workers. (234)

ii. Material Falsity

A false statement is material if it is essential to the accurate
computation of taxes or causes the return to be inaccurate. (235) A
violation of [section] 7206(2) occurs even when a false statement does
not create a tax deficiency. (236)

iii. Willfulness

Willfulness means that the defendant voluntarily and intentionally
violated a known duty. (237) The critical time period for a
determination of willfulness is upon signing the return, (238) and
defendant’s views about the validity of the tax laws are irrelevant
to the determination of whether willfulness exists. (239)

b. Defenses

Because [section] 7206(2) requires the specific intent to cause a
false return to be filed, refuting the government’s willfulness
claim is generally the most effective defense. (240)

F. I.R.C. [section] 7212(a)

Section 7212(a) of the I.R.C., the “omnibus clause,”
(241) criminalizes attempts to interfere with the administration of
internal revenue laws through corrupt (242) or forcible acts. (243) The
statute applies to anyone who impedes the IRS from collecting their own
or someone else’s taxes or auditing their own or someone
else’s tax record. (244)

1. Elements

To obtain a conviction under [section] 7212(a), the government must
prove: (i) corruption, force, or threat of force and (ii) an endeavor to
obstruct the administration of the IRS. (245)

a. Corruption, Force, or Threat of Force

An act is corrupt under [section] 7212(a) if an individual attempts
to “secure an unlawful advantage or benefit either for one’s
self or for another.” (246) This language has been broadly
construed to include not only bribery, solicitation, and subornation,
but also acts of fraud and misrepresentation. (247) However, mere
evidence of improper motive does not establish corruption. (248) b.
Endeavor to Obstruct the Administration of the IRS

The second element, which requires an “endeavor” (249) to
obstruct the administration of the IRS, extends not only to the
attempted obstruction of individual employees and agents of the IRS, but
also to the IRS itself (250) and victims not employed by the IRS. (251)

The government can prove this element by demonstrating that the
defendant’s corrupt actions caused the government to expend
substantial time investigating and remedying the consequences of the
corrupt acts. (252)

2. Defenses

One defense to the charge of a [section] 7212(a) violation is to
negate the presence of the first statutory element by attacking the
government’s proof of the corruption, force, or threat of force.
(253) A second possible defense is that the defendant was not aware of,
and therefore could not have been acting in response to, a pending IRS
action. (254) Third, a defendant might assert the expiration of the
statute of limitations, which is six years under [section] 7212(a).
(255)

G. Sanctions Under the U.S. Sentencing Guidelines

For most tax violations, the United States Sentencing Guidelines
(“Guidelines”) set a base offense level corresponding to the
amount of the tax loss. (256) Generally, the tax loss equals the amount
of taxes evaded by the taxpayer, excluding penalties or interest for the
period in question, instead of the amount the IRS could actually
recover. (257) Furthermore, the amount of tax loss must be calculated
“on the basis of the conduct of conviction and relevant
conduct.” (258)

Sentences for violations of federal criminal laws are determined
with reference to the Guidelines. (259) The discussion below delineates
the Guidelines applicable to violations of I.R.C. [section][section]
7201, 7202, 7203, 7206, and 7212(a).

1. Violations of I.R.C. [section] 7201

A violation of [section] 7201 is a felony carrying a potential fine
of up to $100,000 ($500,000 in the case of a corporation), imprisonment
of not more than five years, or both. (260) Defendants convicted under
[section] 7201 are sentenced in accordance with section 2T1.1 of the
Guidelines. (261) The base offense level is calculated from the tax
table in section 2T4.1 of the Guidelines and corresponds to the amount
of tax loss. (262) Alternatively, if no tax loss exists, the base
offense level is six. (263)

The Guidelines also provide a number of possible penalty
adjustments for certain types of felonious conduct. For example, if the
defendant failed to report or to identify correctly a criminal source of
income exceeding $10,000 in any year, the offense level increases by
two. (264) If the resulting offense level is less than twelve, the
offense level must be increased to twelve. (265) Where the court finds
the offense involved sophisticated means, the offense level is increased
by two. (266)

2. Violations of I.R.C. [section] 7202

A person who violates [section] 7202 is guilty of a felony
punishable by a fine of no more than $10,000, imprisonment of not more
than five years, or both. (267) Defendants convicted under [section]
7202 are sentenced in accordance with section 2T1.6 of the Guidelines.
(268) The base offense level is derived from the tax table in section
2T4.1 and is determined by the amount of tax not collected or accounted
for and paid over. (269) However, when the offense involves
“embezzlement by withholding tax from an employee’s earnings
and willfully failing to account to the employee for it,” the
greater offense level of section 2T1.6 or section 2Bl.1 applies. (270)

3. Violations of I.R.C. [section] 7203

A violation of [section] 7203 is a misdemeanor punishable by a fine
of up to $25,000 for an individual or $100,000 in the case of a
corporation, imprisonment of not more than one year, or both. (271) A
violation of [section] 7203 occurring in conjunction with a violation of
I.R.C. [section] 6050I–relating to the reporting of cash transactions
in a trade or business–is a felony carrying the same fine, but
increases the prison sentence to a maximum of five years. (272)

Defendants convicted under [section] 7203 are sentenced in
accordance with section 2T1.1 of the Guidelines. (273) However,
defendants convicted under [section] 7203 for violations of I.R.C.
[section] 60501 are sentenced in accordance with section 2S1.3. (274)
The base offense level under section 2S1.3 is six, and increases by the
number of offense levels from the table in section 2B 1.1, corresponding
to the value of the funds. (275) Furthermore, the base offense level
increases by two if the defendant knew or believed the funds were
proceeds of unlawful activity or were intended to promote unlawful
activity. (276) If the defendant had the specific intent to violate the
I.R.C. and the offense level calculated under the most appropriate
guideline from section 2T is greater than that calculated under section
2S1.3, the greater sentence under section 2T of the Guidelines applies.
(277) Defendants who abuse a position of trust or employ a special skill
in a manner that significantly facilitates the commission or concealment
of the offense are subject to an increase of two levels under section
3B1.3 of the Guidelines. (278)

4. Violations of I.R.C. [section] 7206

A violation of [section] 7206 is a felony punishable by a fine of
not more than $100,000 ($500,000 in the case of a corporation), a prison
sentence of not more than three years, or both. (279)

Defendants convicted under [section] 7206(1) are sentenced in
accordance with section 2T1.1 of the Guidelines. (280) Defendants
convicted under [section] 7206(2) are sentenced in accordance with
section 2T1.4. (281) The base offense level is determined from section
2T4.1 corresponding to the tax loss or level six if no loss exists.
(282) Courts have split as to whether tax loss should be offset by
unclaimed deductions. (283)

Significantly, if the defendant committed the offense as part of a
pattern or scheme from which he derived a substantial portion of his
income, or if the defendant was in the business of preparing or
assisting in the preparation of tax returns, then the offense level is
increased by two. (284) Furthermore, a finding that the defendant
employed sophisticated methods of concealment to impede discovery of the
existence or extent of the offense increases the offense level by two.
(285) Defendants convicted under [section] 7206(1) or [section] 7206(2)
may be sentenced in accordance with section 2S1.3 of the Guidelines.
(286)

5. Violations of I.R.C. [section] 7212(a)

A violation of [section] 7212(a) is punishable by a fine of up to
$5,000, imprisonment of not more than three years, or both. (287) If the
offense is committed only by threats of force, however, the penalty is
reduced to a fine not exceeding $3,000, a prison term of one year or
less, or both. (288)

Defendants convicted under the omnibus clause of [section] 7212(a)
are sentenced in accordance with section 2J1.2 of the Guidelines. (289)
The base offense level is fourteen, (290) which can increase eight
levels for causing or threatening to cause harm to persons or property,
(291) or increase three levels for interfering with the administration
of justice. (292) Violations of the omnibus clause also may be sentenced
under section 2T1.1. (293)

III. CRIMINAL CONSPIRACY INVESTIGATIONS UNDER 18 U.S.C. [section]
371

The federal criminal conspiracy statute, 18 U.S.C. [section] 371,
identifies two types of unlawful conspiracies: (i) a conspiracy to
commit a substantive offense proscribed by another statute (the
“offense clause”) and (ii) a conspiracy to defraud the United
States (the “defraud clause”). (294) In tax cases, charges of
criminal conspiracy in violation of [section] 371 are most often brought
under the defraud clause. (295) A conspiracy to defraud the United
States by frustrating the IRS in “its lawful information gathering
functions” (296) is called a “Klein conspiracy,” so named
after a Second Circuit case. (297) This Section will focus on the use of
[section] 371 in conspiracy cases relating to tax issues. (298)

A. Elements

The government has the burden of proving three elements under
[section] 371: (i) that an agreement existed; (ii) that the conspirators
committed an overt act in furtherance of the conspiracy; and (iii) that
the defendant intended to agree to the conspiracy and to defraud the
United States. (299)

Under the first element of [section] 371, the government must
establish only that the conspirators agreed to interfere with or
obstruct one of the government’s lawful functions, (300) not that
the Klein conspiracy succeeded or that the government was actually
harmed. (301) A Klein conspiracy exists only if an agreed-upon objective
of the criminal conspiracy is to thwart the IRS’s efforts to
determine and collect income taxes. (302) Circumstantial evidence of an
agreement constituting a conspiracy can satisfy the government’s
burden of proof. (303)

The second element–an overt act in furtherance of the
conspiracy–may be satisfied by a variety of acts. (304) It is not
necessary for the defendant to perform an overt act if a co-conspirator
has done so. (305)

Finally, the government must show that the conspirator intended to
accomplish an unlawful plan or to defraud the government. (306)

B. Defenses

Withdrawal from the conspiracy is a complete defense only when
coupled with the expiration of the statute of limitations, because a
defendant’s withdrawal from the conspiracy starts the running of
the statute of limitations as to her. (307) However, the fact that the
defendant did not commit an overt act during the statutory period does
not necessarily establish that she was no longer a member of the
conspiracy. (308) Accordingly, the defendant bears the burden of
establishing withdrawal. (309) TO show that she has withdrawn from the
conspiracy, “the defendant must show that [s]he has committed
affirmative acts inconsistent with the object of the conspiracy that are
communicated in a manner reasonably calculated to reach other
conspirators.” (310)

C. Statute of Limitations

Klein conspiracies are governed by a six-year statute of
limitations. (311) When determining whether the statute has run, one
must establish when the conspiracy ended, because the statute of
limitations generally runs from the time of the last overt act in
furtherance of the conspiracy. (312)

(1.) Criminal Investigation (CI) At-A-Glance, IRS.GOV,
http://www.irs.gov/irs/article/0,,id=98398,00.html (last updated Mar.
20, 2012); see also United States v. Peters, 153 F.3d 445, 447 (7th Cir.
1998) (outlining the contours of an IRS investigation).

(2.) IRS, INTERNAL REVENUE MANUAL [section] 9.1.1.2, available at
http://www.irs.gov/irm (last visited Apr. 11, 2012) [hereinafter
INTERNAL REVENUE MANUAL] (stating purposes of criminal tax
investigations). The techniques employed in criminal tax investigations
by the IRS are limited by the availability of resources. See IAN L.
COMISKY ET AL., TAX FRAUD AND EVASION: OFFENSES, TRIALS, CIVIL PENALTIES
[paragraph] 4.03 (6th ed. 1995).

Also note that federal reform efforts may affect future policies
regarding IRS criminal investigations. Where appropriate, possible
changes have been noted. However, practitioners should be aware of
future changes as they emerge.

(3.) See COMISKY ET AL., supra note 2, [paragraph] 1.0117]
(explaining CI’s reasoning for targeting certain taxpayers).

(4.) See Lee G. Knight & Ray A. Knight, Criminal Tax Fraud: An
Analytical Review, 57 Mo. L. REV. 175, 178 (1992) (noting that targeting
high-profile taxpayers achieves maximum deterrence).

(5.) See IRS, INTERNAL REVENUE SERVICE DATABOOK, 2011 26 tbl.9b
(2012) (showing an individual tax return audit rate of 1.1% overall,
20.75% for individuals making between five and ten million dollars per
year, and 29.93% for individuals making over ten million dollars per
year).

(6.) See INTERNAL REVENUE MANUAL, supra note 2, [section]
9.1.2.2(4); U.S. DEP’T OF JUSTICE, CRIMINAL TAX MANUAL [section]
1.0311] (2008 ed.) [hereinafter DOJ CRIMINAL TAX MANUAL] (discussing
role of IRS CI investigations).

(7.) INTERNAL REVENUE MANUAL, supra note 2, [section][section]
9.4.1.4.2(1)(A), 9.4.1.5.

(8.) Id. [section][section] 9.4.1.3(2), 9.4.1.4(2).

(9.) Id. [section] 9.4.1.6(3).

(10.) Id.

(11.) See DOJ CRIMINAL TAX MANUAL, supra note 6, [section] 1.03.

(12.) I.R.C. [section] 7602(d) (2006) (stating clear division
between IRS civil investigation and DOJ criminal investigation).

(13.) See DOJ CRIMINAL TAX MANUAL, supra note 6, [section] 1.03[1]
(outlining role of Tax Division in criminal investigations).

(14.) See id. [section] 1.02[1] (listing regulatory functions of
the Tax Division).

(15.) See id. [section] 1.03[2][b].

(16.) See INTERNAL REVENUE MANUAL, supra note 2, [section]
9.4.5.11.3.1. At the beginning of the meeting, the special agent must
advise the taxpayer that “one of [the agent’s] functions is to
investigate the possibility of criminal violations of the Internal
Revenue laws and related offenses.” Id. [section] 9.4.5.11.3.1.1.

(17.) See Beckwith v. United States, 425 U.S. 341, 345-46 (1976)
(holding that, where an administrative warning was given, Miranda
warnings were not required when interviewing a taxpayer under
investigation, so long as the questioning does not deprive the person of
his freedom of action in any significant way); United States v. Kontny,
238 F.3d 815, 817 (7th Cir. 2001) (holding Miranda-type warning not
required because interrogation was not custodial); see also Miranda v.
Arizona, 384 U.S. 436, 444 (1966) (requiting warnings only when suspect
is subjected to custodial interrogation). But cf. United States v.
Peters, 153 F.3d 445, 447 (7th Cir. 1998) (stating that administrative
warning must be given upon commencement of criminal tax investigation);
accord United States v. McKee, 192 F.3d 535, 537-38 (6th Cir. 1999)
(quoting Peters).

(18.) See Oxford Capital Corp. v. United States, 211 F.3d 280, 285
& n.3 (5th Cir. 2000) (finding that IRS’s violation of its own
internal procedures was not dispositive proof of violation, but was
“further indication” of violation); McKee, 192 F.3d at 540–41
(approving view that conviction may be set aside if IRS violated
provision established to protect taxpayer’s constitutional rights);
Peters, 153 F.3d at 452 (“[W]hen examining whether a revenue agent
has misrepresented the true nature of her investigation, it is
appropriate to consider the procedures and regulations under which she
functions….”); United States v. Grunewald (Grunewald I), 987 F.2d
531, 534 & n.3 (8th Cir. 1993) (stating that possible violation of
IRS Manual Guideline may be evidence of violation of taxpayer’s
rights). But see United States v. Caceres, 440 U.S. 741, 749-50 (1979)
(distinguishing internal rules of agency procedure, which do not provide
substantive rights, from regulations promulgated pursuant to statutory
directive for a taxpayer’s benefit, which do provide substantive
rights); Crystal v. United States, 172 F.3d 1141, 1148 (9th Cir. 1999)
(finding no substantive fights conferred by IRS internal procedural
regulations); Groder v. United States, 816 F.2d 139, 142 (4th Cir. 1987)
(finding internal IRS regulations provide no substantive rights).

(19.) See INTERNAL REVENUE MANUAL, supra note 2, [section][section]
25.1.3.1 (2), 25.1.3.2(1).

(20.) See McKee, 192 F.3d at 540-42 (examining possible Fourth and
Fifth Amendment constitutional violations by IRS in its decision to
refer case to CI); Peters, 153 F.3d at 451 (considering whether Fourth
and Fifth Amendment violation occurred in case referral to CI); United
States v. Wadena, 152 F.3d 831, 850-52 (8th Cir. 1998) (discussing
possible Fourth and Fifth Amendment violations stemming from CI
referral). But see Groder, 816 F.2d at 142 (“The violation of a
guideline … is … without legal effect to … suppress evidence at a
criminal trial.”).

(21.) Peters, 153 F.3d at 456; see McKee, 192 F.3d at 542 (applying
factors similar to those in Peters); Wadena, 152 F.3d at 851
(considering factors similar to those in Peters: (i) the IRS had firm
indications of fraud by the defendant; (ii) there is clear and
convincing evidence that the IRS affirmatively and intentionally misled
the defendant; and (iii) the IRS’s conduct resulted in prejudice to
defendant’s constitutional rights); cf. United States v. Greve, 490
F.3d 566, 571-72 (7th Cir. 2007) (holding that a taxpayer must prove
that IRS agents “induced … compliance through false
promises” in order to suppress evidence); United States v. Knight,
898 F.2d 436, 438 (5th Cir. 1990) (finding that, while manual violations
themselves may not provide grounds for suppression, underlying issue of
“fraud, deceit, or trickery” embodied in manual may provide
such grounds).

