Lessons to Learn from the ABA Tax Section- Collection, Payroll Taxes and CID

1. Lessons to Learn from the ABA Tax Section-Collection, Payroll Taxes and CID By David L. Rice, J.D., LL.M. David Lee Rice, APLC 2780 Skypark Drive, Suite 475 Torrance, CA 90505 310-517-8600 drice@lawrice.com

2. IRS – Offers in Compromise FY 2016/2017 • Offers in Compromise 2016 2017 • Number of Offer Received 63,000 62,000 • Number of Offer Accepts 27,000 25,000 • Amount of offers Accepted $225,946,000 $225,862,000

3. IRS Collection EnforcementFY 2016/2017 2016 2017 Number of Notices of tax liens filed 470,602 599,249 Number of Notices of Levies Requested on 3rd Parties 869,196 590,2490 (Combined ACS and Field Operations) Number of Seizures 436 323

4. CID – Statistics for FY 2017 • Criminal Statistics just for legal source tax crimes: • Investigations Initiated: 1,188 • Investigations Completed 1,235 • Referrals for Prosecution 795 • Investigations Completed Without prosecution 440 • Indictments and Informations 827 • Convictions 927 • Sentenced 1,062 • Incarcerated 852 • Percentage incarcerated 80.2%

5. Assessment of PenaltiesFY 2017 • Civil Penalties Assessed and Abated for FY 2017

6. Criminal Tax: Government Priorities • International Tax Fraud • Refund Crimes – QRP, RPP and ID Theft • Abusive Tax Schemes • Employment Tax • Non-filers (Frivolous arguments) • Money Laundering/Bank Secrecy Act • Political/Public Corruption • Cyber Crimes • Organized Crime Drug Enforcement Task Force • Fraud Referral Program • 72.5% of the time spent by CID on Tax Investigations

7. Nationally Coordinated Investigations Unit • Launched on May 1, 2017. • Uses a data-driven case selection process or in other word technology to do predictive policing. • Will focus in on crimes in the following areas (to be expanded in later years) • Microcap Stock Project • Employment Tax • Biofuel/RIN tax Credit Scheme • International Bank Project. • Will serve to assist Field offices • Will work to develop investigation techniques and strategy that address nationwide key noncompliance areas and emerging threats.

8. Criminal Tax Collection - Based Tax Crimes

9. Attempt to Evade or Defeat TaxIRC § 7201 • Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and upon a conviction thereof, shall be fined not more than $250,000 ($500,000 in the case of a corporation), or imprisoned and not more than 5 years, or both, together with the cost of prosecution. • Two kinds of evasion. Section 7201 creates two offenses: (a) the willful attempt to evade or defeat the assessment of a tax, and (b) the willful attempt to evade or defeat the payment of a tax. • United States v. Mal., 942 F. 2d 350,687-88 (9th Cir. 1991). If a defendant transfer assets to prevent the IRS from determining his true liability, he has attempted to evade assessment; if he does so after the liability has become due and owing, he has attempted to evade payment.

10. Evasion of Payment • This offense generally occurs after the existence of a tax due and owing has been established (either by the taxpayer reporting the amount of tax or by the I.R.S. assessing the amount of tax deemed to be due and owing) and almost always involves an affirmative act of concealment of money or assets from which the tax could be paid. As discussed in Section 1-1.04 below, it is not essential that the I.R.S. have made a formal assessment of taxes owed and a demand for payment in order for tax evasion charges to be brought. Tax deficiency can arise by operation of law when there is a failure to file and the government later determines the tax liability. United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992).

11. Evasion of PaymentThe Attempt • Affirmative acts of evasion of payment almost always involve some form of concealment of money or assets with which the tax could be paid or the removal of assets from the reach of the I.R.S. Merely failing to pay assessed taxes, without more, does not constitute evasion of payment (though it may constitute willful failure to pay taxes under § 7203). Thus, in the absence of an affirmative act, obstinate refusal to pay taxes due and the possession of the funds needed to pay the taxes is insufficient for an evasion charge. • Affirmative acts of evasion of payment generally involve schemes to deal in currency, place assets in the names of others, transfer assets abroad or omit assets on a Form 433-A.

