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What is the difference between tax perjury and tax evasion?

A careful reading of the criminal statutes for tax perjury (IRC §7206(1)) and tax evasion (IRC §7201) reveal that these two crimes a very similar. However, despite their similarity, there are significant differences. As explained below, there are factual scenarios where the violation of one can occur but the other cannot.

Tax evasion exists when a taxpayer acts (1) willfully in (2) making an affirmative act of evasion (or attempts to evade) as a way of avoiding (3) his tax liability or its payment. IRC §7201. Tax evasion presupposes that there is a tax that is “due and owing.” The tax perjury statute is IRC § 7206(1), which makes it a crime for anyone to willfully make a false material statement on a tax return. Broken up into its elements, this crime exists when (1) the defendant signs a tax return containing a written declaration that it was made under the penalty of perjury; (2) the return contained a false statement, (3) about a material matter (e.g. underreporting income), (4) the taxpayer knew the statement was false; and (5) he made the statement willfully (that is, with the intent to violate his legal duty).

It is a surprising fact that, strictly speaking, tax perjury under § 7206(1) does not require an “intent to evade” a tax or its payment (as does the tax evasion statute under §7201). This is because tax evasion under IRC §7201, but not tax perjury under §7206(1), requires that the taxpayer attempt to evade a tax that is “due and owing.” Thus, because § 7206(1) does not require there to be a “tax due and owing” it is possible for the IRS to find its violation even where a taxpayer fully pays his or her tax liability (and even where he or she materially overstates his or her tax liability!).

IRC § 7206(1) can apply in instances where IRC § 7201 cannot. When might this be the case? Suppose a taxpayer lied about the source of his income, but paid all his taxes on the actual amount. For example, suppose he purports to run a lucrative car wash business, and reports his income and pays his taxes, but his actual income source is from selling drugs.

As an initial matter, the taxpayer cannot be found guilty under the tax evasion statute because he does not have a “tax due and owing”—for he paid his taxes. However, this could be sufficient for tax perjury. Thus, tax perjury could apply but tax evasion could not. As explained elsewhere on this site, a misstatement as to the source of one’s income is a material matter for purposes of the tax perjury statute, even if there is no misstatement as to the amount of the income reported. See United States v. DiVarco, 343 F. Supp. 101, 103 (N.D. Ill. 1972).