(22.) McKee, 192 F.3d at 544 (“[C]ourts must defer to the
discretion of revenue agents as to whether an initiation of a criminal
investigation is warranted.”); Peters, 153 F.3d at 452-53 (stating
that the referral process relies on the judgment of the revenue agent);
see also Grunewald I, 987 F.2d at 534 (expressing concern that fear of
exclusionary rule might result in premature referral of cases to CI);
United States v. Powell, 835 F.2d 1095, 1101 (5th Cir. 1989)
(“[T]he decision as to when to refer a case to the CID is generally
left to the discretion of … revenue agents.”).

(23.) See United States v. Peters, 153 F.3d 455, 453 (7th Cir.
1998) (discussing the difficult analysis required to “navigate the
narrow course” between total deference to the judgment of agents
and overly active judicial intervention).

(24.) See United States v. Caceres, 440 U.S. 741, 754-55 (1979)
(holding that evidence obtained in violation of agency regulation does
not warrant suppression where regulation is not required by Constitution
or by statute); United States v. Kontny, 238 F.3d 815, 818-19 (7th Cir.
2001) (following Caceres in finding that agent’s violation of IRS
regulations, without threat or deceit, did not warrant suppression of
evidence obtained at interview); United States v. Scott, 37 F.3d 1564,
1582 (10th Cir. 1994) (finding secret audio and video tapes of taxpayer
admissible even though production of the tapes violated internal IRS
regulations); cf. United States v. McKee, 192 F.3d 535, 541 (6th Cir.
1999) (stating that evidence could be inadmissible if obtained in
violation of an internal regulation “mandated by the Constitution
or federal law”) (citation omitted).

(25.) See Caceres, 440 U.S. at 755-56 (rejecting adoption of per se
rule to automatically exclude evidence obtained in violation of IRS
internal guidelines).

(26.) See Knight, 898 F.2d at 438 (stating that agent’s bad
faith, rather than the existence of a manual violation, is central
consideration in admissibility decisions); Powell, 835 F.2d at 1101
(holding that evidence found by an agent during a civil investigation
was admissible in a criminal trial when possible violation by the agent
was not in bad faith).

(27.) See Kastigar v. United States, 406 U.S. 441, 444 (1972)
(“It can be asserted in any proceeding, civil or criminal,
administrative or judicial, investigatory or adjudicatory….”);
United States v. Bodwell, 66 F.3d 1000, 1001 (9th Cir. 1995) (per
curiam) (stating that Fifth Amendment privilege can be invoked in any
proceeding consistent with Kastigar); United States v. Argomaniz, 925
F.2d 1349, 1352-53 (11th Cir. 1991) (stating that Fifth Amendment
privilege can be invoked in any proceeding consistent with Kastigar).

(28.) See United States v. Hubbell, 530 U.S. 27, 35-36 (2000)
(relying on “the settled proposition that a person may be required
to produce specific documents even though they contain incriminating
assertions of fact or belief because the creation of those documents was
not ‘compelled’ within the meaning of the privilege”);
Foster v. Hill, 188 F.3d 1259, 1269 (10th Cir. 1999) (stating that the
Fifth Amendment does not shield contents of voluntarily produced
documents from discovery). But see Bodwell, 66 F.3d at 1001 (“[A]
reasonable belief that information concerning income or assets … might
be used to establish criminal failure to file a tax return can support a
claim of Fifth Amendment privilege.”).

(29.) Hubbell, 530 U.S. at 36; see United States v. Ponds, 454 F.3d
313, 324 (D.C. Cir. 2006) (explaining that the act of production may be
testimonial if the government lacks enough prior knowledge of the
existence and whereabouts of the documents that their existence and
location is a “‘foregone conclusion'” (quoting
Fisher v. United States, 425 U.S. 391, 411 (1976))); cf. Rajah v.
Mukasey, 544 F.3d 427, 441 (2d Cir. 2008) (finding that the act of
producing a document may be testimonial “when the act of producing
the document is evidence that [it] exists”).

(30.) See Hubbell, 530 U.S. at 33-34 (examining whether Fifth
Amendment protects such implied statements resulting from
taxpayer’s compelled disclosure); United States v. Doe, 465 U.S.
605, 612 (1984) (“Although the contents of a document may not be
privileged, the act of producing the document may be.”); Foster,
188 F.3d at 1269-70 (stating that the act of producing documents might
be both incriminating and testimonial); United States v. Grable, 98 F.3d
251, 253 (6th Cir. 1996) (“[T]he physical act of producing the
documents may be privileged.”).

(31.) See Grable, 98 F.3d at 255 (finding that a defendant must be
asked specific questions in order to correctly invoke Fifth Amendment);
United States v. Drollinger, 80 F.3d 389, 391-92 (9th Cir. 1996)
(stating that a taxpayer must have the opportunity to answer specific
questions before he or she properly invokes Fifth Amendment); Argomaniz,
925 F.2d at 1355 (stating that privilege assertions are to be made on a
question-by-question basis); United States v. Alice, 888 F.2d 208, 212
(1st Cir. 1989) (“A blanket objection to the issuance of an IRS
summons based on the Fifth Amendment … is not a viable
defense.”).

(32.) See Foster, 188 F.3d at 1270 (finding error in lower
court’s rejection of in camera review); Grable, 98 F.3d at 257
(ordering in camera inquiry into taxpayer’s Fifth Amendment
claims); Bodwell, 66 F.3d at 1002 (remanding for in camera heating
regarding taxpayer’s Fifth Amendment claim).

(33.) United States v. Argomaniz, 925 F.2d 1349, 1353 (11th Cir.
1991) (“[T]he taxpayer must be faced with substantial and real
hazards of self-incrimination.”); see also Grable, 98 F.3d at 255
(stating that the prospect of criminal inquiry must be substantial and
real); Drollinger, 80 F.3d at 392 (finding that the hazards of criminal
prosecution must be real).

(34.) Jones v. Berry, 722 F.2d 443, 448-49 (9th Cir. 1983)
(interpreting United States v. Ward, 576 F.2d 243 (9th Cir. 1978)).

(35.) See Vaughn, DDS, P.C. v. Baldwin, 950 F.2d 331, 334 (6th Cir.
1991) (stating that the IRS had no right to examine the documents after
voluntary consent was withdrawn).

(36.) I.R.C. [section] 6531 (2006).

(37.) Id. [section] 6531(2) (establishing limitations period for
tax evasion).

(38.) Id. [section] 6531(4); see also United States v. Blanchard,
618 F.3d 562, 569 (6th Cir. 2010) (“The scope of … [section]
6531(4) plainly encompasses the offense of ‘willfully failing to
pay over a tax’ under [section] 7202….”); United States v.
Adam, 296 F.3d 327, 331-32 (5th Cir. 2002) (affirming that six-year
period of limitations applies to [section] 7202 violations); United
States v. Evangelista, 122 F.3d 112, 119 (2d Cir. 1997) (holding
six-year statute of limitations applicable to violations of [section]
7202); United States v. Gollapudi, 130 F.3d 66, 69-71 (3d Cir. 1997)
(holding six-year statute of limitations applies to violations of
[section] 7202). But see United States v. Block, 497 F. Supp. 629, 632
(N.D. Ga. 1980) (holding three-year rather than six-year statute of
limitations applies to violations of [section] 7202). The court in Block
reasoned that the [section] 6531 exception does not apply to [section]
7202 because of the difference between the terms “pay any tax”
(used in [section] 6531) and “pay over” tax (used in [section]
7202). Id. Courts have criticized the Block court’s distinction
between the terms “pay over” and “pay” as specious.
See Adam, 296 F.3d at 331-32; United States v. Musacchia, 900 F.2d 493,
500 (2d Cir. 1990) (noting that the Supreme Court used “pay”
and “pay over” interchangeably in Slodov v. United States, 436
U.S. 238, 249 (1978), albeit in a different context).

(39.) I.R.C. [section] 6531(4); see also Gollapudi, 130 F.3d at 71
(3d Cir. 1997) (stating that six-year statute of limitations applies to
violations of [section] 7203).

(40.) I.R.C. [section] 6531(5) (expressly providing six-year
statute of limitations for violations of [section] 7206(1)); see also
United States v. Waldman, 941 F.2d 1544, 1548 (11th Cir. 1991) (holding
six-year statute of limitations applicable to violations of [section]
7206(2)).

(41.) I.R.C. [section] 6531(6); see also United States v. Brennick,
908 F. Supp. 1004, 1017-18 (D. Mass. 1995) (applying six-year statute of
limitations to violation of [section] 7212(a)).

(42.) See United States v. Thompson, 518 F.3d 832, 857 (10th Cir.
2008) (holding that statute of limitations begins to run on date
defendant committed last evasive act with respect to tax return); accord
United States v. Anderson, 319 F.3d 1218, 1221 (10th Cir. 2003).

(43.) See United States v. O’Neal, 834 F.2d 862, 865 (9th Cir.
1987) (holding that complaint filed by government within statutory time
limit was sufficient even if grand jury proceedings were held after time
limit had expired).

(44.) I.R.C. [section] 6531 (2006).

(45.) Id.

(46.) See id.; United States v. Meyer, 808 F.2d 1304, 1306 (8th
Cir. 1987) (permitting tolling of statute of limitations during appeal
from summons enforcement proceedings).

(47.) I.R.C. [section][section] 7201-7241, 7261-7275 (2006 &
Supp. 2011) (setting forth criminal provisions of Tax Code).

(48.) Section 7201 provides:

   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.

I.R.C. [section] 7201 (2006). Note, however, that 18 U.S.C.
[section] 3751 governs fines for all criminal tax offenses, and the
application of that statute may result in a higher penalty.

(49.) E.g., Sansone v. United States, 380 U.S. 343, 350 (1965). See
generally Kathryn Keneally, White Collar Crime, CHAMPION, Apr. 1997, at
37-39 (discussing amendments to United States Sentencing Guidelines that
add enhancements for “sophisticated concealment”).

(50.) I.R.C. [section] 7201; see Sansone, 380 U.S. at 351; United
States v. Beale, 574 F.3d 512, 517 (8th Cir. 2009); United States v.
Bishop, 264 F.3d 535, 545 (5th Cir. 2001); United States v. Carlson, 235
F.3d 466, 468-69 (9th Cir. 2000).

(51.) See Boulware v. United States (Boulware II), 552 U.S. 421,
424 (2008) (stating that government must prove existence of tax
deficiency element beyond reasonable doubt); Bishop, 264 F.3d at 549
(stating that a guilty verdict will be upheld if “any rational
trier of fact could have found proof of the essential elements of the
crime beyond a reasonable doubt”); United States v. Brooks, 174
F.3d 950, 954 (8th Cir. 1999) (stating that the government must prove
the elements of a crime under [section] 7201 beyond a reasonable doubt);
United States v. Alt, 996 F.2d 827, 828 (6th Cir. 1993) (stating that
the government had burden of proving beyond reasonable doubt
defendant’s knowledge of legal duty under tax laws).

(52.) See United States v. Tanios, 82 F.3d 98, 100 n.6 (5th Cir.
1996) (indicating that a substantial deficiency is not needed); United
States v. Benson, 67 F.3d 641, 648 (7th Cir. 1995) (finding that a tax
deficiency existed because damages for breach of contract were taxable,
contrary to taxpayer’s belief); United States v. McGill, 964 F.2d
222, 229 (3d Cir. 1992) (acknowledging sufficient deficiency without
mentioning “substantial”); United States v. Marashi, 913 F.2d
724, 735 (9th Cir. 1990) (“The language of [section] 7201 does not
contain a substantiality requirement.”); United States v. Williams,
875 F.2d 846, 850-51 (11th Cir. 1989) (holding that, in criminal tax
proceedings, the critical issue is whether there was a deficiency, not
the type or amount of the deficiency); United States v. Fredrickson, 846
F.2d 517, 520 (8th Cir. 1988) (finding that only evidence of the
deficiency is needed). But see Bishop, 264 F.3d at 553 (accepting jury
instruction concerning “substantial” deficiency).

(53.) See United States v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.
2000) (finding substantial deficiency where defendant deducted $10,000
in corporate expenses on his personal return); United States v. Wilson,
118 F.3d 228, 236 (4th Cir. 1997) (finding substantial deficiency where
defendant owed more than $400,000 in personal income taxes and more than
$700,000 in penalty taxes); United States v. Koskerides, 877 F.2d 1129,
1131, 1137 (2d Cir. 1989) (upholding district court’s finding that
owing taxes of $71,561, $89,879, and $121,909 in consecutive years
constituted substantial deficiency). No court has clearly defined
“substantial.” See United States v. Bencs, 28 F.3d 555, 563
n.9 (6th Cir. 1994) (stating that government does not need to prove
exact amount of defendant’s tax deficiency, only that it is
“substantial”); accord United States v. Sorrentino, 726 F.2d
876, 880 n.1 (1st Cir. 1984).

(54.) See United States v. Nunan, 236 F.2d 576, 585 (2d Cir. 1956)
(explaining that substantial deficiency is determined based on all the
attendant circumstances of the particular case).

(55.) See United States v. Abodeely, 801 F.2d 1020, 1023 (8th Cir.
1986) (noting that by “the very fact that taxpayer has failed to
report the income, it behooves him to obscure any trace of its
existence”).

(56.) See Holland v. United States, 348 U.S. 121, 139-40 (1954)
(upholding conviction based on circumstantial evidence under net worth
theory); see also infra notes 63-66 and accompanying text (explaining
net worth theory); United States v. Notch, 939 F.2d 895, 898 (10th Cir.
1991) (stating that an increase or “bulge” greater than the
increase in reported income for the corresponding tax year creates an
inference of unreported income).

(57.) Abodeely, 801 F.2d at 1023 (citing H.G. BALTER, TAX FRAUD AND
EVASION [section] 13.03[3] (4th ed. 1976)); see United States v. Hart,
70 F.3d 854, 860 (6th Cir. 1995) (“The use of multiple
corroborative methods of proof … does not constitute a
variance.”).

(58.) United States v. Bishop, 264 F.3d 535, 550 (5th Cir. 2001);
Bencs, 28 F.3d at 563 n.9 (noting that when using net worth method,
government must prove substantial unreported income, but need not prove
exact amount of unreported income).

(59.) See Holland, 348 U.S. at 135 (“When the Government rests
its case solely on [circumstantial evidence], the cogency of its proof
depends upon its effective negation of reasonable explanations by the
taxpayer inconsistent with guilt.”); Notch, 939 F.2d at 899
(stating that government must prove “likely” source of taxable
income); United States v. Williams, 875 F.2d 846, 850 (11th Cir. 1989)
(holding that government need not assign particular label, such as
“constructive dividend,” to unreported income, but need only
show income exists). But see United States v. D’Agostino, 145 F.3d
69, 72-73 (2d Cir. 1998) (declining to follow Williams and requiring
characterization of income as condition of proving tax evasion).

(60.) Knight & Knight, supra note 4, at 191-92
(“[S]pecific item method is the simplest method of proving evasion
… consist[ing] of little more than the taxpayer’s return and the
testimony and records of a third party.”); see also United States
v. Thompson, 518 F.3d 832, 853 (10th Cir. 2008) (“[S]pecific items
method merely states the obvious with regard to the government’s
burden to show a ‘substantial tax liability’ under 26 U.S.C.
[section] 7201: the government must produce evidence of a specific item
of reportable income that the defendants did not–but should
have–included on their income tax returns.”).

(61.) See Thompson, 518 F.3d at 851-52 (holding that commission
checks made out to the defendant and deposited in accounts under his
control provided sufficient evidence of unreported income); United
States v. Pisani, 773 F.2d 397, 405-06 (2d Cir. 1985) (allowing IRS to
use records of funds taken from campaign for personal use as evidence of
unreported income); United States v. Marabelles, 724 F.2d 1374, 1378
(9th Cir. 1984) (affirming use of canceled checks to establish that
taxpayer’s gross receipts greatly exceeded reported income); United
States v. Kaatz, 705 F.2d 1237, 1246 (10th Cir. 1983) (allowing
understatement of receipts in family business to prove unreported
income); United States v. Jackson, 578 F.2d 1162, 1163-64 (5th Cir.
1978) (affirming government’s use of specific item method to
“demonstrate that appellant earned substantially more money than he
reported”). See generally Pamela H. Bucy, Criminal Tax Fraud: The
Downfall of Murderers, Madams and Thieves, 29 ARIZ. ST. L.J. 639, 664
(1997) (outlining direct method of proof). Direct evidence may also
include third-party testimony. See Knight & Knight, supra note 4, at
191-92 (stating that the specific item method can use third party
testimony in proving elements of evasion).

(62.) See United States v. Abodeely, 801 F.2d 1020, 1023 (8th Cir.
1986) (holding that the government may rely on circumstantial evidence
to prove that unreported taxable income exists). See generally Bucy,
supra note 61, at 665-67 (outlining indirect methods of proof); Knight
& Knight, supra note 4, at 191-96 (comparing methods of indirect
proof).

(63.) Holland, 348 U.S. at 125 (describing net worth method); see
also Yoon v. Comm’r, 135 F.3d 1007, 1012 (5th Cir. 1998)
(discussing net worth method); United States v. Shetty, 130 F.3d 1324,
1331-33 (9th Cir. 1997) (discussing application of net worth method in
taxpayer’s trial and sentencing); United States v. Bencs, 28 F.3d
555, 562-63 (6th Cir. 1994) (discussing net worth method). See generally
Bucy, supra note 61, at 666; Knight & Knight, supra note 4, at
192-94.

(64.) Holland, 348 U.S. at 132; see also Yoon, 135 F.3d at 1012
(placing burden on government to establish opening net worth with
“reasonable certainty”); Shetty, 130 F.3d at 1332 (listing
establishment of opening net worth as element of net worth method).