12. Attempt to Evade TaxDo you have to show an Assessment? • [a] Generally. The government must demonstrate the existence of a tax due and owing, • i.e., a tax deficiency, to prove tax evasion. For further information see discussion of this • element in the evasion of assessment section above. • [b] It is not essential that the I.R.S. have made a formal assessment of taxes owed and a • demand for payment in order to bring tax evasion charges on an evasion of payment theory. Tax • deficiency can arise by operation of law when there is a failure to file and the government later • determines the tax liability. See, United States v. Daniel, 956 F.2d 540, 542 (6th Cir. 1992); • United States v. Hogan, 861 F.2d 312, 315-16 (1st Cir. 1988). • The law is not so clear in the Third Circuit. See the discussion in United States v. • Farnsworth, 456 F.3d 394, 402-03 (3d Cir. 2006), where the court stated that no assessment is • required but noted that United States v. McGill, 964 F.2d 222, 233 (3d Cir. 1992), suggested • otherwise. • [c] Right of defendant to dispute assessment. Although an assessment is prima facie proof of a • tax deficiency, the defendant has a constitutional right to present rebuttal evidence and have the jury • decide his guilt on each element of the crime. United States v. Silkman, 156 F.3d 833, 835 (8th Cir. • 1998).

13. Examples of Attempt to Evade the Payment of Tax • 1. Concealing assets by using bank accounts of family members and coworkers. • United States v. Shoppert, 362 F.3d 451, 460 (8th Cir.), cert. denied, 543 U.S. 911 • (2004); United States v. McGill, 964 F.2d 222, 233 (3d Cir. 1992). • 2. Making expenditures extensively by cash and through the use of third parties' • credit cards and placing assets in the names of third parties. United States v. Shoppert, • 362 F.3d 451 (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Daniel, 956 • F.2d 540, 543 (6th Cir. 1992). • 3. Taxpayer's false statement to I.R.S. agent that she owned no real estate and • had no other assets with which to pay tax.United States v. Shoppert, 362 F.3d 451, 460 • (8th Cir.), cert. denied, 543 U.S. 911 (2004); United States v. Brimberry, 961 F.2d 1286, • 1290-91 (7th Cir. 1992). • 4. Maintaining a cash lifestyle by conducting all personal and professional • business in cash, possessing no credit cards, bank accounts, or accounting records and • never acquiring any attachable assets. United States v. Shorter, 809 F.2d 54, 56-57 (D.C. • Cir.), cert. denied, 484 U.S. 817 (1987). • Lying to the IRS During an Audit Form 4180 • Submitting false financial statements – Form 433s

14. Examples of Attempt to Evade thePayment of Tax • Bankruptcy fraud. A legitimate goal of a bankruptcy petitioner may be immediate protection from I.R.S. collection activities (stay of collection and removal of levies). While the act of voluntarily filing a petition for bankruptcy may not constitute an affirmative act in and of itself, if it can be shown through other affirmative acts (e.g., predicating the petition on false or fraudulent obligations) that the petitioner's purpose in filing the bankruptcy petition was to prevent or delay I.R.S. collection efforts, the act of filing may constitute an affirmative act of evasion. See, e.g., United States v. Huebner, 48 F.3d 376, 379-80 (9th Cir. 1994)(the defendant, having created false loan documents and then filed for bankruptcy, was successfully prosecuted for evasion of payment.). 6. See also, United States v. Hook, 781 F.2d 1166, 1169 (6th Cir.), cert. denied, 479 U.S. 882 (1986); United States v. Lamp, 779 F.2d 1088, 1092-93 (5th Cir. 1986); United States v. Swallow, 511 F.2d 514, 521 (10th Cir.), cert. denied, 423 U.S. 845 (1975); United States v. Trownsell, 367 F.2d 815, 816 (7th Cir. 1966); Cohen v. United States, 297 F.2d 760, 762 (9th Cir.), cert. denied, 369 U.S. 865 (1962); United States v. Mollet, 290 F. 2d 273, 274-75 (2d Cir. 1961), for additional examples of acts to evade payment.

15. Attempt to Evade TaxWillfulness • Willfulness is defined as the "voluntary, intentional violation of a known legal duty." Cheek v. United States, 498 U.S. 192, 201 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 360 (1973). See discussion of this element in the evasion of assessment section above. • Willfulness is subjectively measured. A defendant's good faith belief that he is not violating the tax laws, no matter how objectively unreasonable that belief may be, is a defense in a tax prosecution. Cheek v. United States, 498 U.S. 192, 199-201 (1991). See also, United States v. Grunewald, 987 F.2d 531, 535-36 (8th Cir. 1993). • Indirect proof of willfulness is the typical means of establishing the element. Willfulness may be inferred from "any conduct the likely effect of which would be to mislead or to conceal." Spies v. United States, 317 U.S. 492, 499 (1943).

