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Guilty of tax obstruction by backdating documents?

A person “backdates” a document when he or she dates a document an earlier date than the date that the document was originally drafted. Usually, when it is done for tax reasons it is illegal and it may rise to the level of a tax obstruction violation. IRC § 7212. The same is true of concealing assets from the IRS. The following explains the relevant law on this, and discusses two cases that illustrate the concept.

The crime “tax obstruction” is an umbrella term for several tax crimes, but an “Omnibus Clause” violation (discussed in more detail on this website: exists when someone “in any way corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration” of the tax laws. IRC § 7212. This violation is a specific kind of tax obstruction. There are three things the IRS must prove for this crime: (1) that the taxpayer/defendant made a corrupt effort, endeavor, or attempt (2) to impede, obstruct, or interfere with (3) the due administration of the tax laws.

In U.S. v. Wilson, 118 F.3d 228 (4th Cir. 1997), the defendant backdated corporate documents to help hide his client’s assets from the IRS. That is, the appellate court determined that a tax attorney helping his client (the taxpayer) violated IRC § 7212(a) when he acted with the intent to secure unlawful benefits for himself, and acted with the intent to conceal his client’s assets.

The court noted several ways the attorney engaged in “concealment activities.” For example, he removed funds from his client’s three bank accounts in an effort to prevent the IRS from attaching them. In taking the money out of these accounts, he documented their removal as a loan to a corporation that was formed after he knew the IRS planned to levy them. It was discovered that many of the corporate documents were backdated—the promissory notes, bylaws, board of directors minutes, and stock certificates. In short, he tried to conceal his assets in a corporation.

One can commit an Omnibus Clause violation even without backdating documents, though. For example, in U.S. v. Williams, 644 F.2d 700 (8th Cir. 1981), the court found the taxpayer guilty of tax obstruction when he “assiste[d] [in the] preparation and filing of false W-4 forms” because that constituted an “endeavor to impede or obstruct the due administration of the Internal Revenue Code.” The court was unapologetic: “We conclude that section 7212’s omnibus clause plainly comprehends this conduct.”

Tax obstruction is a serious offense. In addition, because it exists when one “in any way corruptly” attempts to impede the IRS, it is fairly broad—capturing a lot of types of conduct. Fortunately, there often are legal defenses available for a taxpayer’s protection.