(65.) See United States v. Mastropieri, 685 F.2d 776, 784 (2d Cir.
1982) (interpreting Holland as not requiring formal net worth statement
at start of each year); cf. Bencs, 28 F.3d at 562 (stating that
government need only calculate net worth at beginning of relevant period
and again at end).

(66.) See Holland v. United States, 348 U.S. 121, 126-29 (1954)
(noting that, because one basic assumption in establishing guilt by the
net worth method is that most assets derive from a taxable source, and
that when this is not true the taxpayer is in a position to explain the
discrepancy, the prosecution must always prove the criminal charge
beyond a reasonable doubt).

(67.) Abodeely, 801 F.2d at 1024 (distinguishing the net worth
method from the cash expenditures method); see also United States v.
Conaway, 11 F.3d 40, 43 (5th Cir. 1993) (differentiating between net
worth and cash expenditures methods); United States v. Marrinson, 832
F.2d 1465, 1469-70 (7th Cir. 1987) (discussing differences between net
worth and cash expenditures methods).

(68.) See United States v. Sutherland, 929 F.2d 765, 780 (1st Cir.
1991) (outlining cash expenditures method); accord Unites States v.
Khanu, 655 F.3d 33, 36-37 (D.C. Cir. 2011); United States v. Citron, 783
F.2d 307, 310 (2d Cir. 1986).

(69.) United States v. Caswell, 825 F.2d 1228, 1231 (8th Cir. 1987)
(citing Mastropieri, 685 F.2d at 784-85); see also United States v.
Marshall, 557 F.2d 527, 529 (5th Cir. 1977) (requiring government to
prove directly or inferentially that the expenditures were made from
taxable income).

(70.) Caswell, 825 F.2d at 1232 (stating that, although a formal
net worth statement is not necessary in cases involving successive
years, the “government has the added responsibility of showing
diminution of resources for each year under investigation in order to
prove that the expenditures in each year were not made from other
nontaxable sources”).

(71.) See United States v. Mounkes, 204 F.3d 1024, 1028 (10th Cir.
2000) (discussing application of bank deposits method); United States v.
Abodeely, 801 F.2d 1020, 1023 (8th Cir. 1986) (discussing application of
“pure” bank deposits method); United States v. Stone, 770 F.2d
842, 844-45 (9th Cir. 1985) (“The critical question is whether the
government’s investigation has provided sufficient evidence to
support an inference that an unexplained excess in bank deposits is
attributable to taxable income.”).

(72.) See United States v. Ludwig, 897 F.2d 875, 878-79 (7th Cir.
1990) (supporting jury inference in bank deposit method of proof);
Abodeely, 801 F.2d at 1023 (“‘[T]he jury is entitled to infer
that the difference between the balance of deposited items and reported
income constitutes unreported income.'” (quoting United States
v. Esser, 520 F.2d 213, 217 (7th Cir. 1975))); United States v. Slutsky,
487 F.2d 832, 841 (2d Cir. 1973) (posing “critical question”
of “whether the government’s investigation … support[s] the
inference that the unexplained excess in receipts was in fact
attributable to currently taxable income”). Furthermore, the
government need only prove a substantial difference between bank
deposits and reported income, not an exact amount. United States v.
Boulware (Boulware I), 384 F.3d 794, 811 (9th Cir. 2004). The government
must demonstrate, however, that it conducted a full investigation into
possible sources of nontaxable income. Abodeely, 801 F.2d at 1023. Under
the bank deposits method of proof, the government must prove:

   (1) [T]hat, during the tax years in question, the taxpayer was
   engaged in an income producing business or calling; (2) that
   [the taxpayer] made regular deposits of funds into bank accounts;
   and (3) that an adequate and full investigation of those accounts
   was conducted in order to distinguish between income and non-income
   deposits.

Id. (quoting United States v. Morse, 491 F.2d 149, 152 (1st Cir.
1974)) (citations omitted); see also Stone, 770 F.2d at 844 (imposing
same requirements).

Under a hybrid method called the “bank deposits and cash
expenditures method,” the government adds the amount of all cash
expenditures to all bank deposits made during the year, and compares
this sum to the taxpayer’s reported taxable income. E.g., Abodeely,
801 F.2d at 1023-24. If the former substantially exceeds the latter,
minus deductions and exemptions, the government has a basis for proving
tax evasion. Mounkes, 204 F.3d at 1028 (discussing application of bank
deposits and cash expenditures method); Abodeely, 801 F.2d at 1023-24
(outlining procedures for bank deposits and cash expenditures method and
comparing with “pure” bank deposits method); see also Conaway,
11 F.3d at 43 (affirming viability of bank deposits and cash
expenditures method); Kearns v. Comm’r, 979 F.2d 1176, 1177 (6th
Cir. 1992) (using bank deposits and cash expenditures method); United
States v. Boulet, 577 F.2d 1165, 1168 (5th Cir. 1978) (stating that,
when using bank deposits and cash expenditures method, the government
“must prove a full and adequate investigation … as it must in a
net-worth case” (citing Holland v. United States, 348 U.S. 121, 129
(1954))).

(73.) See United States v. Silkman (Silkman II), 220 F.3d 935, 936
(8th Cir. 2000) (stating that when a taxpayer refuses to file a return
or disclose relevant information to the IRS, substitute returns are
usable for all legal purposes); accord Johnson v. United States, 54 Fed.
C1. 187, 189-90 & n.5 (Fed. C1. 2002).

(74.) See Silkman II, 220 F.3d at 936 (citing I.R.C. [section]
6020(b)(2)).

(75.) See id.

(76.) Id. (internal quotation marks omitted) (quoting United States
v. Silkman (Silkman I), 156 F.3d 833, 835 (8th Cir. 1998)).

(77.) See Spies v. United States, 317 U.S. 492, 497-98 (1943)
(holding that crimes of intent, such as tax evasion, require affirmative
act); United States v. Carlson, 235 F.3d 466, 468-69 (9th Cir. 2000)
(following Spies in requiring affirmative act to support violation of
[section] 7201 for felony tax evasion).

(78.) See United States v. Nolen, 472 F.3d 362, 377 (5th Cir. 2006)
(listing affirmative act as element of tax evasion); United States v.
Hunerlach, 197 F.3d 1059, 1064 (11th Cir. 1999) (stating that a taxpayer
must engage “in some affirmative act”); United States v.
Brooks, 174 F.3d 950, 956 (8th Cir. 1999) (finding that an affirmative
act is sufficient to make out a violation, even if facially innocuous);
United States v. King, 126 F.3d 987, 989-90 (7th Cir. 1997) (defining
“affirmative act” as “conduct undertaken at least in part
because of a tax evasion motive”); United States v. Barrow, 118
F.3d 482, 489 (6th Cir. 1997) (listing affirmative act as element of tax
evasion); cf. United States v. Nichols, 9 F.3d 1420, 1422 (9th Cir.
1993) (failing to file tax return does not alone qualify as tax
evasion).

(79.) Spies, 317 U.S. at 499 (stating that passive neglect of the
statutory duty itself may be lesser offense; if combined with positive
attempt, however, it could rise to degree of felony).

(80.) See Spies, 317 U.S. at 499 (setting forth possible
affirmative acts); United States v. Wilson, 118 F.3d 228, 236 (4th Cir.
1997) (discussing variety of affirmative acts).

(81.) See Sansone v. United States, 380 U.S. 343, 351-52 (1965)
(filing false return “constituted a sufficient affirmative
commission”); Brooks, 174 F.3d at 953-54, 956 (claiming false
allowances and exemptions was affirmative act); King, 126 F.3d at 989
(failing to file W-4 forms constitutes evasive act); Barrow, 118 F.3d at
489-90 (finding omission of required information from filed tax return
was affirmative act); United States v. Winfield, 960 F.2d 970, 973 (11th
Cir. 1992) (per curiam) (making false statements to IRS agents after tax
was due was affirmative act); United States v. Jones, 816 F.2d 1483,
1488 (10th Cir. 1987) (explaining that misstating income on tax returns
is affirmative act). But see United States v. Uscinski, 369 F.3d 1243,
1247 (11th Cir. 2004) (reading Winfield narrowly to hold that tax
evasion becomes complete upon the filing of a false tax return, and that
subsequent false statements to the government do not represent a
continuation of the crime).

(82.) See Spies, 317 U.S. at 499 (interpreting willful attempt to
defeat or evade taxes to include keeping double sets of books).

(83.) See Spies v. United States, 317 U.S. 492, 499 (1943)
(interpreting willful attempt to defeat or evade taxes to include false
entries or alterations).

(84.) See id. (interpreting willful attempt to defeat or evade
taxes to include false invoices or documents); United States v.
Townsend, 31 F.3d 262, 265-67 (5th Cir. 1994) (holding that preparation
of fraudulent Form 637 with forged signatures fulfills affirmative act
requirement); United States v. DiPetto, 936 F.2d 96, 97 (2d Cir. 1991)
(per curiam) (holding that knowingly filing W-4 Form with false
information and failing to correct information was affirmative act).

(85.) See Spies, 317 U.S. at 499 (interpreting willful attempt to
defeat or evade taxes to include destruction of books or records).

(86.) See id. (interpreting willful attempt to defeat or evade
taxes to include concealing assets or covering up sources of income).

(87.) See United States v. Schafer, 580 F.2d 774, 782 (5th Cir.
1978) (upholding jury instruction to allow finding affirmative act based
on “handling of one’s affairs to avoid making the records
usual in transactions”).

(88.) See United States v. Hook, 781 F.2d 1166, 1168-70 (6th Cir.
1986) (finding affirmative acts where defendant did most of his business
in cash, used credit cards belonging to others, and bought a house in
his girlfriend’s name).

(89.) See United States v. Voorhies, 658 F.2d 710, 714 (9th Cir.
1981) (finding affirmative acts where defendant traveled out of the
country on three occasions in one year, carrying over $80,000 in
negotiable assets, did not declare these amounts to customs, and was
later unable to account for use of large amounts of cash and gold
coins).

(90.) See United States v. McGill, 964 F.2d 222, 230, 232-33 (3d
Cir. 1992) (listing several possible affirmative acts, and finding
element met where defendant used his spouse’s bank account and
office expense account after IRS issued levies on his personal bank
accounts).

(91.) See Spies v. United States, 317 U.S. 492, 499 (1943)
(interpreting affirmative act to include conduct of concealment or of
misleading nature); United States v. Carlson, 235 F.3d 466, 469 (9th
Cir. 2000) (opening bank accounts using false social security numbers
after learning that legitimate account was subject of IRS levy
established affirmative attempt to evade taxes); United States v. King,
126 F.3d 987, 991 (7th Cir. 1997) (maintaining false W-4 form on file
serves as affirmative act for tax evasion in subsequent years, even if
form has technically expired); McGill, 964 F.2d at 230 (stating that
affirmative acts “[g]enerally … involve some type of concealment
of the taxpayer’s ability to pay his or her taxes”).

(92.) See United States v. DiPetto, 936 F.2d 96, 97 (2d Cir. 1991)
(per curiam) (finding affirmative act where defendants falsified W-4
forms to conceal accurate amount of their taxable income); United States
v. Conley, 826 F.2d 551, 556-57 (7th Cir. 1987) (finding affirmative
acts where defendant transferred title of his house and manipulated
accounts to shield them from IRS).

(93.) See United States v. Wilson, 118 F.3d 228, 236 (4th Cir.
1997) (jury may infer willfulness from misleading conduct); United
States v. Voigt, 89 F.3d 1050, 1090 (3d Cir. 1996) (holding that the
“affirmative act” element of tax evasion can be satisfied if
tax evasion motive plays any part in such conduct); United States v.
Valenti, 121 F.3d 327, 333 (7th Cir. 1997) (“An act, ‘even
though a lawful activity in-and- of-itself, can serve as an affirmative
act … if it is done with the intent to evade income tax.'”
(quoting United States v. Jungles, 903 F.2d 468, 474 (7th Cir. 1990))).

(94.) See Carlson, 235 F.3d at 469. In Carlson, the defendant
argued that his actions did not constitute conduct “the likely
effect of which would be to mislead or to conceal” as required by
Spies, because his actions, which involved establishing bank accounts
using false social security numbers, were “too feeble to fool the
IRS.” Id. The court rejected the argument, explaining that,
although an affirmative act must generally “serve the purpose of
evasion,” Congress’ intention was not “to establish a
hierarchy of attempts or evasions and limit [section] 7201 to those of a
more deceitful or troublesome character.” Id. (citing Edwards v.
United States, 375 F.2d 862, 866 (9th Cir. 1967)).

(95.) Cheek v. United States, 498 U.S. 192, 201 (1991); see also
MICHAEL D. Rose & JOHN C. CHOMMIE, FEDERAL INCOME TAXATION 821-28
(3d ed. 1988 & Supp. 1994). Willfulness has the same meaning in both
misdemeanor and felony tax offenses. See United States v. Bishop, 412
U.S. 346, 355-56 (1973) (willfulness in misdemeanor tax offences
requires same voluntary, intentional violation of known legal duty). But
see Bruce J. Casino, Note, ‘I Know It When 1 See It:’ Mail
Order Ministry Tax Fraud and the Problem of a Constitutionally
Acceptable Definition of Religion, 25 AM. CRIM. L. REV. 113, 118 n.30
(1987) (“Felony tax evasion under section 7201 is distinguished
from the misdemeanor of falling to file a return or pay a tax in that
the former requires proof of an affirmative (and willful) act.”).

(96.) See King, 126 F.3d at 992 (“Satisfaction of the
willfulness requirement is closely connected with the affirmative act
element.” (quoting United States v. Romano, 938 F.2d 1569, 1572 (2d
Cir. 1991))); United States v. Mal, 942 F.2d 682, 685 (9th Cir. 1991)
(finding act of filing false and fraudulent tax withholding certificate
sufficient to establish willful commission).

(97.) See Cheek, 498 U.S. at 201 (requiring willfulness dement to
include individual’s knowledge of his legal duty and voluntary and
intentional violation of that duty); Bishop, 412 U.S. at 361 (“The
Court’s consistent interpretation of the word ‘willfully’
to require an element of mens rea implements the pervasive intent of
Congress to construct penalties that separate the purposeful tax
violator from the well-meaning, but easily confused, mass of
taxpayers.”); United States v. Stierhoff, 549 F.3d 19, 26 (1st Cir.
2008) (requiring “voluntary, intentional violation” to
establish willfulness); United States v. Bok, 156 F.3d 157, 165-66 (2d
Cir. 1998) (failure to file personal or corporate returns shows intent
to evade taxes); United States v. Marabelles, 724 F.2d 1374, 1379 (9th
Cir. 1984) (noting that a defendant must have acted with specific intent
to violate law).

(98.) See United States v. Pomponio (Pomponio I), 429 U.S. 10, 12
(1976) (per curiam) (requiring “more than a showing of careless
disregard for the truth”).

(99.) See id. (stating that willfulness does not require evil
intent); United States v. Masat, 948 F.2d 923, 931-32 (5th Cir. 1991)
(refusing to require bad faith as part of willfulness); United States v.
Ruffin, 575 F.2d 346, 354 (2d Cir. 1978) (holding that defendant need
not be motivated by bad faith); cf. Cheek, 498 U.S. at 201 (defining the
statutory element of willfulness as requiring a voluntary, intentional
violation of known duty); United States v. King, 126 F.3d 987, 991 (7th
Cir. 1997) (finding negligence of employer benefiting employee who
knowingly filed a false W-4 could satisfy willfulness requirement).

Some courts have demonstrated confusion regarding the proper
application of the willfulness standard in criminal tax cases. The
Seventh Circuit, for example, distinguished between the willfulness
standard in the criminal and civil contexts by stating that in a
criminal case, “‘willfulness’ generally requires bad
purpose or the absence of any justifiable excuse.” Domanus v.
United States, 961 F.2d 1323, 1326 (7th Cir. 1992) (quoting Monday v.
United States, 421 F.2d 1210, 1215 (7th Cir. 1970)). This confusion may
be a result of earlier cases in which the Supreme Court spoke of
willfulness in terms of “bad faith or evil intent,” and
“evil motive and want of justification.” Bishop, 412 U.S. at
360; see also Spies v. United States, 317 U.S. 492, 498 (1943) (stating
an expectation that willfulness “include some element of evil
motive and want of justification in view of all the financial
circumstances of the taxpayer”).

(100.) See Cheek, 498 U.S. at 201-02 (prohibiting jury instructions
which encourage jurors to disregard evidence that defendant had
unreasonable misunderstandings and beliefs about law); United States v.
Nash, 175 F.3d 429, 437 (6th Cir. 1999) (stating that the taxpayer would
not have acted fraudulently in truly believing he was not obligated to
pay taxes); United States v. Brooks, 174 F.3d 950, 955 (8th Cir. 1999)
(stating that good faith belief need not be objectively reasonable); see
also infra notes 114-25 and accompanying text (discussing lack of
willfulness as a defense to charges of tax evasion).

(101.) See United States v. Daugerdas, 759 F. Supp. 2d 461, 467
(S.D.N.Y. 2010) (stating that the “proper inquiry” into
willfulness in a case against tax attorney who designed corporate tax
shelters was “whether there existed a known legal duty to avoid
claiming deductions based on transactions lacking economic
substance”); see also Mark Hemblett, Attorneys, Others Found Guilty
in Tax Shelter Case, N.Y. L.J., May 25, 2011, at 1.

