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The Internal Revenue Service (IRS) publishes annual statistics on criminal investigations and their outcomes. These statistics indicate that, during the 2016 fiscal year alone, nearly 3,400 investigations were initiated, resulting in more than 2,700 recommendations for prosecution. More than 97% of these recommendations, or 2,672 out of 2,744, resulted in a conviction. The lesson these statistics teach is that IRS criminal investigations are common – and in many cases, the final outcome is a guilty verdict in Federal Court. It is therefore critical for taxpayers who have been charged with tax evasion, or related offenses, to be represented by an experienced tax crime defense attorney who understands which legal defenses may be utilized effectively against such charges. Depending on the specifics of the case, one such defense strategy may be to argue that the taxpayer had a “good faith” belief that he or she did not act in violation of the U.S. Tax Code.
Every criminal offense has a specific legal definition set forth under state and federal statutes. In order to prove that the defendant is guilty of the offense, the prosecution must show, beyond a reasonable doubt, that the defendant engaged in each component or “element” of the offense.
Sometimes, these elements involve physical actions or objects. For example, it may be an element of the offense that a certain weapon was used, or a certain degree of injury inflicted upon the victim.
However, the defendant’s mental state or intent may also be an element of the offense, depending on the crime alleged. For example, the defendant’s intent – acting “with malice aforethought” versus acting “without malice” – is what legally separates murder from manslaughter.
The same principle applies to various tax crimes, meaning the taxpayer’s intent is a key element that must be established by the government. For example, consider the following definition pertaining to tax evasion (“attempt to evade or defeat tax”), which is set forth under 26 U.S. Code § 7201 or IRC § 7201: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title…”
The following statute, 26 U.S. Code § 7202 or IRC § 7202 (“willful failure to collect or pay over tax”), uses similar language, beginning, “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…”
The key term in both definitions – and those of many other tax crimes – is “willful,” meaning the taxpayer made an intentional and deliberate decision to violate the Tax Code. But what if the taxpayer, despite violating the Tax Code, had a good faith belief that he or she did not have a legal duty to pay the tax, or file the return, underlying the charges?
This question was addressed in Cheek v. United States, 498 U.S. 192 (1991), in which the U.S. Supreme Court found that Cheek – despite making the frivolous argument that income tax was unconstitutional under the Sixteenth Amendment – nonetheless held a good faith belief that he was not in violation of Tax Code. Crucially, the Court found that having a good faith belief would negate the “willfulness” component of Cheek’s offenses, namely tax evasion (26 U.S. Code § 7201) and willful failure to file tax returns (26 U.S. Code § 7203). Because of this finding, the Court reversed Cheek’s conviction.
Though significant, Cheek should certainly not be interpreted as a “free pass” to conceal income or avoid paying taxes. On the contrary, the Court’s findings emphasized that a defendant’s belief in the unconstitutionality of income tax, however ardent or sincere, was not a valid defense to tax evasion or related charges. (The IRS itself has addressed this issue in numerous publications, such as this summary of frivolous tax arguments.) Cheek’s conviction was reversed not due to any of his constitutional arguments (which were frivolous), but because he was found to have had a good faith belief that he was not violating federal tax laws. Citing Cheek, the IRS Tax Crimes Handbook states, “A defendant’s good faith belief that he [or she] is not violating the tax laws, no matter how objectively unreasonable that belief may be, is a defense in a tax prosecution.”
As the Tax Crimes Handbook notes, a defendant’s belief does not necessarily need to be objectively reasonable. However, the less reasonable the belief, the lower the likelihood of a determination that the defendant truly acted in good faith – and in turn, the greater the likelihood of a finding of guilt.
If you have been charged with tax evasion, failure to file a tax return, failure to pay tax, failure to report foreign income, or other tax crimes under the Internal Revenue Code, it is imperative that you immediately contact a skilled and experienced tax attorney for assistance. The IRS and DOJ take an aggressive approach to investigating and prosecuting suspected tax crimes, with virtually limitless resources at each agency’s disposal. Aggressive legal representation can help to level the playing field and improve the odds of a favorable case outcome. It is not in your best interests to represent yourself when you are taking on the IRS or DOJ.
It is critical to act swiftly if charges have been filed, or if you believe that you are the target of an IRS criminal investigation. To arrange a confidential, reduced-rate consultation with an experienced tax evasion attorney in California, contact the Tax Law Office of David W. Klasing online, or call our law offices at (800) 681-1295. Our zealous IRS tax attorneys have over 20 years of experience representing thousands of taxpayers against the IRS, and will work tirelessly to uphold your rights and protect your best interests. Based in Orange County, our meticulous tax professionals serve individuals and business entities in California and beyond, including expatriates and non-residents.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
Check out some of our YouTube Tax Videos:
Criminal Tax Evasion
Why should I hire a tax attorney to represent me in a tax audit?
Warning signs an audit has gone criminal
So you cheated on your taxes and you are under a tax audit
Basics of Federal Tax Litigation