16. Attempt to Evade TaxWillfulness • Conduct from which the willful evasion of payment can be inferred includes conduct designed to place assets beyond the government's reach after a tax liability has been assessed. United States v. Mal, 942 F. 2d 682, 687 (9th Cir. 1991); United States v. Dunkel, 900 F.2d 105, 107 (7th Cir. 1990); United States v. Masat, 896 F.2d 88, 97-99 (5th Cir. 1990). • Paying taxes due after the criminal investigation commenced does not negate willfulness. United States v. Pang, 362 F.3d 1187, 1194 (9th Cir.), cert. denied, 543 U.S. 943 (2004).

17. Willful Failure to Collect or Pay Over Tax in Violation of Section 7202 Payroll Taxes • Title 26, United States Code, Section 7202, makes failure to collect or pay over tax a crime and provides as follows: 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 shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more $250,000 or individuals or $500,000 for corporations (pursuant to 18 U.S.C. §3571(e)) or imprisoned not more than five years, or both, together with the costs of prosecution. Violations of §7202 most often arise in the context of employment taxes – for example where a person has an obligation to withhold and pay over payroll taxes and fails to do so.

18. Willful Failure to Collect or Pay Over TaxTypes of Evidence • The Tax Division of the U.S. Department of Justice (DOJ) pursues both civil litigation and criminal investigations and prosecutions for failure to comply with employment tax obligations.Recently, the DOJ has increasingly emphasized criminal prosecution of those who fail to comply with their obligations to withhold, account for, and pay over federal employment taxes. In an April 2016 press release, the DOJ stressed that the failure to comply with federal employment tax obligations is "not simply a civil matter." Instead, employers that fail to pay employment tax, and treat amounts withheld from employees' wages as the employers' own property "are engaging in criminal conduct and face prosecution, imprisonment, monetary fines and restitution."

19. Willful Failure to Collect Taxes • The Guidelines Manual was amended in November 2016 to remove the first sentence of that background comment, eliminating the premise that employment tax criminal prosecutions are rare or infrequent. When it proposed this amendment, the U.S. Sentencing Commission provided the following reason for the change: • The Department of Justice in its annual letter to the Commission has proposed that the "infrequently prosecuted" statement should be deleted. The Department points out that while that statement may have been accurate when the relevant commentary was originally written (in 1987), the number of prosecutions under section 7202 have since increased substantially.

20. Evasion of Employment Taxes Carries a Price • Evading employment taxes can have serious consequences for employers and the employees. Employers may be subject to criminal and civil sanctions for willfully failing to pay employment taxes. Employees suffer because they may not qualify for social security, Medicare, or unemployment benefits when employers do not report or pay employment and unemployment taxes. Consequently, taxes withheld and paid by compliant employers are used to pay the refunds and social security benefits of employees whose employers did not pay the withheld taxes. • https://www.irs.gov/compliance/criminal-investigation/employer-and-employee-responsibilities-employment-tax-enforcement

21. Employment Tax Evasion Schemes • Employment Tax Evasion Schemes Employment tax evasion schemes can take a variety of forms. Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns. • Pyramiding Pyramiding" of employment taxes is a fraudulent practice where a business withholds taxes from its employees but intentionally fails to remit them to the IRS. Businesses involved in pyramiding frequently file for bankruptcy to discharge the liabilities accrued and then start a new business under a different name and begin a new scheme. • Employment Leasing Employee leasing is another legal business practice, which is sometimes subject to abuse. Employee leasing is the practice of contracting with outside businesses to handle all administrative, personnel, and payroll concerns for employees. In some instances, employee-leasing companies fail to pay over to the IRS any portion of the collected employment taxes. These taxes are often spent by the owners on business or personal expenses. Often the company dissolves, leaving millions in employment taxes unpaid. • Paying Employees in Cash Paying employees, whole or partially, in cash is a common method of evading income and employment taxes resulting in lost tax revenue to the government and the loss or reduction of future social security or Medicare benefits for the employee. • Filing False Payroll Tax Returns or Failing to File Payroll Tax Returns Preparing false payroll tax returns understating the amount of wages on which taxes are owed, or failing to file employment tax returns are methods commonly used to evade employment taxes.