(102.) See Cheek v. United States, 498 U.S. 192, 203 (1991)
(stating that knowledge and belief are characteristically questions for
fact finder).

(103.) See United States v. Stierhoff, 549 F.3d 19, 26 (1st Cir.
2008) (“Circumstantial evidence of willfulness, standing alone, can
suffice to sustain the government’s burden of proof.”); United
States v. Wright, 211 F.3d 233, 238 (5th Cir. 2000) (allowing jury to
infer illegal tax activity from “manner of payment”); United
States v. Guidry, 199 F.3d 1150, 1157 (10th Cir. 1999) (stating that
circumstantial inferences may be drawn from numerous sources (citing
Spies, 317 U.S. at 499)); United States v. Zanghi, 189 F.3d 71, 78 (1st
Cir. 1999) (“‘[T]he government [does] not need to show direct
evidence of tax motivation so long as the jury has a sufficient
circumstantial basis for inferring willfulness.'” (internal
quotation marks omitted) (quoting United States v. Olbres, 61 F.3d 967,
971 (1st Cir. 1995)); United States v. Klausner, 80 F.3d 55, 63 (2d Cir.
1996) (stating that willfulness may be inferred from circumstantial
evidence); United States v. Collorafi, 876 F.2d 303, 305 (2d Cir. 1989)
(“[P]roof of willfulness usually must be accomplished by means of
circumstantial evidence.”).

(104.) See Brooks, 174 F.3d at 955 (holding that a taxpayer’s
actions, which included filing inaccurate forms and dissociating himself
from property, could be construed as willfulness); United States v. Bok,
156 F.3d 157, 166 (2d Cir. 1998) (holding that failure to file personal
and corporate tax returns, considered in light of taxpayer’s
training and education, was evidence of willfulness); United States v.
Valenti, 121 F.3d 327, 332-33 (7th Cir. 1997) (finding evidence that
defendant bragged about not paying taxes and conducted his business to
avoid paying taxes was sufficient to support finding of willfulness);
United States v. Wilson, 118 F.3d 228, 236 (4th Cir. 1997) (stating that
jury may infer willfulness from “‘any conduct having the
likely effect of misleading or concealing'” (quoting United
States v. Goodyear, 649 F.2d 226, 228 (4th Cir. 1981))).

(105.) Compare supra notes 81-92 and accompanying text (citing
examples of affirmative acts), with supra notes 99-101 and accompanying
text (citing examples of implied willfulness based on various
affirmative acts).

(106.) See Boulware II, 552 U.S. 421, 433 (2008) (“There is no
criminal tax evasion without a tax deficiency….”); Lane v. United
States, 286 F.3d 723, 728-30 (4th Cir. 2002) (concluding that because
monetary gifts made without conditions attached are not taxable, no
deficiency existed where gifts were sole source of disputed taxable
income); United States v. Cruz, 698 F.2d 1148, 1152 (11th Cir. 1983)
(disallowing taxpayer’s attempt to use foreign tax credit to offset
deficiency where the taxpayer had not, prior to trial, paid accrued tax
to foreign government).

(107.) See, e.g., Sansone v. United States, 380 U.S. 343, 354
(1965) (discussing taxpayer’s attempt to negate willfulness).

(108.) See United States v. Evangelista, 122 F.3d 112, 116-18 (2d
Cir. 1997) (outlining defendant’s third party defense).

(109.) See United States v. Huber, 404 F.3d 1047, 1054-55 (8th Cir.
2005) (holding that the rarity of prosecution for a particular tax
violation is not sufficient to establish a prima facie case for
selective prosecution, even where prosecutors touted the case as
“one-of-a-kind” to the press).

(110.) See Lane, 286 F.3d at 728-30 (concluding that monetary gifts
made without conditions attached are not taxable); cf. United States v.
Black, 843 F.2d 1456, 1461 (D.C. Cir. 1988) (upholding verdict rejecting
taxpayer’s attempt to characterize income as a series of nontaxable
informal loans).

(111.) See United States v. Marrinson, 832 F.2d 1465, 1471 (7th
Cir. 1987) (stating that government must present evidence sufficient to
show in what year income was received when it uses net worth approach
(citing Holland v. United States, 348 U.S. 121, 129 (1954))); United
States v. Terrell, 754 F.2d 1139, 1144 (5th Cir. 1985) (finding that
increases in net worth are subject to certain adjustments, such as
compensating for gifts, inheritances and loans, before government can
claim such increases represent income acquired over period in question);
cf. United States v. Toushin, 899 F.2d 617, 625-26 (7th Cir. 1990)
(finding defendant’s use of “cash hoard theory” to
demonstrate government miscalculation of his starting net worth failed
to meet burden of proof); see also supra notes 63-66 and accompanying
text (describing “net worth approach”).

(112.) See United States v. Mackey, 345 F.2d 499, 506 (7th Cir.
1965) (finding, in net worth case, government is required to investigate
and negate reasonable explanations by taxpayer that are inconsistent
with guilt); accord United States v. Notch, 939 F.2d 895, 899 (10th Cir.
1991) (stating that the defendant bears burden of providing government
with exculpatory leads); United States v. Sorrentino, 726 F.2d 876, 881
n.2 (1st Cir. 1984) (describing the operation of the ‘failure to
investigate exculpatory leads’ defense); see also Knight &
Knight, supra note 4, at 667-68 (describing taxpayer’s duty to
provide leads and government’s responsibility to investigate them).
But see United States v. Ayers, 924 F.2d 1468, 1477 (9th Cir. 1991)
(finding that government’s failure to obtain information in the
course of investigating leads did not preclude taxpayer from
demonstrating at trial that money in question was loan and not income);
United States v. Suskin, 450 F.2d 596, 598 (2d Cir. 1971) (holding that
the government has no duty to investigate exculpatory leads furnished by
taxpayer when mounting case based on specific item approach).

(113.) See United States v. Davenport, 824 F.2d 1511, 1516 (7th
Cir. 1987) (stating that, along with real estate taxes, legitimate
deductions would “include such things as medical expenses,
charitable contributions, casualty losses, and interest, among
others”); United States v. Cruz, 698 F.2d 1148, 1152 (11th Cir.
1983) (disallowing foreign tax credit to offset deficiency where
taxpayer had not, prior to trial, paid accrued tax to foreign
government).

(114.) See, e.g., Cheek v. United States, 498 U.S. 192, 201-02
(1991) (holding that a taxpayer may present evidence to negate the
willfulness requirement of [section] 7201). See generally Ellen S.
Podgor, Corporate and White Collar Crime: Simplifying the Ambiguous, 31
AM. CRIM. L. REV. 391, 396-400 (1994) (discussing complexities of
recognizing and determining willfulness in the white collar crime
context).

(115.) 498 U.S. 192 (1991).

(116.) Id. at 202; see also United States v. Bishop, 412 U.S. 346,
361 (1971) (finding willfulness would not be met if taxpayer relied in
good faith on prior decision of U.S. Supreme Court); United States v.
Beale, 574 F.3d 512, 518 (8th Cir. 2009) (quoting standard set forth in
Cheek); Sanders v. Freeman, 221 F.3d 846, 852 (6th Cir. 2000) (stating
that an individual may not be prosecuted for violating tax law where
statutory provision is ambiguous, unsettled, or vague); United States v.
Nash, 175 F.3d 429, 437 (6th Cir. 1999) (stating that taxpayer would not
have acted fraudulently in truly believing he was not obligated to pay
taxes); United States v. Brooks, 174 F.3d 950, 955 (8th Cir. 1999)
(stating that taxpayer’s good faith belief need not be objectively
reasonable). However, the good faith belief must be a belief as to the
filing of the tax forms, not the propriety of the tax itself. See United
States v. Lindsay, 184 F.3d 1138, l140-41 (10th Cir. 1999) (stating that
a taxpayer’s honest disagreement with the tax system and tax
policies is not a good faith misunderstanding of tax law).

(117.) See United States v. Barker, 556 F.3d 682, 687-88 (8th Cir.
2009) (finding that an individual’s “attempt to place his
assets beyond the reach of the IRS” demonstrated willfulness);
United States v. Rothrock, 806 F.2d 318, 322-23 (1st Cir. 1986) (stating
that sophisticated taxpayer’s deliberate choice to hire an
inexperienced tax preparer, who might “lack the knowledge to
anticipate sources of income not readily apparent,” could be used
as evidence of willfulness); United States v. Harper, 458 F.2d 891,
894-95 (7th Cir. 1971) (stating that although signature on tax return
alone is insufficient to prove knowledge of contents of return, it is
prima facie evidence of such knowledge).

(118.) See United States v. Jeffries, 854 F.2d 254, 259 (7th Cir.
1988) (concluding that defendant acted willfully where past compliance
evinced knowledge of tax); United States v. Shelton, 669 F.2d 446, 459
(7th Cir. 1982) (considering pattern of failure to file tax returns
probative of defendant’s state of mind with regard to year at
issue).

(119.) See United States v. Guidry, 199 F.3d 1150, 1158 (10th Cir.
1999) (finding taxpayer’s background and training as comptroller of
company relevant in assessing willfulness); United States v. Bok, 156
F.3d 157, 166 (2d Cir. 1998) (finding taxpayer’s legal education
evidence of willfulness); cf. United States v. Moon, 718 F.2d 1210, 1223
(2d Cir. 1983) (rejecting defendant’s argument in a prosecution
under [section] 7206 that as new resident of United States, he was
unfamiliar with tax law, because the defendant had “at [his]
disposal” accountants and tax attorneys “whose advice … was
not sufficiently heeded”).

(120.) See Sanders, 221 F.3d at 852 (“[A]n individual may not
be prosecuted for violating tax laws when the statutory provisions at
issue are ‘vague or highly debatable’ or the governing law is
‘completely unsettled by any clearly relevant precedent.”
(quoting United States v. Critzer, 498 F.2d 1160, 1162 (4th Cir.
1974))).

(121.) See Jeffries, 854 F.2d at 258-59 (concluding that judge
appropriately instructed jury to find defendant not guilty if his
actions evidenced negligence or inadvertence); cf. United States v.
Loney, 719 F.2d 1435, 1436 (9th Cir. 1983) (reversing conviction under
[section] 7206 where defendant was found grossly negligent); accord
United States v. Mohney, 949 F.2d 1397, 1407 (6th Cir. 1991) (stating
that, under [section] 7206, willfulness requires more than showing
“careless disregard for the truth”).

(122.) See United States v. Lavoie, 433 F.3d 95, 98 (1st Cir. 2005)
(concluding that substantial understatement of income for three years
was evidence of willfulness, rather than mistake, by defendant); United
States v. Wisenbaker, 14 F.3d 1022, 1027 (5th Cir. 1994) (approving jury
instruction stating that a showing of mistake would not be sufficient to
support a finding of willfulness); United States v. Dyer, 922 F.2d 105,
108 (2d Cir. 1990) (holding that filing an amended return, without more,
may support an inference of mistake, but may not support the inference
of fraud necessary for conviction).

(123.) See Cheek v. United States, 498 U.S. 192, 206 (1991)
(rejecting defense that tax laws imposed no legal duty on defendant in
light of his good-faith belief that income tax laws are
unconstitutional); United States v. Lindsay, 184 F.3d 1138, 1140-41
(10th Cir. 1999) (holding that taxpayer’s belief that income tax
laws are unconstitutional was not valid defense).

(124.) Sansone v. United States, 380 U.S. 343, 354 (1965) (finding
that future intent to file does not negate willfulness); accord United
States v. Waldeck, 909 F.2d 555, 557 (1st Cir. 1990).

(125.) See United States v. Easterday, 564 F.3d 1004, 1010 (9th
Cir. 2009) (holding that government did not have to show that defendant
had money to pay taxes when due); United States v. Evangelista, 122 F.3d
112, 116 & n.4 (2d Cir. 1997) (rejecting taxpayer’s request for
jury instruction on “inability to pay”); United States v.
McGill, 964 F.2d 222, 238 n.30 (3d Cir. 1992) (deciding that the
taxpayer, who could have altered lifestyle to meet his tax obligations,
could not claim inability to pay as defense to willfulness).

(126.) See United States v. Bishop, 291 F.3d 1100, 1106-07 (9th
Cir. 2002) (holding that reliance on a third party has “long been a
defense to willfulness”); Evangelista, 122 F.3d at 116-18
(outlining defendants’ third party defense); United States v.
Segal, 867 F.2d 1173, 1178-79 (8th Cir. 1989) (describing third party
defense).

(127.) See United States v. Conforte, 624 F.2d 869, 876 (9th Cir.
1990) (stating that reliance on advice of counsel is not complete
defense, but is circumstantial evidence indicating good faith, which
trier of fact may consider on issue of willfulness); United States v.
Fawaz, 881 F.2d 259, 265 (6th Cir. 1989) (stating that willfulness was
not necessarily negated where agent of defendant, rather than the
defendant himself, signed defendant’s income tax returns); Estate
of La Meres v. Comm’r., 98 T.C. 294, 316 (T.C. 1992) (holding that
reasonable reliance on attorney’s advice as to possibility of
extension of filing deadline was sufficient to find that taxpayer was
not willfully negligent); cf. United States v. Scarmazzo, 554 F. Supp.
2d 1102, 1110 (E.D. Cal. 2008) (holding that reliance on advice of
counsel is not a defense per se to criminal charges).

(128.) See United States v. Boyle, 469 U.S. 241, 250-51 (1985)
(rejecting taxpayer’s defense of reliance on estate attorney to
file return, because taxpayer should have known tax returns have fixed
filing dates); United States v. Bok, 156 F.3d 157, 165-66 (2d Cir. 1998)
(allowing government to introduce similar act evidence to counter
taxpayer’s reliance in good faith defense); Evangelista, 122 F.3d
at 117-18 (finding taxpayers could not establish reliance defense
because they did not follow accountant’s advice in good faith);
United States v. Charroux, 3 F.3d 827, 831-32 (5th Cir. 1993) (finding
that by withholding information from tax professionals, taxpayers did
not act in good faith).

(129.) See United States v. Armstrong, 517 U.S. 456, 463-65 (1996)
(discussing principles underlying the selective prosecution defense);
Pyke v. Cuomo, 258 F.3d 107, 108-09 (2d Cir. 2001) (stating basic
elements and principles of selective prosecution claim (citing id.)).

(130.) See Armstrong, 517 U.S. at 464. Some courts also have
indicated that an individual’s exercise of statutory or
constitutional rights is an invalid reason for selecting him for
prosecution. See, e.g., United States v. Jones, 601 F.3d 1247, 1260
(11th Cir. 2010) (holding that the prosecution may not act in
retaliation against the defendant for asserting his statutory or
constitutional rights); United States v. Hastings, 126 F.3d 310, 313
(4th Cir. 1997) (stating that defendant’s exercise of his
constitutional rights through political participation would be
impermissible motivation for prosecution); cf. Branch Ministries v.
Rossotti, 211 F.3d 137, 144-45 (D.C. Cir. 2000) (outlining selective
prosecution for revocation of tax exempt status). In Hastings, the court
also stated that, when a defendant is trying to prove that the
government selected him for prosecution based on impermissible criteria,
it is not sufficient to show only that investigators considered
impermissible criteria. 126 F.3d at 314. The defendant must also show
the actual official who made the decision to prosecute considered
impermissible criteria. See id.

(131.) See United States v. Jenkins, 745 F. Supp. 2d 692, 694-95
(E.D. Va. 2010). The court in Jenkins described the relationship between
[section] 7201 and other tax offenses by analogizing the I.R.C. to a
Venn diagram: conduct prohibited by felony tax evasion occupies a large
circle in the center, and conduct prohibited by a lesser offense forms a
smaller, intersecting circle. Id. at nn.4-6. Although some conduct
prohibited by the lesser offense falls outside the scope of [section]
7201 and cannot give rise to a felony tax evasion prosecution, the
government has discretion to choose between prosecuting under [section]
7201 or under the lesser offense where the prohibited conduct falls in
the intersection between the offenses. See id.

(132.) See id. at 699.

(133.) Section 7202 provides:

   Any person required under this title to collect, account for, and
   pay over any tax imposed by this title who willfully fails to
   collect or truthfully account for and pay over such tax shall, in
   addition to other penalties provided by law, be guilty of a felony
   and, upon conviction thereof, shall be fined not more than $10,000,
   or imprisoned not more than 5 years, or both, together with the
   costs of prosecution.

I.R.C. [section] 7202 (2006). Note, however, that fines for all
criminal tax offenses are also governed by 18 U.S.C. [section] 3571
(2006), and the application of that statute may result in a higher
penalty.

(134.) See DOJ CRIMINAL TAX MANUAL, supra note 6, [section] 9.04
(detailing criminal aspects of each prong under statute).

(135.) I.R.C. [section] 7202; see also DARRELL MCGOWEN ET AL.,
CRIMINAL AND CIVIL TAX FRAUD [section] 16.72 (1986) (defining three
elements of crime of willful failure to collect tax under [section]
7202).

(136.) See MCGOWEN ET AL., supra note 135 [section] 16.71
(discussing relative infrequency of “willful failure to
collect” prosecutions under [section] 7202).

