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What is the crime known as tax obstruction § 7212?

The crime known as “tax obstruction” is found in IRC § 7212, which actually lists several crimes. However, there is one clause in this statute—known as the “Omnibus Clause”—that is the focus here. An Omnibus Clause violation exists when someone (anyone) “in any way corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration” of the tax laws. § 7212.

To establish a Section 7212(a) omnibus clause violation, the IRS must prove three elements beyond a reasonable doubt: (1) that the defendant made a corrupt effort, endeavor, or attempt (2) to impede, obstruct, or interfere with (3) the due administration of the tax laws (Internal Revenue Code). U.S. v. Wood, 384 Fed. Appx. 698 (10th Cir. 2010).

With respect to the first element of the offense, an act is “corrupt” if the defendant performs the act with the intent to secure an unlawful benefit for himself or another. However, the Ninth Circuit clarified that having an improper, bad, or evil purpose is not enough. United States v. Hanson, 2 F.3d 942, 946-47 (9th Cir. 1993).

Unlike many criminal tax statutes (e.g. IRC §§ 7201 and 7203), an Omnibus Clause violation does not require the defendant to act “willfully.” United States v. Kelly, 147 F.3d 172, 176 (2d Cir. 1998). But it does require that the defendant act “corruptly.” This raises the question whether someone could act corruptly without doing so willfully.

The Kelly court stated that while the term “willful” is not contained in the statute it is nonetheless functionally present when jury instructions define acting “corruptly” as performing an act “with the intent to secure an unlawful advantage or benefit either for one’s self or for another.” (Alternatively, it is also present when “endeavors” is defined as “knowingly and intentionally act or to knowingly and intentionally make any effort which has a reasonable tendency to bring about the desired result”). The court stated that the “definition of the proof required for the section 7212(a) violation [is] as comprehensive and accurate as if the word ‘willfully’ was incorporated in the statute.” U.S. v. Kelly, 147 F.3d 172, 177 (2d Cir. 1998).

What about the second and third elements? When does a defendant’s act “impede, obstruct, or interfere with the due administration” of the tax laws? In United States v. Hanson, 2 F.3d 942, 946 (9th Cir. 1993), the Ninth Circuit stated that this occurs when the IRS “expends a large amount of time discovering and remedying the problems caused by [a defendant’s] filing false forms.” U.S. v. Hanson, 2 F.3d 942, 946 (9th Cir. 1993).

In Hanson, the defendant was convicted for making false statements on a tax return “in violation of 26 U.S.C. § 7206(1), and attempting to interfere with the administration of the Internal Revenue Service in violation of 26 U.S.C. § 7212(a).” The factual basis for his charges came from false Forms 1096 and 1099, where he claimed to receive $46,996,669.41 in compensation. He also falsely filed Form 1040 claiming a tax refund of $33,837,602 generated from the falsely claimed income and withholding. “Hanson’s 1989 tax return falsely claimed a refund of $33,837,602. [His] attempt to secure an unlawful benefit for himself satisfie[d] the corruption requirement. Moreover, Hanson testified that he intended for his conduct to spark an IRS investigation of the FHA officials.” The court affirmed his conviction for violating §7212(a), which is aimed to prohibit efforts to impeded the collection of one’s taxes, the taxes of another, or the auditing of one’s or another’s tax records. U.S. v. Hanson, 2 F.3d 942, 947 (9th Cir. 1993).

A tax obstruction statute (IRC §7212) is similar in wording to two other statutes found in the United States Code. The U.S. Code is broken up into many “Titles.” For example, the Internal Revenue Code is Title 26; and crimes and criminal procedure are dealt with in Title 18.

Like the tax obstruction statute, Sections 1503 and 1505 of Title 18 criminalize obstructive conduct. The focus of Section 1505 to prevent obstruction of “any department or agency of the United States . . . or Congress,” while the focus of Section 1503 is to prevent the more general obstruction of “the due administration of justice.” IRC §7212’s focus is more narrow: to prevent the obstruction of the “administration of the tax laws,” so it can be thought of as a more specified version Section 1505’s prohibition on obstructing government agencies (i.e. the IRS).

These statutes impose differing maximum sentences. The Internal Revenue Code imposes a three-year sentence; Title 18, Section 1505, imposes a five year (max); and Section 1503 has either a 10 year or a 20 year sentence. This would leave one to infer that Congress thinks obstructing the IRS (3 years) is not as severe an offense as obstructing Congress itself (5 years).

As a final matter, most Omnibus Clause violations are charged as “corrupt endeavors”—and the government must prove the three above elements. However, in some instances, the defendant could be charged more simply with “corruptly obstructing the due administration” of the tax laws. In that case, the IRS would only have to prove two things: (1) that the defendant in some way (any way) corruptly (2) obstructed or impeded the due administration of the tax laws.