22. Willfulness – How Do You Prove It? • Written and oral admissions. • IRS correspondence • Letter 903 “You haven’t Deposited your Federal Employment Taxes” • The letter explains the employer’s obligation to remit payroll taxes and warns not to do so may result in criminal charges. • Interaction with the Revenue Officer • The taxpayer received a Letter 903 in the past • The taxpayer was previously assessed a Trust Fund Recovery Penalty. • The taxpayer engaged in multiple entities to avoid payment of the trust fund taxes. • The taxpayer has a history of filing bankruptcies to avoid collection of trust fund taxes. • Collection Activity • Whistleblowers

23. Willfulness – Issuance of 903 Letter • IRM 5.7.2.1 Letter 903, You Haven't Deposited Federal Employment Taxes is used by revenue officers to alert taxpayers to the provisions of IRC §7402(a), which provides the Federal district court with the jurisdiction to pursue civil injunctions under Title 26 and Title 18 of the Internal Revenue Code. • Note: • These procedures should be used in egregious cases of noncompliance and the collection procedures have already been unproductive or would be futile to stop or reduce trust fund pyramiding.

24. Willfulness – Issuance of a 903 Letter • When the Letter 903 is approved: • Hand deliver Letter 903 and Notice 931, Deposit Requirements for Employment Taxes, to the taxpayer. If the taxpayer is not available, the letter and notice may be left at the place of business. • Notate the delivery method on ICS. Once the delivery method is selected, ICS will upload TC 148-09 to IDRS. This provides for systemic control and subsequent follow-up. If a subsequent BAL DUE, DEL RET, or FTD Alert is issued, it will be coded with an "L" and it will be accelerated to the field. • Associate a copy of Letter 903 with the case file. • Note: • Criminal charges could be pursued based on the failure to adhere to the reporting and payment requirements mandated under the IRC. Convictions under Title 18 and Title 26 may include substantial fines and terms of imprisonment. • If the taxpayer has previously abandoned other business ventures, leaving unpaid and uncollectible tax liabilities, consider seeking a civil injunction to stop further pyramiding. See IRM 5.17.4.17, Civil Injunctions under IRC 7402(a) to Restrain Pyramiding. Consult with SBSE Counsel when dealing with this situation. • 5.7.2.2.1 (03-19-2015) • Revenue Officer Follow-up After Letter 903 Issuance • Inform the taxpayer that failure to comply may result in: • Prompt assessment of unpaid liabilities. • Assessment of liabilities based upon a return executed under IRC §6020(b). • Possible civil or criminal referral.

25. Willfulness – Issuance of a 903 LetterIRM 537.2.4 • Referrals For Criminal Enforcement • Criminal charges could be pursued based on the failure to adhere to the reporting and payment requirements mandated by the Internal Revenue Code. When the taxpayer fails to comply with the IRC provisions, do the following: • Consult the group manager as to the appropriate course of action, which may include a referral to Criminal Investigation. • Review IRM 25.1.3, Criminal Referral and discuss potential fraud indications with the Fraud Technical Advisor (FTA) for additional guidance. • If a criminal referral is appropriate, then prepare Form 2797, Referral Report of Potential Fraud Cases. Refer to IRM 25.1.3.2, Preparation for Form 2797 and submit the report to the FTA. • If the referral is accepted by Criminal Investigation, the special agent assigned to the case will contact the revenue officer. • If at any time during the investigative or criminal process the Collection Area Director believes that suspension of the civil aspects will impact the ultimate collection of civil liabilities, bring the matter to the attention of SBSE Counsel. SBSE Counsel will coordinate with Criminal Tax Counsel for the POD.

26. Form 4180 • _ • 25

27. Form 4180

28. IRS Criminal Investigation Statistics forEmployment Taxes

29. Employment Tax Prosecutions • U.S. v. Terra Dawn Ferguson (EDNC) An officer manager plead guilty on May 20, 2019 for failure to pay over payroll taxes of $114,409. • U.S. v. Sainte Deon Robinson (EDNC) A Mental health executive was given a 30 month sentence on March 22, 2019 for failing to report and pay employment tax and was ordered to pay restitution of $1,686,360. • U.S. v. Walter and Amy William (NDAL) In this case the husband and wife were plead guilty for failing to pay over employment tax from their construction business. The couple’s employment tax fraud caused a loss of approximately $503,000 to the IRS. • U.S. v. Kae Wood Lee, (EDNY) The owner of Queens Karaoke bar was sentenced on 4/25/2019 to a year and a day for failing to collect an pay employment tax and ordered to pay restitution of $612,500. • U.S. v. John Herzer, (WDTX). Chief Financial Officer of a staff leasing company pled guilty on October 22, 2018 for failing to pay over employment tax, causing a tax loss of more than $13,000,000.