(137.) I.R.C. [section] 7202; see also United States v. Gilbert,
266 F.3d 1180, 1185 (9th Cir. 2001) (“[A] person has an obligation
to both withhold and pay over the tax. As such, when an individual fails
to perform one of the required duties, he is subject to conviction under
[section] 7202.”); United States v. Thayer, 201 F.3d 214, 219-20
(3d Cir. 1999) (concluding that, if the duty to account for and duty to
pay over taxes is violated, prosecution under [section] 7202 is
warranted). See generally COMISKY ET AL., supra note 2, [paragraph]
2.08[1] (discussing nature and elements of crime of failure to collect
taxes); MCGOWEN ET AL., supra note 135, [section] 16.73 (defining
elements of crime of willful failure to account for and pay over tax
under [section] 7202).

(138.) See Thayer, 201 F.3d at 219-20 (discussing elements of
[section] 7202, and finding that responsible person includes corporate
officer); see also definition of a person infra at note 148.

(139.) I.R.C. [section][section] 3101-3102, 3111-3112, 3121-3124,
3128 (2006 & Supp. 2011) (codifying the Federal Insurance
Contributions Act of 1954 and establishing payroll taxes collection).

(140.) Id. [section][section] 3301-3311 (codifying the Federal
Unemployment Tax Act and authorizing payroll taxes to fund unemployment
services).

(141.) Id. [section][section] 3401-3406, 3451-3456 (authorizing
federal income tax withholding).

(142.) Id. [section] 3402 (describing manner in which taxes are to
be deducted and withheld); United States v. Porth, 426 F.2d 519, 522
(10th Cir. 1970) (“If the statute is followed, the amount retained
as taxes never leaves the employer’s possession.”). An
employer who withholds the proper amount from paychecks disbursed to
employees but does not account for or withhold the proper amount from a
secondary source of an employee’s compensation may also be found
guilty of violating [section] 7202. See United States v. Scharf, 558
F.2d 498, 500 (8th Cir. 1997) (per curiam) (finding violation of
[section] 7202 where employer did not withhold taxes from the portion of
employees’ compensation that was paid in cash).

(143.) I.R.C. [section] 7501(a) (2006) (“[T]ax … collected
or withheld shall be held to be a special fund in trust for the United
States. The amount of such fund shall be assessed, collected, and paid
in the same manner and subject to the same provisions and limitations
(including penalties) as are applicable with respect to the taxes from
which such fund arose.”).

(144.) Slodov v. United States, 436 U.S. 238, 243 (1978)
(“[T]he I.R.S. has recourse only against the employer [for the
collection of taxes].”); Finley v. United States, 82 F.3d 966, 970
(10th Cir. 1996); Porth, 426 F.2d at 522 (holding that an agreement
between employer and employee that employee will pay her own FICA and
withholding taxes does not relieve employer’s statutory obligation
for amount due).

(145.) See I.R.C. [section] 7512 (2006) (imposing duty to deposit
funds in separate account only after employer fails to collect,
truthfully account for, or pay over employment taxes and receives notice
of any such failure). Failure to comply with [section] 7512 is a
misdemeanor. Id. [section] 7215(a).

(146.) See BORIS I. BITTKER, FUNDAMENTALS OF FEDERAL INCOME
TAXATION [paragraph][paragraph] 42-43 (1983) (describing remedial
measures regulated by IRS). This procedure is dictated by [section]
7512, which provides that when a person required to collect, account
for, and pay over any tax falls to do so, such person “shall (not
later than the end of the second banking day after any amount of such
taxes is collected) deposit such amount in a separate account in a bank
… and shall keep the amount of such taxes in such account until
payment over to the United States.” I.R.C. [section] 7512(b).

(147.) Cf. Finley, 82 F.3d at 970-71 (stating that identifying a
responsible person is one element in establishing personal liability for
failure to pay over tax withheld under [section] 6672). According to
I.R.C. [section] 7343 (2006), the term “person” includes
“an officer or employee of a corporation, or a member or employee
of a partnership, who as such officer, employee, or member is under a
duty to perform the act in respect of which the violation occurs.”

(148.) See INTERNAL REVENUE MANUAL, supra note 2, [section]
9.1.3.3.3.1.1(2) (recognizing considerable difficulty encountered in
determining “person” charged with duty of collecting,
accounting for, and paying over taxes, and stating that “it is
imperative to ascertain the various activities and responsibilities of
all officers of a corporation before recommending prosecution against
any one of them as the ‘person’ referenced in [I.R.C.
[section] 7202] and in [I.R.C. [section] 7343]”).

(149.) Ferguson v. United States, 484 F.3d 1068, 1072 (8th Cir.
2007); see also Smith v. United States, 555 F.3d 1158, 1164 (10th Cir.
2009) (finding that “significant” control over a
company’s finances was “all that is required” to be
considered responsible person); Jefferson v. United States, 546 F.3d
477, 480 (7th Cir. 2008) (stating individual is “responsible if he
retains sufficient control of corporate finances that he can allocate
corporate funds to pay corporation’s other debts in preference to
the corporation’s withholding tax obligations”); Barnett v.
IRS, 988 F.2d 1449, 1455 (5th Cir. 1993) (“The crucial inquiry is
whether the party had the … actual authority or ability, in view of
his status within the corporation, to pay the taxes owed.”).

(150.) Vinick v. United States, 205 F.3d 1, 8 (1st Cir. 2000)
(holding that no one factor is determinative for imposing responsible
person status (citing Fiataruolo v. United States, 8 F.3d 930, 939 (2d
Cir. 1993))); see also Winter v. United States, 196 F.3d 339, 345 (2d
Cir. 1999) (holding the status of an individual as a responsible person
can only be determined by considering the totality of circumstances).

(151.) See Jefferson, 546 F.3d at 480-81 (finding board president,
who had power to secure loans and paid withholding taxes in the past,
was responsible); Winter, 196 F.3d at 347 (finding controller, who
admitted to having significant responsibility for managing day-to-day
financial affairs, was the responsible individual for tax violations);
Logal v. United States, 195 F.3d 229, 232 (5th Cir. 1999) (finding jury
had enough evidence to hold President and CEO of corporation responsible
person, despite argument that he lacked actual control over finances of
corporation); Purcell v. United States, 1 F.3d 932, 936-37 (9th Cir.
1993) (holding sole shareholder and president possessed the requisite
authority of a “responsible person,” despite delegating full
authority for handling company finances to CFO).

(152.) See Vinick, 205 F.3d at 12 (concluding that treasurer who
did not have access to corporate checkbook was not “responsible
person”); Adams v. Coveney, 162 F.3d 23, 28 (1st Cir. 1998) (noting
that because president lacked sufficient responsibility over
corporation’s financial obligations, he was not “responsible
person” under federal law); Alsheskie v. United States, 31 F.3d
837, 839 (9th Cir. 1994) (holding that, although president had sole
authority to sign checks, manage day-to-day operations, and hire and
fire employees, he lacked discretionary authority to pay taxes over the
three fiscal quarters at issue and thus was not responsible person);
Winter, 196 F.3d at 345 (stating that the responsible persons include
“all those connected closely enough with the business to prevent
the tax default from occurring”); Fiataruolo, 8 F.3d at 939-40
(determining joint project partners, with only the power to write checks
on one account, were not responsible persons); Bowlen v. United States,
956 F.2d 723, 728 (7th Cir. 1992) (holding that two shareholders who
wrote checks to creditors other than the government, when they knew
taxes were due, were responsible people under statute).

(153.) See Jefferson, 546 F.3d at 480 (explaining that any person
who is a “responsible person” may be held liable for failure
to pay over tax (citing Bowlen, 956 F.2d at 728)); Kinnie v. United
States, 994 F.2d 279, 284 (6th Cir. 1993) (“[T]here may be more
than one person deemed a ‘responsible person’ within a
corporation.”); United States v. Running, 7 F.3d 1293, 1297-98 (7th
Cir. 1993) (finding corporate officer “responsible person”
because he participated in some payment decisions, and therefore was not
relieved of his statutory duty even though other officers had similar
authority).

(154.) See Howard v. United States, 711 F.2d 729, 736 (5th Cir.
1983) (“A corporate officer cannot neglect his corporation’s
fiscal obligations, resign his position, and then seek to shift those
obligations to the IRS.”).

(155.) See Slodov v. United States, 436 U.S. 238, 247-50 (1978)
(explaining that failure to hold employee responsible for payment of
taxes collected by his predecessors would be at odds with statutory
purpose).

(156.) See Morgan v. United States, 937 F.2d 281, 284 (5th Cir.
1991) (stating that orders to not pay over taxes and threats of adverse
action by employer do not relieve one from duties as responsible
person).

(157.) Cheek v. United States, 498 U.S. 192, 201 (1991) (quoting
Pomponio I, 429 U.S. 10, 12 (1976) (per curiam)); see also supra Section
II.B.1.c (explaining willfulness).

(158.) See United States v. Gilbert, 266 F.3d 1180, 1185 (9th Cir.
2010) (finding defendant’s act of paying wages to employees instead
of remitting withholding taxes to IRS was willful and voluntary
violation of [section] 7202); United States v. Rem, 38 F.3d 634, 645 (2d
Cir. 1994) (stating that a responsible individual could be held liable
for failure to pay taxes if he knew company funds were used for another
purpose); accord United States v. Landau, 155 F.3d 93, 101 (2d Cir.
1998).

(159.) See Winter v. United States, 196 F.3d 339, 345-46 (2d Cir.
1999) (recognizing that a responsible person becomes willful when she is
made aware of failure of company to pay taxes); Rem, 38 F.3d at 643
(stating that a responsible person would not meet willfulness
requirement if she had a reasonable belief taxes were being paid).

(160.) Winter, 196 F.3d at 345 (finding that a responsible person
need not attempt to purposefully defraud to be found liable for failure
to remit withheld taxes).

(161.) See United States v. Blanchard, 618 F.3d 562, 573 (6th Cir.
2010) (upholding jury instructions allowing jury to consider
“anything done” by defendant in determining wilfulness, which
included reliance on tax preparer).

(162.) See Cheek, 498 U.S. 192, 199-200 (1991); accord United
States v. Hildebrandt, 961 F.2d 116, 119 (8th Cir. 1992) (stating that
the holding in Cheek was based on the complexity of the tax laws).

(163.) See Jules Ritzholz & David M. Kohane, Supreme Court
Finds Subjective Ignorance of the Law a Defense to Criminal Tax Fraud,
74 J. TAX’N 254, 257 (1991) (discussing that tax laws require
violator to be aware of the illegality of conduct); supra Section
II.B.2.b (explaining lack of willfulness defense).

(164.) See United States v. Simkanin, 420 F.3d 397, 410 (5th Cir.
2005) (noting that, although a tax crime defendant’s good-faith
belief that she was acting lawfully negates willfulness, a good-faith
belief that tax laws are unconstitutional or otherwise invalid does not
negate willfulness requirement).

(165.) United States v. Easterday, 564 F.3d 1004, 1005-06, 1009-10
(9th Cir. 2009) (holding that financial inability to pay tax when due is
not a defense, and expressly overruling United States v. Poll, 521 F.2d
329 332 (9th Cir. 1975)), amending and aff’g United States v.
Easterday, 539 F.3d 1176 (9th Cir. 2008); see Pomponio I, 429 U.S. 10,
12 (1976) (per curiam) (explaining that willfulness has the same meaning
in misdemeanor and felony crimes under the I.R.C.).

(166.) United States v. Ausmus, 774 F.2d 722, 725 (6th Cir. 1985);
see also Fran Corp. v. United States, 164 F.3d 814, 820 (2d Cir. 1999)
(holding corporation’s failure to withhold and pay employment tax
because of financial difficulties was not valid defense because
difficulties were result of willful neglect).

(167.) I.R.C. [section] 7203 (2006). Section 7203 provides:

   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 falls 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 60501,
   the first sentence of this section shall be applied by substituting
   "felony" for "misdemeanor" and "5 years" for "1 year."

Id. Note, however, that fines for all criminal tax offenses are
also governed by 18 U.S.C. [section] 3571 (2006) and the application of
that statute may result in a higher penalty.

(168.) See United States v. McKee, 506 F.3d 225,244 (3d Cir. 2007)
(holding that government failed to establish that defendant received the
necessary income to require filing of tax return); United States v.
Foster, 789 F.2d 457, 460 (7th Cir. 1986) (noting that there is no
requirement of an affirmative act); see also DOJ CRIMINAL TAX MANUAL,
supra note 6, [section] 10.0511] (establishing elements necessary to
prove failure to pay tax).

(169.) I.R.C. [section] 6012(a)(1)(A) (2006 & Supp. 2010)
(requiring every person whose gross income exceeds exemption amount to
file return). Gross income means “all income from whatever source
derived.” Id. [section] 61(a) (defining gross income and listing
examples); see United States v. Pederson, 784 F.2d 1462, 1463 (9th Cir.
1986) (explaining “person required” is expressly defined in 26
U.S.C. [section] 1 and I.R.C. [section] 6012); cf. United States v.
Crowhurst, 629 F.2d 1297, 1300 (9th Cir. 1980) (holding defendant’s
disagreement with definition of “gross income” did not excuse
him from properly reporting gross income).

(170.) See United States v. Marston, 517 F.3d 996, 1001 (8th Cir.
2008) (explaining that taxpayer that actually files tax return can still
be found guilty if the form does not contain “sufficient
information.., from which the IRS can calculate tax liability”)
(citation omitted); United States v. Vance, 730 F.2d 736, 738 (11th Cir.
1984) (stating that the bare act of submitting a Form 1040 lacking in
sufficient financial information does not constitute filing of tax
return for purpose of [section] 7203); see also United States v.
Patridge, 507 F.3d 1092, 1095 (7th Cir. 2007) (stating that I.R.C.
[section] 7203 requires complete and candid report of income).

(171.) See, e.g., United States v. Wunder, 919 F.2d 34, 35 (6th
Cir. 1990) (reiterating that “a tax return which contains no
information from which tax liability can be calculated does not
constitute a tax return within the meaning of the Internal Revenue
Code”); see also United States v. Kimball, 925 F.2d 356, 358 (9th
Cir. 1991) (holding that Form 1040 containing only asterisks is not a
valid “return”).

(172.) See Vance, 730 F.2d at 738 (holding that the act of filing
return without sufficient information does not constitute filing return
for purposes of [section] 7203); United States v. Mosel, 738 F.2d 157,
158 (6th Cir. 1984) (expressly rejecting Ninth Circuit’s standard,
where taxpayer failed to file return for purposes of [section] 7203 when
he entered zero for wage and income information); United States v.
Moore, 627 F.2d 830, 835 (7th Cir. 1980) (explaining that the
court’s standard that there must be an honest and reasonable intent
to supply information is contrary to the Ninth Circuit’s approach).
But see United States v. Long, 618 F.2d 74, 75 (9th Cir. 1980)
(distinguishing cases where defendant filed false return by inserting
zeros in spaces reserved for entering exemptions, income, tax, and tax
withheld, from those cases where defendant filed totally blank return,
because tax liability can still be computed from zeros entered).

(173.) See Buelow v. Comm’r, 970 F.2d 412, 416 (7th Cir. 1992)
(stating that a return not signed by taxpayer “does not constitute
a return under the Internal Revenue Code”); see also Olpin v.
Comm’r, 270 F.3d 1297, 1300 (10th Cir. 2001) (stating that the
“general rule when a tax return is unsigned is that it is
invalid”).

(174.) See Bickham Lincoln-Mercury Inc. v. United States, 168 F.3d
790, 793 (5th Cir. 1999) (holding that failure to file a form required
for the receipt of cash is a violation under [section] 7203).

(175.) See Cheek v. United States, 498 U.S. 192, 201 (1991)
(finding defendant knew of duty to file but voluntarily and
intentionally violated duty); United States v. Murphy, 469 F.3d 1130,
1137 (7th Cir. 2006) (holding that jury instruction properly explained
the knowledge requirement of willfulness); United States v. Jerde, 841
F.2d 818, 821 (8th Cir. 1988) (requiring that defendant have knowledge
of legal duty to report and pay income taxes). For a better
understanding of the type of evidence that can be used to prove
willfulness, see United States v. Moses, 148 F.3d 277, 283 (3d Cir.
1998) (holding government met its burden of proving willfulness despite
witness testimony to contrary); see also Sharon L. Davies, The
Jurisprudence of Willfulness: An Evolving Theory of Excusable Ignorance,
48 DUKE L.J. 341,367-73 (1998) (discussing Cheek in detail). See
generally A. S. Klein, Annotation, Test of “Willfulness” in
Prosecution for Willful Failure to Pay Tax, File Tax Returns Etc., Under
[section] 7203 of the Internal Revenue Code of 1954, 22 A.L.R.3d 1173
(1968 & Supp. 1999); supra Section ILB. 1.c (explaining
willfulness).

(176.) Sansone v. United States, 380 U.S. 343, 351 (1965) (stating
that the difference between violation of [section] 7201 and violation of
[section] 7203 is that the former requires affirmative act to evade tax,
while latter only requires willful omission); accord United States v.
Nolen, 472 F.3d 362, 379 (5th Cir. 2006).

(177.) Murphy, 469 F.3d at 1137 (quoting United States v. Hooks,
848 F.2d 785, 790 (7th Cir. 1988)). The government can establish
willfulness by showing that defendant consistently failed to file
required tax returns. See, e.g., United States v. Briscoe, 65 F.3d 576,
588 (7th Cir. 1995) (holding that the defendant’s filing history
“demonstrated that he knew that he had a obligation to file and
that he intentionally ignored that obligation”).

(178.) See United States v. Bishop, 291 F.3d 1100, 1106 (9th Cir.
2002) (“Good faith reliance on a qualified accountant is a defense
to willfulness in cases of tax fraud and evasion.”); see also supra
Section II.B.2.c (explaining third-party reliance defense).

