The offense of willfully failing to pay tax has three elements: (1) the taxpayer was required by law to pay tax; (2) that tax liability was not timely paid; and (3) his failure to pay was willful. The willful element requires that the taxpayer had the ability to pay, but he intentionally and deliberately refrained from doing so. Spies v. United States, 317 U.S. 492, 499 (1943).
But this raises the question, How does the government prove that one “willfully” failed to pay his tax bill? After all, the government is not a mind-reader; how could it know a person’s intentions and desires?
This is a good and important question. Direct proof of a person’s intentions is typically hard to come by. Absent a clear verbal statement or a written record, the government is left with inferring the taxpayer’s intentional conduct indirectly.
The government’s practice is to offer up certain circumstantial evidence to infer that the taxpayer’s attempt was willful—like making a false invoice, making fictitious accounting entries, maintaining a double set of accounting records, maintaining an all-cash business, destroying financial records, or even failing to keep such records. Such evidence is sometimes called “Spies-type conduct” after the famous Supreme Court case Spies v. United States, 317 U.S. 499 (1943).
The taxpayer facing a charge of tax evasion may be uneasy after learning that, under case law, many actions qualify as Spies-type conduct. For example, a consistent pattern of understating one’s tax may be enough to show he acted willfully in evading taxes. Holland v. U.S., 348 U.S. 121 (1954).