30. Employment Tax Prosecutions • United States vs. Jeremiah Cheff (EDMI) Jeremiah Cheff, who previously operated adult foster care homes was convicted of payroll tax fraud on May 20, 2019. The jury found Cheff guilty of 60 counts of payroll tax fraud as well as obstructing the administration of internal revenue laws, and failing to timely file his personal income tax returns. • United States vs. Edward Cespedes and Joseph DeSanto (EDMI). Both individual plead guilty for failure to pay payroll taxes for the third quarter of 2013, the fourth quarter of 2013 and the firs quarter of 2014. Sentencing is scheduled for February 20, 2020.

31. 26 U.S. Code § 7203Willful failure to file return, supply information, or pay tax • Any person required under this title to pay any estimatedtaxortax, or required by this title or by regulations made under authority thereof to make areturn, keep any records, or supply any information, who willfully fails to pay such estimatedtaxortax, make suchreturn, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of acorporation), or imprisoned not more than 1year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition totaxunder section 6654 or 6655 with respect to such failure. In the case of a willful violation of any provision of section 6050I, the first sentence of this section shall be applied by substituting “felony” for “misdemeanor” and “5years” for “1year”.

32. Willful Failure to Pay Tax • IRM 9.1.3.3.4.1.3.1 (05-15-2008) • Although an additional tax due is not an essential element of the offense, willfulness is difficult to establish without proof of a substantial tax liability. • When charging willful failure to pay tax, repeated failure to pay taxes, coupled with large expenditures for luxuries when taxes were owing, may be evidence of willfulness within the meaning of the statute.

33. 26 USC §7203 - Willful Failure to Keep Records • IRM 9.1.3.3.4.1.3.2 (05-15-2008) • Willfulness will also be inferred if a concealment motive is part of the failure to keep records. However, an important factor in the probability of conviction in these investigations may be a substantial deficiency attributable to the failure to keep records.

34. 26 USC §7203 - Willful Failure to Supply Information • IRM 9.1.3.3.4.1.3.3 (05-15-2008) • The willfulness required to be shown when charging willful failure to supply information is the deliberate and intentional withholding of required information. For example, the deliberate and intentional failure to furnish a schedule of the partnership assets and liabilities as required on the partnership return was held to be willful. Disclosure of such information revealed considerable cash on hand.

35. False or Fraudulent Returns in Violation of Section 7206 • Any person who— • (1)Declaration under penalties of perjury Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or • (2)Aid or assistance Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present suchreturn, affidavit, claim, or document; or • (3)Fraudulent bonds, permits, and entries Simulates or falsely or fraudulently executes or signs any bond, permit, entry, or other document required by the provisions of the internal revenue laws, or by any regulation made in pursuance thereof, or procures the same to be falsely or fraudulently executed, or advises, aids in, or connives at such execution thereof; or

36. False or Fraudulent Returns in Violation of Section 7206 • (4)Removal or concealment with intent to defraud Removes, deposits, or conceals, or is concerned in removing, depositing, or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by section 6331, with intent to evade or defeat the assessment or collection of any tax imposed by this title; or • (5)Compromises and closing agreements In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully— • (A) Concealment of property Conceals from any officer or employee of the United States any property belonging to the estate of a taxpayer or other person liable in respect of the tax, or • (B) Withholding, falsifying, and destroying rec­ords Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, relating to the estate or financial condition of the taxpayer or other person liable in respect of the tax; • shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

37. False or Fraudulent Returns in Violation of Section 7206 • The majority of § 7206(1) prosecutions involve income tax returns, however, there have been prosecutions that involve false or fraudulent statements on various documents submitted to the IRS, signed under penalty of perjury, including the following: • Form 433-A, Financial Statement for Wage Earners, • Form 433-A (OIC), Financial Statement for Wage Earners, • Form 433-B, Financial Statement for Businesses, • Form 433-B (OIC), Financial Statement, • Form 433-F, Financial Statement, and • Form 656, Offer in Compromise. • Additionally, although there is not a specific tax law obligation for the filing of schedules to the Form 1040, which is a required form, such schedules when attached to the Form 1040 become of a part of the return. Therefore, prosecution for false or fraudulent statements on a Schedule C, for example, is proper under §7206(1). Also, attachment of Form 114, Report of Foreign Bank and Financial Account, to a Form 1040 makes any fraudulent for false statement thereon prosecutable under § 7206(1).