(179.) See Bishop, 291 F.3d at 1107 (“[A] defendant claiming
good-faith reliance on the advice of a tax professional as a defense to
willfulness in cases of tax fraud and evasion must have made full
disclosure of all relevant information to that professional.”).

(180.) See Cheek, 498 U.S. at 202 (discussing defenses to negate
element of willfulness); United States v. Gustafson, 528 F.3d 587, 591
n.3 (8th Cir. 2008) (noting existence of defense of good-faith belief
that one is not violating the law); United States v. McKee, 506 F.3d
225,247 (3d Cir. 2007) (reversing the defendant’s conviction
because the prosecution failed to satisfy the burden of establishing
that money received was true income as opposed to a gift); see also
supra Section II.B.2.b (explaining lack of willfulness defense). But cf.
Moses, 148 F.3d at 283 (refuting defendant’s argument that
government presented insufficient evidence of willfulness).

(181.) 424U.S. 648 (1976).

(182.) Id. at 663 n. 18 (recognizing that some defendants make
erroneous claims of Fifth Amendment privilege in good-faith (citing
United States v. Bishop, 412 U.S. 346, 360 (1973))); see also United
States v. Carlson, 617 F.2d 518, 523-24 (9th Cir. 1980) (holding that
tax protestor who sought to avoid taxes could not invoke Fifth Amendment
privilege because not in good-faith).

(183.) See Steinbrecher v. Comm’r, 712 F.2d 195, 198 (5th Cir.
1983) (holding blanket assertion of Fifth Amendment privilege did not
justify failure to file adequate returns); United States v. Johnson, 577
F.2d 1304, 1311 (5th Cir. 1978) (holding that the privilege must be
“claimed specifically in response to particular questions, not
merely in blanket refusal to furnish any information”).

(184.) See United States v. Grable, 98 F.3d 251,255 (6th Cir. 1996)
(stating that there must be substantial and real possibility of criminal
prosecution to assert Fifth Amendment privilege); United States v.
Saussy, 802 F.2d 849, 855 (6th Cir. 1986) (holding taxpayer’s Fifth
Amendment claim improper because he feared incrimination of family but
not of himself); United States v. Malquist, 791 F.2d 1399, 1401~)2 (9th
Cir. 1986) (noting that the Fifth Amendment is only a complete defense
to [section] 7203 when defendant “faces a real and appreciable
danger of incrimination” based on reasonable cause).

(185.) See United States v. Wunder, 919 F.2d 34, 35 (6th Cir. 1990)
(filing blank return and claiming privilege against self-incrimination
as justification constitutes not filing a return); United States v.
Brown, 600 F.2d 248, 252 (10th Cir. 1979) (holding Fifth Amendment
privilege not proper defense for failure to file).

(186.) I.R.C. [section] 7206 (2006). Section 7206 provides:

   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 ... 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.

Id. Note, however, 18 U.S.C. [section] 3571 also governs fines for
all criminal tax offenses and the application of that statute may result
in a higher penalty.

(187.) I.R.C. [section] 7206(2). The interaction of [section]
7206(1) (declaration under penalties of perjury) and [section] 7206(2)
(aid or assistance) provides the government with substantial discretion
in prosecuting tax evasion through two separate, but similar, means of
enforcement. See United States v. Shortt Accountancy Corp., 785 F.2d
1448, 1454 (9th Cir. 1986) (describing these two parts of [section] 7206
as “closely related companion provisions” that differ in
emphasis more than in substance).

(188.) See, e.g., United States v. Clayton, 506 F.3d 405, 413 (5th
Cir. 2007) (stating that any person who willfully files a return with
false information is guilty of a felony (citing I.R.C. [section]
7206(1))).

(189.) See, e.g., United States v. Bishop, 412 U.S. 346, 350 (1973)
(setting forth elements); see also United States v. Boulware, 384 F.3d
794, 810 (9th Cir. 2004) (noting the elements and holding that
prosecution’s bank deposit analysis was sufficient to demonstrate
that defendant filed false returns); United States v. Gollapudi, 130
F.3d 66, 71-72 (3d Cir. 1997) (stating that the four elements must be
proven beyond a reasonable doubt); cf United States v. Borman, 992 F.2d
124, 126 (7th Cir. 1993) (holding taxpayer’s use of wrong form is
insufficient to establish false statement under [section] 7206(1) where
he nevertheless reported all income).

(190.) See United States v. Bok, 156 F.3d 157, 164 (2d Cir. 1998)
(upholding judgment where jury found that defendant, as
corporation’s president, filed corporate tax return he knew
contained materially false statements). Courts consider a return signed
by a third party to be a return subscribed by the taxpayer if the
taxpayer authorized the third party to sign the form. See United States
v. Fawaz, 881 F.2d 259, 266 (6th Cir. 1989) (holding that return
subscribed by defendant’s agent was subscribed by defendant because
a jury reasonably could conclude that defendant authorized the filing of
return); Shorn, 785 F.2d at 1454 (upholding accounting firm’s
conviction even though the employee who actually subscribed the forms
had no knowledge of fraudulent scheme planned by chief operating
officer).

(191.) See United States v. Franks, 723 F.2d 1482, 1485-86 (10th
Cir. 1983) (concluding that IRS Form 4683, showing declaration of
taxpayer’s foreign banking interests, is a document for purposes of
I.R.C. [section] 7206(1)); United States v. Cohen, 544 F.2d 781,783 (5th
Cir. 1977) (including within statute Treasury Form 656 entitled
“Offer in Compromise”). Compare United States v. Levy, 533
F.2d 969, 973-75 (5th Cir. 1976) (holding prosecution not proper under
I.R.C. [section] 7206(1) for falsification of IRS Form 433-AB, because
Form 433-AB not officially required by IRS, or by any regulation
promulgated to enforce the Code, and therefore is not a document under
[section] 7206(1)), with United States v. Hunerlach, 197 F.3d 1059,
1068- 659 (11th Cir. 1999) (holding that taxpayer who signed IRS Form
433-AB in presence of Special Agent created implied duty to file
accurate Form 433-AB).

(192.) I.R.C. [section] 6064 (2006) (“The fact that an
individual’s name is signed to a return, statement, or other
document shall be prima facie evidence for all purposes that the return,
statement, or other document was actually signed by him.”).
Furthermore, by signing a tax return, a taxpayer represents that she has
read and understands the contents. See United States v. Olbres, 61 F.3
967, 971 (1st Cir. 1995) (“A jury may permissibly infer that a
taxpayer read his returns and knew its contents from the bare fact that
he signed it.”). But see United States v. Harper, 458 F.2d 891,894
(7th Cir. 1972) (holding that “proof of a signature alone on a tax
return is insufficient by itself to make knowledge of the contents of
that return attributable to the signor”).

(193.) See United States v. Cashio, 420 F.2d 1132, 1135 (5th Cir.
1969) (requiring defendant to prove that signature on return was not her
own); see also United States v. Trevino, 419 F.3d 896, 902 (9th Cir.
2005) (stating that defendant’s signature on tax return created
rebuttable presumption that defendant signed tax return).

(194.) United States v. Shyres, 898 F.2d 647, 657 (8th Cir. 1990).

(195.) See United States v. Rooney, 866 F.2d 28, 31 (2d Cir. 1989)
(“Venue … may lie not only where the return was made and
subscribed, but also where filed, or where the preparer received
information from the defendant even though the defendant signed and
filed the returns elsewhere.” (quoting United States v. Marrinson,
832 F.2d 1465, 1475 (7th Cir. 1987))).

(196.) See United States v. Bryan, 896 F.2d 68, 72 (5th Cir. 1990)
([V]enue properly lies where a false statement is prepared and signed,
even though received and filed elsewhere.”).

(197.) See United States v. Hirschfeld, 964 F.2d 318, 321 (4th Cir.
1992) (holding venue proper in Eastern District of Virginia because
defendant applied for extension for filing his tax return and
established fraudulent deductions in that district, even though tax
return was prepared in California and mailed from Western District of
Virginia).

(198.) See Marrinson, 832 F.2d at 1475.

(199.) Bryan, 896 F.2d at 72.

(200.) The declaration made under penalty of law makes the
taxpayer’s subscription a felony if made upon a falsified document.
If there is no such declaration in the document, the taxpayer may only
be convicted of a misdemeanor for making fraudulent statements under
I.R.C. [section] 7207 (2006). See, e.g., United States v. Carrodeguas,
747 F.2d 1390, 1395-96 (11th Cir. 1984) (noting that, unlike [section]
7207, [section] 7206(1) requires that a document contain a statement
that the document is “made under the penalties of perjury”).

(201.) The taxpayer’s signature block on Form 1040 states:
“Under penalties of perjury, I declare that I have examined this
return and accompanying schedules and statements, and to the best of my
knowledge and belief, they are true, correct, and complete. Declaration
of preparer (other than taxpayer) is based on all information of which
preparer has any knowledge.” I.R.S. Form 1040 (2011); see United
States v. Bishop, 629 F.3d 462,468 (5th Cir. 2010) (reiterating that a
[section] 7206(1) case is a perjury case distinguishable from other
tax-related charges); United States v. Adams, 314 F. App’x 633, 638
(5th Cir. 2009) (finding that filing a tax return concerning false
statements in violation of [section] 7206(1) constitutes criminal
perjury); United States v. Marashi, 913 F.2d 724, 736 (9th Cir. 1990)
(“Section 7206(1) is a perjury statute.”).

(202.) The statutory language requiring the document be “true
and correct” has been interpreted to require the information
provided to be both accurate and complete. See United States v.
Klausner, 80 F.3d 55, 60 (2d Cir. 1996) (holding tax return false where
deductions, essential to accurate computation of taxes, were incorrect);
Siravo v. United States, 377 F.2d 469, 472 (1st Cir. 1967)
(taxpayer’s failure to attach Schedule C, reporting gross receipts,
violated [section] 7206(1) as knowing and willful omission of facts
since the affirmative false statement “is supplied by the
taxpayer’s declaration that the return is true and correct, when he
knows it is not”).

(203.) United States v. Pree, 408 F.3d 855, 873 (7th Cir. 2005)
(citing United States v. Greenberg, 735 F.2d 29, 32 (2d Cir. 1984)); see
also United States v. Tarwater, 308 F.3d 494, 505 (6th Cir. 2002)
(holding that a material matter “has a natural tendency to
influence, or is capable of influencing or affecting, the ability of the
IRS to audit or verify the accuracy of a tax return”); United
States v. Uchimura, 125 F.3d 1282, 1285 (9th Cir. 1997) (defining
material information as “necessary to a determination of whether
income tax is owed”); United States v. Aramony, 88 F.3d 1369, 1384
(4th Cir. 1996) (defining material information as that which is
necessary “in order that the taxpayer estimate and compute his tax
correctly”).

(204.) See United States v. Lamberti, 847 F.2d 1531, 1536 (11th
Cir. 1988) (holding that reporting income from a false source is
material); United States v. DiVarco, 484 F.2d 670, 673 (7th Cir. 1973)
(finding that reporting income from false source in attempt to deceive
IRS is material).

(205.) See Pree, 408 F.3d at 873 (finding false statements material
if they can hinder efforts of IRS to monitor and verify tax liability);
Klausner, 80 F.3d at 60 (holding itemized deductions material because
they are essential to accurate computation of tax liability); United
States v. Wodtke, 951 F.2d 176, 178 (8th Cir. 1991) (holding false
statement of income material because it was capable of influencing
function of IRS, regardless of whether or not IRS actually relied on
statement); United States v. Fawaz, 881 F.2d 259, 263 (6th Cir. 1989)
(holding understatement of gas purchases on return material because
verification of return became more difficult for IRS); United States v.
Warden, 545 F.2d 32, 37 (7th Cir. 1976) (defining test for materiality
as whether particular item in question must be reported for taxpayer to
estimate and compute tax correctly).

(206.) See United States v. Taylor, 574 F.2d 232, 235-36 (5th Cir.
1978) (inclusion of some, but not all, gross receipts is material
falsehood); see also United States v. Nicolaou, 180 F.3d 565,573 (4th
Cir. 1999) (upholding conviction under I.R.C. [section] 7206(1) where
defendants operated illegal sports betting operation and failed to
report gross income from operation on their income tax form). But see
United States v. Reynolds, 919 F.2d 435, 437 (7th Cir. 1990) (holding
taxpayer who used wrong kind of income tax return, which did not have
lines for all types of income taxpayer had, was not guilty of filing
false return but instead was guilty of tax evasion).

(207.) See Tarwater, 308 F.3d at 504 (holding that conviction under
perjury statute criminalizing lying on any document filed with 1RS does
not require prosecution to prove the existence of a tax deficiency);
Aramony, 88 F.3d at 1385 (holding that materiality does not depend upon
amount of unpaid taxes, because “any failure to report income is
material” (quoting United States v. Holland, 880 F.2d 1091, 1096
(9th Cir. 1989))).

(208.) See United States v. Pansier, 576 F.3d 726, 737 (7th Cir.
2009) (holding that a statutory or regulatory duty to file a form is not
required to show materiality); United States v. Marston, 517 F.3d 996,
1002 (8th Cir. 2008) (holding that whether the documents contain
necessary information to be “tax returns” pursuant to
[section] 7203 is irrelevant); United States v. Anderson, 353 F.3d 490,
498-500 (6th Cir. 2003) (holding that criminal penalties under [section]
7206 can apply to any document filed with the IRS).

(209.) See United States. v. Ludwig, 897 F.2d 875, 880 (7th Cir.
1990) (holding that the jury is entitled to rely upon circumstantial
evidence in determining defendant’s guilt on federal tax violation
charge); see also United States v. Shetty, 130 F.3d 1324, 1331-32 (9th
Cir. 1997) (holding that the “net worth” method can be used to
establish income when Government “(1) accurately establishes the
taxpayer’s opening net worth, (2) identifies a likely source of
income from which it may be inferred that the taxpayer’s increase
in net worth arose, and (3) conducts a reasonable investigation of any
leads that suggest that the taxpayer properly reported his
income”); United States v. Hart, 70 F.3d 854, 860 (6th Cir. 1995)
(net worth analysis, bank deposits, and cash expenditures in excess of
reported income can be used as circumstantial evidence of unreported
income); United States v. Conaway, 11 F.3d 40, 43 (5th Cir. 1993)
(holding that defendant’s cash expenditures and bank deposits,
after adjustment for applicable exemptions and deductions, supported an
inference of unreported income); United States v. Caswell, 825 F.2d
1228, 1234 (8th Cir. 1987) (holding that government may use “cash
expenditures” method of proving income if it proves it has
investigated all leads into other possible sources of nontaxable income
provided by defendant).

(210.) 515 U.S. 506, 512 (1995).

(211.) Id. at 514 (focusing on the historical power of the jury to
consider questions “compounded of law and fact”).

(212.) Compare United States v. Zvi, 168 F.3d 49, 59 (2d Cir. 1999)
(holding that materiality is for the court to decide (citing United
States v. Klausner, 80 F.3d 55, 60-61 (2d Cir. 1996) (distinguishing
Gaudin by reasoning that materiality under [section] 7206 is a pure
question of law, while under [section] 1001 it requires a factual
finding))), with United States v. Bok, 156 F.3d 157, 164 (2d Cir. 1998)
(holding that materiality is a question of fact for jury, but
distinguishing Klausner), United States v. Uchimura, 125 F.3d 1282, 1284
(9th Cir. 1997) (same), United States v. Clifton, 127 F.3d 969, 970-71
(10th Cir. 1997) (same), United States v. Randazzo, 80 F.3d 623,630-32
(1st Cir. 1996) (same), United States v. McGuire, 99 F.3d 671, 672 (5th
Cir. 1996) (same), and United States v. DiDomenico, 78 F.3d 294, 302-03
(7th Cir. 1996) (same). The courts have also split on the retroactive
application of Gaadin. See United States v. Tandon, 111 F.3d 482, 488-89
(6th Cir. 1997) (recognizing circuit split and indicating that district
courts in Sixth Circuit would submit materiality questions to jury).

(213.) Neder v. United States, 527 U.S. 1, 1 (1999).

(214.) See United States v. Pomponio, 429 U.S. 10, 12 (1976)
(defining willfulness, and finding taxpayers willfully violated legal
duty by signing documents they knew to be false); United States v. Pree,
408 F.3d 855, 867-68 (7th Cir. 2005) (holding that evidence of willful
misfiling was sufficient when witnesses testified that defendant
admitted to understanding her obligations); In re Craddock, 149 F.3d
1249, 1257 (10th Cir. 1998) (holding that, to be convicted under
[section] 7206(1), taxpayer must have intent to violate duty (citing
Pomponio, 429 U.S. at 12)); see also United States v. Guidry, 199 F.3d
1150, 1157 (10th Cir. 1999) (listing actions that support inference of
willfulness).

(215.) See Cheek v. United States, 498 U.S. 192, 201–02 (1991)
(holding that even an unreasonable but good-faith mistake negates
necessary element of willfulness); United States v. Griffin, 524 F.3d
71, 77-78 (1st Cir. 2008) (noting that jury instruction was appropriate
in explaining defense of good-faith mistake); United States v. Morris,
20 F.3d 1111, 1115 (11th Cir. 1994) (stating that willfulness “may
be negated by a good-faith misunderstanding of the law or a good-faith
belief that one is not violating the law, regardless of whether or not
the belief is reasonable”); see also supra Section II.B. 1.c
(explaining willfulness).

