Defending Clients in Fraud and False Statement Cases
Profitable corporations and high-income individuals are often too busy to prepare and file their taxes and instead rely upon tax professionals to do so accurately. In this scenario, both the taxpayer and the tax professional are liable for any mistakes or accusations of fraud. Brown, PC has represented high-profile corporations and individuals in tax fraud investigations and prosecutions for 25 years. We also represent the tax professionals who made the statements based upon information provided by their taxpayer clients.
Our typical client has high net-worth and considerable assets and, consequently, an extensive tax liability. A criminal conviction means substantial financial losses and potential imprisonment. Moreover, the media attention alone surrounding the prosecution can severely damage reputations, careers and futures. We know what is at stake, and we selectively chose our cases so we can deliver the best quality work to each client.
Penalties for §7206(1) Violations
Tax fraud which involves a violation of 26 U.S.C. §7206(1) is a felony, punishable by up to three years in prison and a $250,000 fine for individual taxpayers and $500,000 for corporate taxpayers. Anybody who derived a benefit out of the fraud may be ordered to pay twice the gross gain or twice the gross loss to another party.
When appropriate, a Texas perjury attorney at Brown, PC will negotiate the felony charge to a lesser misdemeanor to avoid jail and reduce fines. However, if the government cannot meet its high burden of proof, we will act as assertive advocates, willing and prepared to take the case to trial.
Elements of Fraud or False Statement
The government must prove each element of tax fraud beyond a reasonable doubt. Failure to prove any one of these elements must result in dropped charges or acquittal:
- The taxpayer made and subscribed a document that contained a false statement about a material matter.
- The taxpayer included a written declaration that the tax return, statement or document was made under penalty of perjury.
- The taxpayer did not believe that every material matter contained in the document was true and correct.
- The taxpayer acted willfully with the specific intent to violate the law.
Tax Perjury Statute
A benefit to the taxpayer is not an element of a §7206(1) offense. In fact, the taxpayer may still be charged with a felony false statement regardless of whether the taxpayer actually derived any benefit. Instead, the false statement in and of itself constitutes a crime. The act of signing the document under penalty of perjury is enough. For this reason, §7206(1) is often referred to as the tax perjury statute.
Traditionally, corporations cannot take an oath and thus cannot commit perjury. However, this legal principle does not apply to §7206(1) violations. The term “any person” used in the statute includes a corporation. The court has recognized that, although the corporation does not have an independent state of mind, it may be charged based upon its agents’ actions performed on the corporation’s behalf.
Whether the document was made under penalty of perjury is self-evident. Does the document contain a valid signed declaration? If so, this element is satisfied.
What is a Tax Return, Statement or Document Under §7206(1)?
Most fraud violations concern tax returns. However, §7206(1) is not limited to tax returns, but also applies to virtually any document or statement submitted to the IRS and signed by the taxpayer under penalty of perjury. Examples include filing a false tax form 8300 to report cash payments of over $10,000 received in a trade or business, a false financial information statement related to a tax settlement, a false statement made in an offer in compromise and a fraudulent application for extension of filing deadline.
Commonly, the IRS receives a tax return that is blank or contains zeros on every line where a numerical figure should be, thus making calculation of taxes impossible. Such tax returns are generally considered invalid, a determination that is supported by case precedent.
What Does the Term “Make” Mean under §7206(1)?
The laymen’s definition of “make” is to create. However, §7206(1) requires more than the mere acts of preparing and signing form 1040 to make a tax return. The act of making the return occurs when the taxpayer files the form 1040 with the IRS.
In addition, the taxpayer can make the return even if another party physically prepared it. A fraudulent return prepared by an accountant may, therefore, be imputed to the taxpayer. Conversely, a tax professional may be charged under §7206(1) for willfully violating the statute on behalf of the taxpayer.
The taxpayer may claim to have relied on a qualified tax professional as an affirmative defense. To prevail on a good faith reliance defense, the taxpayer must show that full information was provided to the tax professional and that the taxpayer had no reason to believe the form was incorrect.
What Does “Subscribe” Mean?
The signature required by the statute does not have to be the defendant’s if the defendant authorized the filing. The government may rely upon circumstantial evidence to prove the taxpayer’s intent to have the return submitted with the taxpayer’s name subscribed. For example, a spouse who did not sign the form may be liable for a joint return if the government can show that the spouses intended to file jointly.
The government cannot file charges under §7206(1) for a tax return that contains no signature because the element of subscribing would not have been satisfied. However, the government could instead bring charges under a different provision, such as § 7201 tax evasion.
What is a Material Matter?
A “material matter” has been defined as “one that affects or influences the IRS in carrying out the functions committed to it by law or one that is likely to affect the calculation of tax due and payable.” This definition includes false statements that are merely likely to influence the IRS’s calculations.
Materiality is judged by potential impact of a false statement, not by any actual impact it might have had. The government need not show reliance upon the false statement. The fact that the taxpayer made the statement with the intent to induce reliance is enough.
Furthermore, the government does not have to prove that the false statement reduced the taxpayer’s liability or that there was a tax deficiency. A lack of a tax deficiency is a jury question, however, that may be relevant to the issue of materiality. A jury may also be less likely to find materiality of a statement where there is no tax deficiency.
Learn More from a Texas Perjury Attorney About Fighting Your Criminal Charges
If the government is investigating you or your company for tax fraud, do not delay in retaining qualified representation. A Texas perjury attorney at Brown, PC has your best interests at heart and will aggressively pursue the best possible outcomes in your case.