38. 26 USC §7206 - Fraud and False Statements • IRM 9.1.3.3.7 (05-15-2008) • The offenses proscribed by 26 USC §7206 include: • willfully making a false declaration under penalties of perjury • willfully assisting in the preparation of a false tax document • executing fraudulent bonds, permits and entries • removing or concealing taxable goods with intent to defraud • willfully concealing property or withholding/falsifying documents in connection with any compromise or closing agreement • Under 26 USC §7206, a violation of the statute is punishable by a maximum fine of $100,000 ($500,000 in the case of a corporation), or imprisonment of not more than three years, or both, together with the costs of prosecution. However, the criminal fine provisions under 18 USC §3571 increase the maximum permissible fines for a violation of 26 USC §7206 to not more than $250,000 for individuals and $500,000 for corporations. Alternatively, if any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss.

39. 26 USC §7206(1) (False or Fraudulent Return, Statement, or Other Document Made Under Penalty of Perjury) – Elements of the Offense • IRM 9.1.3.3.7.1 (05-15-2008) • In general, a person who willfully makes and subscribes, under penalty of perjury, any return, statement, or other document, which he/she does not believe to be true and correct as to every material matter, has committed a criminal offense under 26 USC §7206(1). • The elements of this offense are: • the making and signing of a return, statement or other document containing a written declaration that it was signed under the penalties of perjury • the inclusion in the document of information that was false as to a material matter • the defendant’s lack of belief that the document was true and correct as to every material matter • willfulness (see subsection 9.1.3.3.2.2.3) • This code section may apply regardless of whether the defendant’s purpose was to evade or defeat the payment of taxes. For example, prosecution for this offense may be appropriate when the government is able to prove the falsity of a partnership return, even if the government is not able to prove a resulting tax deficiency.

40. 26 USC §7206(1) (False or Fraudulent Return, Statement, or Other Document Made Under Penalty of Perjury) – Elements of the Offense • IRM 9.1.3.3.7.1 (05-15-2008) • A matter is material if: • it must be reported for a correct computation of tax • it tends to influence or is capable of influencing the ability of the Service to audit or verify the accuracy of the return or a related return • It is not necessary that the false statement actually affect the Service or that the Service actually rely on the statement. • Although the offense is complete upon signing the statement or document, prosecutions under this section should involve only false returns or statements presented to or filed with the IRS. This sanction is appropriate when it is possible to prove the falsity of a return but it is difficult to establish a tax deficiency, or when the falsification results in a relatively small amount of tax evaded when compared to the total tax liability. • If an individual files a false and fraudulent return, it is possible for him/her to incur criminal liability both for attempting to defeat and evade the payment of tax and for making a false and fraudulent statement under penalty of perjury.

41. 26 USC §7206(2) (Aid or Assistance in Preparation or Presentation of False or Fraudulent Return, Affidavit, Claim or Other) – Elements of the Offense • IRM 9.1.3.3.7.2 (05-15-2008) • The elements of the offense under 26 USC §7206(2) are: • the defendant aided or assisted in, or procured, counseled, or advised the preparation or presentation of a return or other document in connection with a matter arising under the internal revenue laws; • the return or other document was false as to a material matter (see subsection 9.1.3.3.7.1); and • willfulness (see subsection 9.1.3.3.2.2.3) • Actual preparation of the false return is not necessary to sustain a conviction. Therefore, this subsection applies not only to return preparers but also to anyone who participates in the fraud. For example, it may apply to corporate officers, preparers of corporate tax forms other than returns, tax shelter promoters and others who provide legal advice knowing the advice will be used for tax return preparation. • Although the offense generally is predicated on the filing of a tax return or other document, courts have reached different conclusions as to whether filing is a required element of the offense. • Note: • The Ninth Circuit has held that an offense was not committed under 26 USC §7206(2) unless the document containing the false statement was filed with the IRS.