(216.) See supra Section lI.B.2.b (explaining lack of willfulness
defense).

(217.) See United States v. Ford, 184 F.3d 566, 579 (6th Cir. 1999)
(stating that defendant can rely on defense of good-faith reliance on
advice when there is full disclosure of pertinent facts); see also
Morris, 20 F.3d at 1115 (staling that a “good-faith
misunderstanding of the law … whether or not the belief is
reasonable” will negate finding of willfulness); United States v.
Brimberry, 961 F.2d 1286, 1290-91 (7th Cir. 1992) (holding that
defendant was precluded from asserting good-faith reliance on advice of
her accountant because there was no evidence that defendant disclosed
hidden assets); United States v. Pomponio (Pomponio I1), 563 F.2d 659,
662 (4th Cir. 1977) (stating that taxpayer cannot use good-faith
reliance defense to shift responsibility to accountant if taxpayer has
withheld vital information from accountant); supra Section II.B.2.c
(explaining third party liability and reliance).

(218.) See United States v. George, 420 F.3d 991,999 (9th Cir.
2005) (stating that “good-faith reliance on a qualified tax
accountant is a defense to willfulness” under [section] 7206).

(219.) See United States v. Bishop, 291 F.3d 1100, 1107 (9th Cir.
2002) (holding that good-faith reliance on “tax professional”
is valid defense); United States v. Meyer, 808 F.2d 1304, 1306 (8th Cir.
1987) (stating in dicta that good-faith reliance on expert tax preparer
can be defense for tax evasion).

(220.) See United States v. Signer, 482 F.2d 394, 398 (6th Cir.
1973) (recognizing taxpayer reliance on auditor).

(221.) See United States v. Kottwitz, 614 F.3d 1241, 1267 (11th
Cir. 2010), opinion withdrawn in part on denial of reh’g, 627 F.3d
1383 (11th Cir. 2010) (stating that good-faith reliance on
professional’s advice is valid defense); United States v. Krall,
835 F.2d 711,715 (8th Cir. 1987) (considering defendant’s reliance
on tax information from trust managers permissible for purposes of
reliance defense).

(222.) See Meyer, 808 F.2d at 1306 (questions of good-faith
reliance and defendant’s full disclosure of information to third
party is determined by jury).

(223.) See United States v. Reynolds, 919 F.2d 435,437 (7th Cir.
1990) (holding that defendant was not liable under [section] 7206 when
he completed IRS Form 1040EZ using literal amount of wages listed on his
W-2 Form, despite his knowledge that listed amount on W-2 Form did not
reflect his actual income).

(224.) See United States v. Borman, 992 F.2d 124, 126 (7th Cir.
1993) (even though wrong form was used, information provided was
literally true).

(225.) Compare Borman, 992 F.2d at 126 (finding no violation of
[section] 7206(1) because even though wrong form was used, information
provided was literally true), with United States v. Ladum, 141 F.3d
1328, 1335-36 (9th Cir. 1998) (distinguishing Reynolds and Borman in
holding defendant violated [section] 7206(1) because, although he
accurately stated in tax return that he was the proprietor of his
business, he also affirmatively represented himself as sole proprietor
by claiming full income of business). See also United States v.
Gollapudi, 130 F.3d 66, 72 (3d Cir. 1997) (holding that defendant was
liable for filing false statement when he represented on his W-2 form
withholdings that, although in themselves may have been numerically
accurate, were never actually submitted to the IRS); supra Section II.E.
1.a. iii (explaining material falsity).

(226.) I.R.C. [section] 7206(2) (2006).

(227.) Id.; see United States v. Gambone, 314 F.3d 163, 174 (3d
Cir. 2003) (describing the three elements required for conviction under
[section] 7206(2)).

(228.) See United States v. Cutler, 948 F.2d 691,695-96 (10th Cir.
1991) (upholding conviction of defendant who merely advised and
counseled brokerage firm about preparing false returns); Gambone, 314
F.3d at 174 (upholding conviction of defendant who furnished false W-2
Forms, and holding that “the relevant inquiry is whether the
defendant engages in ‘some affirmative participation which at least
encourages’ the employee to prepare or present a false
return”).

(229.) See United States v. Tierney, 947 F.2d 854, 867 (8th Cir.
1991) (affirming conviction of attorney who encouraged partners to pay
completion bonus designed to mislead IRS); United States v. Martin, 790
F.2d 1215, 1219 (5th Cir. 1986) (upholding sufficiency of the evidence
in the conviction of defendant director and organizer that instructed
individuals on fraudulent strategy to avoid payment of taxes).

(230.) See United States v. Coveney, 995 F.2d 578, 588 (5th Cir.
1993) (“A person need not actually sign or prepare a tax return to
aid in its preparation.”); see also United States v. Goosby, 523
F.3d 632, 637 (6th Cir. 2008) (“A defendant may be convicted under
[section] 7206 even if his involvement in the preparation of certain
returns was minimal.”); United States v. Clark, 139 F.3d 485, 490
(5th Cir. 1998) (concluding that filing fraudulent withholding forms
with increased exemptions constitutes aiding and abetting under
[section] 7206(2)).

(231.) See United States v. Searan, 259 F.3d 434, 443 (6th Cir.
2001) (holding that defendant’s assurances to the tax victims of
his mother’s competency in preparing tax returns were sufficient to
create liability under statute).

(232.) See United States v. Klausner, 80 F.3d 55, 58 (2d Cir. 1996)
(upholding conviction of accountant who assisted in preparation of false
tax returns).

(233.) See Tierney, 947 F.2d at 867 (upholding conviction of
attorney who encouraged partners to mislead IRS).

(234.) See United States v. Fletcher, 322 F.3d 508, 519 (8th Cir.
2003) (holding that liability attaches to all knowing participants of
the fraud).

(235.) See United States v. Ambort, 405 F.3d 1109, 1117 (10th Cir.
2005) (holding that returns indicating taxpayers were nonresident aliens
when defendant preparer knew they were not was materially fraudulent
even though return contained information from which IRS could have
determined that represented residency information was false); see also
supra Section II.E.1.a.iii (explaining concept of material falsity).

(236.) See United States v. Aramony, 88 F.3d 1369, 1385 (4th Cir.
1996) (holding that materiality does not depend upon amount of unpaid
taxes, because “any failure to report income is material”
(quoting United States v. Holland, 880 F.2d 1091, 1096 (9th Cir.
1989))); United States v. Olgin, 745 F.2d 263,272 (3d Cir. 1984)
(holding that a tax deficiency is not a required element of any offense
with which defendant was charged, including violation of [section]
7206).

(237.) See United States v. Bedford, 536 F.3d 1148, 1156 (10th Cir.
2008) (holding that conviction under [section] 7206(2) requires
defendant to have acted willfully and knowingly); United States v.
Powell, 955 F.2d 1206, 1214 (9th Cir. 1991) (holding that the court may
exclude evidence of what the law is or should be, but ordinarily cannot
exclude evidence relevant to jury’s determination of what defendant
thought the law was); see also supra Section II.B.1.c (explaining
willfulness).

(238.) See United States v. Powell, 576 F.3d 482, 495 (7th Cir.
2009) (holding that defendant’s amended return that included
previously unreported income had minimal probative value when it was
filed two years after filing the inaccurate return in question).

(239.) See Ambort, 405 F.3d at 1115-16 (holding that
defendant’s view that certain people could claim to be
“non-resident” aliens not subject to the tax laws was
irrelevant to the issue of willfulness because defendant knew this view
had been repeatedly rejected).

(240.) See United States v. Cheek, 498 U.S. 192, 201 (1991)
(holding that even an unreasonable but good-faith mistake negates
willfulness); United States v. Cohen, 510 F.3d 1114, 1123-24 (9th Cir.
2008) (holding that trial court’s exclusion of psychiatrist’s
testimony that defendant was incapable of willfulness was not harmless
error because it could have established good-faith defense); United
States v. Ervasti, 201 F.3d 1029, 1041 (8th Cir. 2000) (holding that
“[a] good-faith belief that one’s conduct does not violate tax
laws negates the willfulness element of this offense”); see also
supra Section II.B.2.b (explaining lack of willfulness defense). Compare
United States v. Salerno, 902 F.2d 1429, 1432 (9th Cir. 1990) (finding
defendant not guilty on [section] 7206 charge because government could
not provide any evidence that defendant specifically intended to cause
filing of false returns), with United States v. Aracri, 968 F.2d 1512,
1523 (2d Cir. 1992) (affirming defendant’s [section] 7206
conviction because government adduced sufficient evidence of willful
intent to cause third party to file false and fraudulent tax return).

(241.) I.R.C. [section] 7212(a) (2006). Section 7212(a) provides:

   Whoever corruptly or by force or threats of force (including any
   threatening letter or communication) endeavors to intimidate or
   impede any officer or employee of the United States acting in an
   official capacity under this title, or in any other way corruptly
   or by force or threats of force (including any threatening letter
   or communication) obstructs or impedes, or endeavors to obstruct or
   impede, the due administration of this title, shall, upon
   conviction thereof, be fined not more than $5,000, or imprisoned
   not more than 3 years, or both, except that if the offense is
   committed only by threats of force, the person convicted thereof
   shall be fined not more than $3,000, or imprisoned not more than 1
   year, or both. The term 'threats of force', as used in this
   subsection, means threats of bodily harm to the officer or employee
   of the United States or to a member of his family.

I.R.C. [section] 7212(a) (2006). This section is referred to as the
provision’s “omnibus clause.” See Elaine K. Zipp,
Annotation, Corrupt or Forcible Interference With Administration of
Internal Revenue Laws, Under 26 U.S.C.A. [section] 7212(A), 26 A.L.R.
Fed. 2d 229 (2008).

(242.) See United States v. Workinger, 90 F.3d 1409, 1414 (9th Cir.
1996) (declaring that “[a]n act is ‘corrupt’ within the
meaning of [section] 7212(a) if it is performed with the intention to
secure an unlawful benefit for oneself or for another” (quoting
United States v. Hanson, 2 F.3d 942, 946 (9th Cir. 1993))); see also
United States v. Kelly, 147 F.3d 172, 176 (2d Cir. 1998) (holding that
statutory element requiring proof of corruption was not
unconstitutionally vague or overbroad); United States v. Kassouf, 144
F.3d 952, 954 (6th Cir. 1998) (finding statutory elements consistent
with the Constitution).

(243.) See I.R.C. [section] 7212(a); United States v. Popkin, 943
F.2d 1535, 1539 (11th Cir. 1991) (stating that a violation of [section]
7212(a) does not require that force or threats of force be directed at a
specific government agent or employee).

(244.) See United States v. Thompson, 518 F.3d 832, 855 (10th Cir.
2008) (holding that defendant violated [section] 7212(a) by creating a
false, back-dated loan document in an attempt to disguise income as
loan); United States v. Winchell, 129 F.3d 1093, 1099 (10th Cir. 1997)
(holding that defendant violated [section] 7212(a) by filing false tax
returns, mailing false bills and forms to IRS, and sending threatening
letters to IRS employees); United States v. Wilson, 118 F.3d 228, 235-36
(4th Cir. 1997) (upholding conviction of attorney who violated [section]
7212(a) by concealing client’s business activities and sources of
income); United States v. Kuball, 976 F.2d 529, 531 (9th Cir. 1992)
(finding defendant guilty for sending threatening letters to IRS agents
who repossessed his truck).

(245.) See Hanson, 2 F.3d at 947 (explaining elements of [section]
7212(a) offense); see also United States v. Kelly, 147 F.3d 172, 176-77
(2d Cir. 1998) (indicating that key concepts in elements of [section]
7212(a) are definitions of words “corruptly” and
“endeavors”). In Kelly, the Second Circuit approved of the
district court’s definition of both elements. To act
“corruptly,” one must act with “the intent to secure an
unlawful advantage or benefit either for one’s self or for
another.” Kelly, 147 F.3d at 177. The district court defined
“endeavors” as to “knowingly and intentionally act or to
knowingly and intentionally make any effort which has a reasonable
tendency to bring about a desired result.” Id.

(246.) See United States v. Valenti, 121 F.3d 327, 332-33 (7th Cir.
1997) (finding a corrupt act where defendant “deliberately
structured his financial transactions to avoid filling out CTR forms,
which would have alerted the IRS to unreported income”); Hanson, 2
F.3d at 947 (explaining that the act of claiming false refunds was
corrupt because defendant attempted to secure unlawful benefit); United
States v. Reeves, 752 F.2d 995, 1001 (5th Cir. 1985) (defining
“corruptly” as acting with the intent to secure an unlawful
benefit or advantage either for oneself or for another). But see United
States v. Mitchell, 985 F.2d 1275, 1277-78 (4th Cir. 1993) (holding that
“corruptly” endeavoring under [section] 7212(a) should be read
to include fraud and misrepresentation as well as subordination).

(247.) See United States v. Salman, 531 F.3d 1007, 1015 (9th Cir.
2008) (upholding defendant’s [section] 7212(a) conviction for
submitting false financial instruments to IRS); Mitchell, 985 F.2d at
1279 (convicting defendant under [section] 7212(a) for misrepresenting
status of his organization as tax exempt to solicit charitable
contributions).

(248.) See United States v. Hanson, 2 F.3d 942, 946 (9th Cir. 1993)
(holding that the corruption element requires more than improper
motivation).

(249.) Types of “endeavors” that fall under the meaning
of the I.R.C. are, for example, liens and frivolous suits. See United
States v. Bostian, 59 F.3d 474, 479 (4th Cir. 1995) (finding that
defendant attempted to secure unlawful benefit by interfering with sale
of property by IRS by filing lien); United States v. Rosnow, 977 F.2d
399, 410 (8th Cir. 1992) (holding that filing frivolous suits to impede
IRS investigation constitutes an endeavor under I.R.C.).

(250.) See Kelly, 147 F.3d at 176 (ruling that conduct need not be
directed toward IRS agents themselves, but simply must impede or
obstruct investigation to properly fall under [section] 7212(a)); United
States v. Popkin, 943 F.2d 1535, 1540 (11th Cir. 1991 ) (upholding
[section] 7212(a) count against defendant based on corruption targeted
against IRS).

(251.) See Popkin, 943 F.2d at 1539 (explaining that the omnibus
clause “conspicuously omits the requirement that conduct be
directed at ‘an officer or employee of the United States
government'”); United States v. Dean, 487 F.3d 840, 853 (11th
Cir. 2007) (upholding [section] 7212(a) conviction where defendant sent
letters to bank, employer, and Department of Financing and Accounting
Service demanding noncompliance with IRS summonses); United States v.
Dykstra, 991 F.2d 450, 452 (8th Cir. 1993) (convicting defendant based
on threats against district judges and United States marshals under the
omnibus clause and noting that the conduct need not be directed against
government officials or employees to constitute a violation).

(252.) See Hanson, 2 F.3d at 946 (finding government testimony that
it had “expended a large amount of time discovering and remedying
the problems caused by Hanson’s filing a false form”
sufficient to establish that Hanson had attempted to obstruct the
administration of the IRS under [section] 7212(a)(2)).

(253.) See id. at 947 (“Mere evidence of an improper motive or
bad or evil purpose is insufficient to prove corruption.”).

(254.) See United States v. McBride, 362 F.3d 360, 372 (6th Cir.
2004) (“The defendant must … be acting in response to ‘some
pending IRS action of which [he is] aware.'” (quoting United
States v. Kassouf, 144 F.3d 952, 957 (6th Cir. 1998))).

(255.) See Kassouf, 144 F.3d at 959 (dismissing argument that
three-year limitations period should apply under [section] 7212(a));
United States v. Wilson, 118 F.3d 228, 236 (4th Cir. 1997) (stating that
statute of limitations is six years and begins to run on date of last
affirmative act of tax evasion).

(256.) U.S. SENTENCING GUIDELINES MANUAL [section] 2T1. 1(a) (2011)
[hereinafter U.S.S.G. MANUAL].

(257.) Id. [section] 2Tl.l(c) cmt. 1. See United States v.
Clements, 73 F.3d 1330, 1330 (5th Cir. 1996) (finding tax loss equal to
amount of taxes defendant attempted to evade); accord United States v.
Brimberry, 961 F.2d 1286, 1292 (7th Cir. 1992) (holding that district
court correctly sentenced defendant based on tax deficiency rather than
hidden assets).

(258.) United States v. Frith, 461 F.3d 914, 917 (7th Cir. 2006)
(noting that government has the burden of proving tax loss by a
preponderance of the evidence).

(259.) See 18 U.S.C. [section] 3553(a)(4) (2006 & Supp. 2010).
In 2005, the Supreme Court severed the provision that made the
Guidelines mandatory, rendering them “effectively advisory.”
See United States v. Booker, 543 U.S. 220, 245 (2005); see also
Kimbrough v. United States, 552 U.S. 85, 101 (2007) (“[W]hile [the
federal sentencing statute] still requires a court to give respectful
consideration to the Guidelines, see Gall v. United States, [552 U.S.
38, 50-51] (2007), Booker ‘permits the court to tailor the sentence
in light of other statutory concerns as well.’ Booker, 543 U.S. at
245-46.”). District court sentences are reviewed for
reasonableness, and a sentence within the applicable Guidelines range is
presumptively reasonable. Rita v. United States, 551 U.S. 338, 347
(2007).

(260.) I.R.C. [section] 7201 (2006).

(261.) U.S.S.G. MANUAL app. A.

(262.) Id. [section] 2Tl.l(a)(1); see also United States v.
Olbres,99F.3d28,30 (1st Cir. 1996) (determination of amount of tax loss
is prerequisite to determination of base offense level).

(263.) U.S.S.G. MANUAL [section] 2T1.1(a)(2).

(264.) Id. [section] 2T1.1(b)(1). Criminal acts for which the
defendant has been acquitted may nevertheless furnish the basis for this
sentence enhancement. See United States v. Karterman, 60 F.3d 576, 580
(9th Cir. 1995) (holding that conviction is not prerequisite to criminal
activity enhancement under U.S.S.G. MANUAL [section] 2T1.1(b)(1)).
Furthermore, district courts may increase a defendant’s sentence
based on judicial fact-finding so long as the sentence does not exceed
statutory maximum. See, e.g., United States v. Dean, 487 F.3d 840,
854-55 (11th Cir. 2007) (upholding defendant’s sentence that
district court calculated based on government’s tax loss figure
contained within Pre-Sentencing Investigation Report).

(265.) Id. [section] 2T1.1(b)(1).

(266.) Id. [section] 2T1.1(b)(2). For purposes of this section,
“sophisticated means” refers to conduct that is more complex
or that demonstrates greater intricacy in executing or concealing the
offense, ld. [section] 2Tl.1 cmt. 4; see United States v. Lewis, 93 F.3d
1075, 1083 (2d Cir. 1996) (holding that enhancement of defendant’s
sentence was appropriate because “sophisticated means” were
used in complex scheme to evade taxes); United States v. Clements, 73
F.3d 1330, 1340 (5th Cir. 1996) (affirming district court’s finding
that “sophisticated means” were used to avoid detection of
defendant’s tax evasion (quoting U.S.S.G. MANUAL [section]
2T1.1(b)(2))); United States v. Kraig, 99 F.3d 1361, 1371 (6th Cir.
1996) (upholding “sophisticated means” enhancement despite
only minimal involvement in tax conspiracy by defendant); see also
Donette M. Dewar, Federal Taxation, 28 TEX. TECH L. REV. 585, 614 (1997)
(analyzing what constitutes “sophisticated means” of avoiding
detection).

(267.) I.R.C. [section] 7202 (2006).

(268.) U.S.S.G. MANUAL app. A.

(269.) Id. [section] 2T1.6(a).

(270.) Id. [section] 2T1.6(b)(1).

(271.) I.R.C. [section] 7203 (2006).

(272.) Id.

(273.) U.S.S.G. MANUAL app. A.

(274.) Id.

(275.) Id. [section] 2S1.3(a). The “value of the funds”
means the amount of funds involved in the structuring or reporting
conduct, regardless of whether the funds were unlawfully obtained. Id.
[section] 2S1.3 cmt. 1.

(276.) Id. [section] 2S1.3(b)(1); see also United States v.
Sanders, 942 F.2d 894, 897 (5th Cir. 1991) (base level increase was
correct where defendant reasonably should have known funds were
criminally derived).

(277.) U.S.S.G. MANUAL [section] 2S1.3(c)(1).

(278.) Id. [section] 3B1.3. See United States v. Rice, 52 F.3d 843,
850 (10th Cir. 1995) (applying “special skill” enhancement to
accountant who used his professional knowledge to commit fraud). For
purposes of the Guidelines, a position of “public or private
trust” is one characterized by professional or managerial
discretion. U.S.S.G. MANUAL [section] 3B1.3, cmt. 1. A “special
skill” is a skill “not possessed by members of the general
public and usually requiring substantial education, training or
licensing.” ld. [section] 3B1.3 cmt. 4. The “position of
trust” and “special skill” enhancements apply to all tax
violations discussed in this Article. Id. [section] 3B1.3.

(279.) I.R.C. [section] 7206 (2006).

(280.) U.S.S.G. MANUAL app. A. But see United States v. Ciccolini,
750 F. Supp. 2d 850, 860 (N.D. Ohio 2010) (holding that fashioning a
non-guideline sentence to encourage restitution is in accordance with
the sentencing guidelines’ purpose to deter similar criminal
conduct).

(281.) U.S.S.G. MANUAL app. A.

(282.) Id. [section] 2T1.4(a). The amount of tax loss does not need
to be determined precisely but can be reasonably estimated. United
States v. Schroeder, 536 F.3d 746, 752 (7th Cir. 2008) (vacating
defendant’s sentence because government failed to establish tax
loss by a preponderance of the evidence and judge failed to consider
relevant family circumstances); U.S.S.G. MANUAL [section] 2T1.1 cmt. 1.

(283.) Compare United States v. Gordon, 291 F.3d 181,187 (2d Cir.
2002) (holding that “determination of tax loss involves giving the
defendant the benefit of legitimate but unclaimed deductions”
(quoting United States v. Martinez-Rios, 143 F.3d 662, 671 (2d Cir.
1998))), with United States v. Delfino, 510 F.3d 468, 472-73 (4th Cir.
2007) (holding that the definition of tax loss in [section] 2TI.I(c)(1)
does not allow taxpayers a second opportunity to claim deductions after
being convicted of tax fraud), United States v. Phelps, 478 F.3d 680,
681-82 (5th Cir. 2007) (same), United States v. Chavin, 316 F.3d 666,
679 (7th Cir. 2002) (same), United States v. Spencer, 178 F.3d

1365, 1368-69 (10th Cir. 1999) (same), and United States v. Clarke,
562 F.3d 1158, 1164-65 (11th Cir. 2009) (same).

(284.) U.S.S.G. MANUAL [section] 2T1.4(b)(1).

(285.) Id. [section] 2TI.4(b)(2); see supra note 266 and
accompanying text (discussing “sophisticated concealment”
analysis). See also United States v. Campbell, 491 F.3d 1306, 1315 (11th
Cir. 2007) (holding that defendant’s use of campaign accounts and
credit cards issued to other people to impede discovery of tax fraud
constituted sophisticated concealment).

(286.) U.S.S.G. MANUAL app. A.

(287.) I.R.C. [section] 7212(a) (2006).

(288.) Id.

(289.) U.S.S.G. MANUAL app. A.

(290.) Id. [section] 2J1.2(a).

(291.) Id. [section] 2J1.2(b)(1)(B); see United States v. Herrera,
70 F.3d 444, 445 (7th Cir. 1995) (holding that base level is twelve, and
that increase of eight levels was correct because “the offense
involved causing or threatening to cause physical injury to a
person” (quoting U.S.S.G. MANUAL [section] 2J1.2(b)(1))).

(292.) U.S.S.G. MANUAL [section] 2J1.2(b)(2).
“‘Substantial interference with the administration of
justice’ includes … an indictment, verdict, or any judicial
determination based upon perjury, false testimony, or other false
evidence; or the unnecessary expenditure of substantial governmental or
court resources.” Id. [section] 2J 1.2 cmt. 1.

(293.) U.S.S.G. MANUAL app. A.

(294.) 18 U.S.C. [section] 371 (2006).

(295.) Section 371 provides:

   If two or more persons conspire ... to defraud the United States,
   or any agency thereof in any manner or for any purpose, and one or
   more of such persons do any act to effect the object of the
   conspiracy, each shall be fined under this title or imprisoned not
   more than five years, or both.

Id. This discussion will focus on the second type of
conspiracy–the defraud clause–which does not require reference to
another part of the criminal code because the statute encompasses the
substantive offense of fraud. See United States v. Khalife, 106 F.3d
1300, 1303 (6th Cir. 1997) (holding that “conviction under
[section] 371 … does not require [proof of] a violation of a separate
substantive statute” (quoting United States v. Jackson, 33 F.3d
866, 871 (7th Cir. 1994))); see also United States v. Caldwell, 989 F.2d
1056, 1059 (9th Cir. 1993) (stating that, under 18 U.S.C. [section] 371,
“[n]either the conspiracy’s goal nor the means used to achieve
it need to be independently illegal”).

(296.) United States v. Goldberg, 105 F.3d 770, 774-75 (1st Cir.
1997) (upholding a conviction under [section] 371, finding that
defendant and co-conspirator shared a purpose to interfere with IRS
functions). Section 371 has been broadly interpreted by courts to extend
“beyond its common law usage and includes interference or
obstruction of a lawful governmental function ‘by deceit, craft or
treachery or at least by means that are dishonest.'” United
States v. Licciardi, 30 F.3d 1127, 1131 (9th Cir. 1994) (quoting
Hammerschmidt v. United States, 265 U.S. 182, 188 (1923)).

(297.) See United States v. Klein, 247 F.2d 908, 919-21 (2d Cir.
1957) (upholding conviction of conspiracy to defraud United States based
on obstruction of collection of income taxes). In Klein, seven
defendants and two co-conspirators organized seventeen foreign
corporations to carry on their whiskey-selling business in a manner
calculated to minimize the amount of United States income tax that they
would have to pay. ld at 910; see also United States v. Alston, 77 F.3d
713, 720 (3d Cir. 1996) (discussing Klein conspiracies).

(298.) For a more detailed discussion of [section] 371, see the
Federal Criminal Conspiracy article in this issue.

(299.) See United States v. Thompson, 518 F.3d 832, 853 (10th Cir.
2008) (noting elements of [section] 371 in upholding sufficiency of
evidence supporting defendant’s conviction); United States v.
Romer, 148 F.3d 359, 370 (4th Cir. 1998) (listing the elements of a
[section] 371 violation). The Romer court equated a Klein conspiracy to
a violation of [section] 371 generally. See Romer, 148 F.3d at 370.
However, a Klein conspiracy most commonly deals specifically with a
violation of the “defraud clause” of [section] 371 in cases
involving the IRS and its revenue collection function. See, e.g.,
Alston, 77 F.3d at 717 (explaining that a Klein conspiracy “has
become the generic term for a conspiracy to frustrate the government
(particularly the IRS) in its lawful information gathering
functions”).

(300.) See United States v. Khalife, 106 F.3d 1300, 1303 (6th Cir.
1997) (holding that defendants need not violate separate substantive
status, nor know their conduct was unlawful, to be guilty of conspiring
to defraud government).

(301.) See United States v. Nelson-Rodriguez, 319 F.3d 12, 28 (1st
Cir. 2003) (stating that the conspiracy need not succeed for a
conviction to stand, and that the act need not even be attempted);
United States v. Rosengarten, 857 F.2d 76, 79 (2d Cir. 1988) (conspiracy
need not be successful to be criminal).

(302.) See United States v. Bedford, 536 F.3d 1148, 1155 (10th Cir.
2008) (explaining that the prosecution in a conspiracy case must
“prove the degree of criminal intent necessary for a conviction on
the underlying substantive offense of the conspiracy”); United
States v. Searan, 259 F.3d 434, 441 (6th Cir. 2001) (noting that
conspiracy under [section] 371 requires proof of specific intent–actual
or implied–to violate federal law); United States v. Adkinson, 158 F.3d
1147, 1155 (11th Cir. 1998) (stating that conviction for Klein
conspiracy cannot stand if impeding IRS is not purpose of alleged
conspiracy and is only a collateral effect (citing United States v.
Vogt, 910 F.2d 1184, 1202 (4th Cir. 1990))); United States v. Goldberg,
105 F.3d 770, 773 (1st Cir. 1997) (“[T]he fraud has to be a purpose
or object of the conspiracy, and not merely a foreseeable consequence of
the conspiratorial scheme.”).

Generally, the illicit purpose giving rise to a conviction to
defraud the United States must be shared by two or more conspirators.
See Goldberg, 105 F.3d at 774-75 (finding that defendant and co-
conspirator shared purpose to interfere with IRS functions).

Determining the objective of a conspiracy is often complicated
because many financial crimes have implications for false reporting in
taxpayer filings. See id. at 773 (finding that conspiracy can have
shared objectives, and that main purpose of conspiracy does not have to
be to interfere with IRS). Courts deciding this question have concluded
that a conspiracy “may have multiple objectives, and if one of its
objectives, even a minor one, be the evasion of federal taxes, the
offense is made out even though the primary objective may be concealment
of another crime.” United States v. Furkin, 119 F.3d 1276, 1280-81
(7th Cir. 1997) (quoting Ingram v. United States, 360 U.S. 672, 679-80
(1959)). For example, laundering of drug money involves the deliberate
concealment of the money’s origin. Although the primary purpose is
generally to avoid the detection of a crime, the First Circuit has held
that a jury could find a secondary objective was to conceal income from
the IRS in violation of [section] 371. See United States v. Cambara, 902
F.2d 144, 147 (1st Cir. 1990) (finding that jury could infer secondary
objective to conceal income from IRS where government proved that
defendants, knowing that their funds had been derived from drug
trafficking, agreed to create and use “front” companies and to
structure their financial transactions in order to evade reporting
requirements).

(303.) See United States v. Weidner, 437 F.3d 1023, 1033 (10th Cir.
2006) (noting that “conspiracy convictions may be based on
circumstantial evidence”); Adkinson, 158 F.3d at 1153-54 (stating
that government may use circumstantial evidence as proof, but must
demonstrate “circumstances from which a jury could infer beyond a
reasonable doubt that there was a ‘meeting of the minds to commit
an unlawful act'” (quoting United States v. Parker, 839 F.2d
1473, 1478 (11th Cir. 1988))); Furkin, 119 F.3d at 1280-81 (finding that
government clearly met its burden of proving first element where
evidence showed parties had strong, long-term business relationship);
see also United States v. Dowlin, 408 F.3d 647, 657 (10th Cir. 2005)
(holding that an agreement may be inferred from the joint appearance of
defendants at transactions and negotiations furthering the conspiracy,
the relationship among co-defendants, and their mutual representations
to third parties). But see United States v. Pappathanasi, 383 F. Supp.
2d 289, 295 (D. Mass. 2005) (evidence that defendants knew of rebate
program that could be used by Dunkin’ Donuts franchisees to evade
taxes insufficient to prove agreement to conspire to defraud
government).

(304.) See Furkin, 119 F.3d at 1280 (finding that parties made
“extensive efforts” to hide their income from government where
they encouraged others to lie about how much income they received, and
entered into backdated lease agreements misrepresenting income received
from leased machines); see also United States v. Collins, 78 F.3d 1021,
1038 (6th Cir. 1996) (finding that defendant’s act of concealing
gift from co-conspirator was an act in furtherance of his scheme of
obtaining income that would not be reported to IRS).

(305.) See United States v. Pullman, 187 F.3d 816, 820 (8th Cir.
1999) (finding that second element is met when co-conspirator, rather
than defendant, mailed money orders used to defraud IRS).

(306.) See Furkin, 119 F.3d at 1279 (stating that the intent
element only requires that conspirator knew of federal tax liability,
not that conspirator was aware objective was criminal); see also United
States v. Price, 995 F.2d 729, 732 (7th Cir. 1993) (holding that
defendants need only agree to defraud government, and therefore that
prosecution need not prove motive of agreement was personal financial
gain or monetary loss to United States); accord United States v.
Khalife, 106 F.3d 1300, 1303 (6th Cir. 1997).

(307.) See United States v. Lash, 937 F.2d 1077, 1083-84 (6th Cir.
1991) (holding that withdrawal must happen outside of the statute of
limitations period); United States v. Read, 658 F.2d 1225, 1233 (7th
Cir. 1981) (holding that prosecution is barred after defendant has
withdrawn from conspiracy and statute of limitations has expired).

(308.) See Hyde v. United States, 225 U.S. 347, 369-70 (1912)
(holding that member of conspiracy is still considered member if any of
his associates commits overt acts within statute of limitations); United
States v. Piper, 298 F.3d 47, 53 (1st Cir. 2002) (stating that a
“conspirator must act affirmatively either to defeat or disavow
purposes of conspiracy” in order to withdraw); see also Read, 658
F.2d at 1234 (interpreting Hyde decision).

(309.) See United States v. Flaharty, 295 F.3d 182, 192 (2d Cir.
2002) (holding that withdrawal from conspiracy is affirmative defense if
defendant proves that conspiracy was terminated or she took steps to
withdraw).

(310.) United States v. Mann, 161 F.3d 840, 860 (5th Cir. 1998).

(311.) I.R.C. [section] 6531 (1), (8) (2006); see also Mann, 161
F.3d at 856-57 (discussing various statute of limitations periods for
Title 18 convictions and holding six-year period applicable for
[section] 371 tax fraud); United States v. Vogt, 910 F.2d 1184, 1202
(4th Cir. 1990) (holding evidence of overt acts, which were designed to
conceal source of unreported income, were sufficient to defeat
timeliness challenge). Courts have routinely rejected a defendant’s
argument that a five-year statute of limitations should apply to 18
U.S.C. [section] 371, pursuant to 18 U.S.C. [section] 3282, which is the
general limitations statute for Title 18 offenses. See, e.g., United
States v. Aracri, 968 F.2d 1512, 1517 (2d Cir. 1992) (rejecting argument
that statute of limitations for conspiracies of attempting to defraud
United States is five years, not six).

(312.) See Grunewald v. United States (Grunewald II), 353 U.S.
391,397 (1957) (holding that the scope of conspiratorial agreement is
crucial question in determining whether statute of limitations has run);
see also Mann, 161 F.3d at 858-59 (discussing Grunewald II and holding
that the last overt act in furtherance of conspiracy begins tolling of
statute). In Grunewald II, the Supreme Court stated that the crucial
inquiry for determining whether statute of limitations defense is
available is the “scope of … conspiratorial agreement,”
because this determines both the duration of the conspiracy and whether
the act relied on may properly be regarded as being in furtherance of
the conspiracy. 353 U.S. at 397.