42. 26 USC §7206(2) (Aid or Assistance in Preparation or Presentation of False or Fraudulent Return, Affidavit, Claim or Other) – Elements of the Offense • IRM 9.1.3.3.7.2 (05-15-2008) • In situations where a defendant willfully provided information or a document to an intermediary who was required by law to file an information return with or to transmit the document to the IRS, courts have held that the offense under 26 USC §7206(2) was complete when the defendant presented the information or document to the intermediary. • Aiding or assisting in the preparation of a false return and subscribing to a false return are two separate offenses. A defendant could therefore be prosecuted under both 26 USC §7206(1) and 26 USC §7206(2) for the same false return. • To establish the element of willfulness, the government must prove that the defendant acted with the purpose and objective of violating the internal revenue laws. However, a defendant may have willfully and knowingly prepared false and fraudulent income tax returns for another, even if the fraud involved was without the knowledge or consent of the person required to make the return. By contrast, if the person required to make the return was aware of the fraud, the defendant is entitled to have the court caution the jury to weigh accomplice testimony carefully. • In all race track payoff investigations, 26 USC §7206(2) should be used either as the primary statutory provision or as a supplement to 18 USC §1001. Title 26 USC §7206(2) should be charged when prosecuting either the "ten percenter" (i.e., a person who cashes the winning ticket in place of the true winner, in exchange for a percentage of the winnings) or the true winner.

43. 26 USC §7206(4) (Removal or Concealment with Intent to Defraud) – Elements of the Offense • IRM 9.1.3.3.7.3 (05-15-2008) • The elements of the offense under 26 USC §7206(4) are: • a tax is or shall be imposed on any goods or commodities, or levy is authorized upon any property • the defendant removed, deposited or concealed, or was concerned in removing, depositing or concealing, such goods, commodities or property • the defendant did so with intent to evade or defeat the assessment or collection of any tax • Concealment under 26 USC §7206(4) includes not only secreting the item at issue or hiding it away, but also preventing its discovery or withholding knowledge of it. Thus, it is not necessary for the government to prove a physical removal, concealment or transfer from one place to another. An offense under 26 USC §7206(4) may be established by showing that book entries falsified the transfer of property rights.

44. 26 USC §7207 - Fraudulent Returns, Statements, or Other Documents • 9.1.3.3.8 (05-15-2008) • Title 26 USC §7207 prohibits the willful and knowing delivery or disclosure to the IRS of a false or fraudulent document (regardless of whether it is signed under penalties of perjury). • The elements of this offense are: • the defendant delivered to any officer or employee of the IRS a list, return, account, statement or other document • the return, statement, or other document was false or fraudulent as to any material matter • willfulness (see subsection 9.1.3.3.2.2.3) • Title 26 USC §7207 is generally reserved for investigations arising out of the presentation of false or altered documents by individuals in response to requests for substantiation of claimed deductions during the course of an examination, when the computed tax deficiencies are considered de minimus in relation to the circumstances of the investigation, and the means and methods used in committing the offense are commensurate with charging a misdemeanor rather than a felony.

45. 26 U.S. Code § 7212.Attempts to interfere with administration of internal revenue laws • (a)Corrupt or forcible interference: Whoever corruptly or by force or threats of force (including any threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force (including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both, except that if the offense is committed only by threats of force, the person convicted thereof shall be fined not more than $3,000, or imprisoned not more than 1 year, or both. The term “threats of force”, as used in this subsection, means threats of bodily harm to the officer or employee of the United States or to a member of his family. • (b)Forcible rescue of seized property: Any person who forcibly rescues or causes to be rescued any property after it shall have been seized under this title, or shall attempt or endeavor so to do, shall, excepting in cases otherwise provided for, for every such offense, be fined not more than $500, or not more than double the value of the property so rescued, whichever is the greater, or be imprisoned not more than 2 years.

46. 26 USC §7212 - Attempts to Interfere With Administration of Internal Revenue Laws • IRM 9.1.3.3.13 (05-15-2008) • In general, 26 USC §7212 prohibits attempts to interfere with the administration of the Internal Revenue laws. • Title 26 USC §7212(a) establishes two general categories of prohibited conduct: (i) corruptly or forcibly endeavoring to impede any officer or employee from acting in an official capacity; and (ii) corruptly or forcibly obstructing or impeding (or endeavoring to obstruct or impede) the due administration of the Internal Revenue Code. The second category of conduct prohibited by 26 USC §7212(a) is described in what is known as the " omnibus clause." Title 26 USC §7212(b) prohibits the forcible rescue (or the attempt to forcibly rescue) property that has been seized under the Internal Revenue Code. • Pursuant to the statute, the two types of offenses established by 26 USC §7212(a) are punishable by a maximum fine of $5,000 or imprisonment of not more than 3 years, or both, except that if the offense is committed only by threats of force the punishment is a maximum fine of not more than $3,000 and imprisonment of not more than one year. The statute also provides that the offense established by 26 USC §7212(b) is punishable by a fine of not more than $500, or not more than double the value of the property rescued (whichever is greater), or imprisonment of not more than 2 years. However, the criminal fine provisions under 18 USC §3571 increase the maximum permissible fines for these offenses to not more than $250,000 for individuals and $500,000 for corporations. Alternatively, if any person derives pecuniary gain from the offense, or if the offense results in pecuniary loss to a person other than the defendant, the defendant may be fined not more than the greater of twice the gross gain or twice the gross loss.

47. 26 USC §7212 - Attempts to Interfere With Administration of Internal Revenue Laws • IRM 9.1.3.3.13 (05-15-2008) • Prosecutions under the first clause of 26 USC §7212(a) typically involve acts or threats of force against an individual IRS employee acting in an official capacity. Such prosecutions do not require authorization from the Department of Justice, Tax Division, and are directly referred to the US Attorney’s Office (see Tax Division Directive No. 129; IRM 9.5.12). • However, the omnibus clause makes clear that force or the threat of force is not an element of the offense under 26 USC §7212(a). Rather, the statute may apply to an individual who "corruptly" endeavors to impede the administration of the tax laws. The term "corruptly " generally implies an intent to obtain an improper advantage, but there is no requirement that the evidence establish such an intent.

48. 26 USC §7212 - Attempts to Interfere With Administration of Internal Revenue Laws • 9.1.3.3.13 (05-15-2008) • Examples of conduct to which the omnibus clause may apply include, but are not limited to, providing false information, destroying evidence, attempting to influence a witness to give false testimony, and harassing an IRS employee. A 26 USC §7212(a) charge may also be authorized in appropriate circumstances to prosecute a person who, prior to any audit or investigation, engaged in large-scale obstructive conduct involving the tax liability of third parties. Examples include, but are not limited to, assisting in preparing or filing a large number of fraudulent returns or other tax forms, or engaging in other corrupt conduct designed to obstruct the IRS from carrying out its lawful functions. • In cases where the obstructive conduct is in furtherance of a preexisting criminal scheme, Tax Division Directive No. 129 (superseding Directive No. 77) authorizes prosecutors to charge 26 USC §7212(a) in addition to charging the underlying tax crime. Prosecutions under the omnibus provision of 26 USC §7212(a) require tax division authorization. • The statute of limitations for violations of 26 USC §7212(a) is 6 years.

49. 26 USC §7212(b) (Forcible Rescue) – Elements of the Offense • IRM 9.1.3.3.13.1 (05-15-2008) • The elements of the offense under 26 USC §7212(b) are: • property was legally seized under Title 26 • the defendant knew the property had been seized • the defendant forcibly and willfully retook the property • To be "forcible" , the rescue of property need not entail physical violence. Threatening language or intimidating conduct may be sufficient. The term "threats of force" as used in this subsection includes threats of bodily harm to an officer or employee of the United States or to a member of his/her family. It has been held that a forcible rescue under 26 USC §7212(b) includes the use of force against property, such as the breaking of a bank window, the removal of the IRS seal on a safe deposit box, or the removal of the box and its contents from the bank. • A defendant may be charged under 26 USC §7212(b) for forcibly retaking property that the government seized from a third party. To support a conviction under 26 USC §7212(b), the property must have been seized by an official with authority under the tax code to make the seizure. Disputes concerning other aspects of the legality of the seizure do not constitute a defense to the crime. Thus, it is no defense that the person retaking the property claims to be the real owner and that the property was seized by mistake. • Note: • Title 18 USC §2233 also prohibits the forcible rescue of property and gives the IRS concurrent jurisdiction with the Federal Bureau of Investigation (FBI) over such crimes. Current practice dictates that determination of whether an alleged forcible rescue is to be investigated by CI or the FBI depends on whether the property was taken before or after it was adjudicated government property. The elements of 18 USC §2233 are provided below, in the section describing Title 18 statutes.

50. 18 U.S. Code § 1001.Statements or entries generally • What do Martha Stewart, General Michael Flynn, and George Papadopoulos have in common? They were each charged, under Title 18, United States Code, Section 1001, with lying to federal government agents. Ms. Stewart was convicted of intentionally misleading SEC and FBI officials who questioned her about insider trading. Flynn and Papadopoulos pled guilty to deceiving FBI Special Agents assigned to Special Counsel Robert Mueller's Russia Gate investigation.  Here are three criminal defendants from widely divergent backgrounds. Yet all of them were ensnared by Section 1001, a perennial favorite of federal prosecutors.