Omnibus clause violations are often thought of in terms of intimidation or threats to IRS agents. However, the statute is much broader, encompassing many actions that constitute fraud, concealment of assets, tax evasion, or even perfectly legal actions designed to impede the administration of the tax code. The government often files an omnibus clause charge as a substitute for these other more difficult-to-prove charges, or it is sometimes added to an indictment that includes other fraud and criminal tax charges.
If you are facing an omnibus clause charge, you are at enormous risk. The Texas tax fraud firm of Brown, PC has successfully represented clients in some of the largest and most complex criminal tax cases ever pursued by the government. With 30 years of experience and an array of resources from which to draw, founding attorney Lawrence Brown has been trusted by some of the most prominent and successful individuals in the United States when they were targeted by the IRS or Department of Justice in tax fraud investigations.
What is the Omnibus Clause?
26 U.S.C. § 7212(a), referred to as the “omnibus clause,” prohibits taxpayers from interfering with tax law administration. To prevail in an action based on the omnibus clause, the government must prove beyond a reasonable doubt that the taxpayer:
- Corruptly or forcibly
- To obstruct or impede the administration of the Internal Revenue Code (IRC).
Repercussions of Violating the Omnibus Clause
Violation of the omnibus clause is a felony punishable by a fine of up to $500,000 for corporations and $250,000 for an individual. Alternatively, fines may be based upon the double of losses or gains resulting from the crime. An individual defendant may also face up to three years in prison.
What Does “Corrupt” and “Forcible” Mean in the Omnibus Clause?
Corrupt means that the taxpayer intended to secure an unlawful advantage for himself or somebody else through his actions. For example, the taxpayer may be found to have acted corruptly for:
- Filing a false complaint against the IRS or one of its agents
- Threatening or intimidating IRS agents
- Making nonthreatening statements intended to convince witnesses not to cooperate with an IRS investigation or speak with agency employees
- Filing a lis pendens action in order to interfere with a tax debt auction
- Backdating and using nominees to conceal assets or the nature of income
- Filing a fraudulent bankruptcy petition
- Filing a fraudulent Form 1099 that claimed payment of compensation in order to win a reward for alerting the IRS to nonpayment of taxes on that money
- Applying for tax exempt status under false pretenses and using contributions for nonexempt purposes.
Many omnibus clause cases involve misrepresentation and fraud that was done with the intention of receiving a tax benefit. The taxpayer’s actions may nonetheless be considered corrupt regardless of whether the taxpayer gained a financial advantage.
Also, actions that are not specifically directed toward an IRS agent or employee may meet the definition of corrupt. Trying to divert an IRS agent’s time and attention from a tax investigation is enough to be considered corrupt under § 7212(a). However, annoying or impeding the IRS agent may fall short of the definition of corrupt if the harassment was done without the intent to gain a benefit.
Additionally, a corrupt action may otherwise be legal but be illegal in the context of the omnibus clause. For example, forming a corporation is legal, but not if done for the sole purpose of concealing the nature of illegally-earned income.
With respect to the meaning of the term “forcible” in the omnibus clause, force or the threat of force could be deemed forcible interference. Under this provision, the force is often a threatening letter or oral communication used to intimidate the IRS official.
What Does “Endeavor” Mean in the Omnibus Clause?
One court defined endeavor as any effort “to do or accomplish the evil purpose that section was intended to prevent.” This widely-accepted definition is broad, encompassing virtually any action that impedes the administration of the IRC.
For example, the typical omnibus case involves direct action against an IRS agent or employee by knowingly filing a false complaint alleging misconduct by the agent conducting a tax audit or investigation. Other common scenarios involve filing false W-4s, false 1099s or other documents to deceive the IRS agent during an audit.
An example of a Form 1099 scheme occurred when a taxpayer sent 1099-MISC forms to officials participating in his farm liquidation, falsely claiming to have paid them non-employee compensation. He then knowingly submitted fraudulent 1099s to the IRS.
In another endeavor, a defendant sent letters to taxpayers claiming their debts had been forgiven and then attempted to collect rewards for turning them in to the IRS. Transferring property to a spouse may also be deemed an endeavor under the omnibus clause if done in order to avoid taxes or to release an IRS lien.
Again, the scheme need not benefit oneself, but may benefit somebody else. For instance, an attorney was charged under the omnibus clause for backdating notes to support a client’s attempts at tax evasion. And another attorney was found to violate this tax provision by forming a shell corporation to hide a client’s assets from the IRS.
§ 7212(a) Obstructing and Impeding
The corrupt endeavor must be done to impede “the collection of one’s taxes, the taxes of another, or the auditing of one’s or another’s tax records.” In other words, any action taken with the intent to impede tax law administration may be a violation of the omnibus clause. This is what the obstruction and impediment element of the omnibus clause means.
Now, what does this element not mean? The broad element includes a wide range of actions that do not necessarily benefit the person charged and are not directed toward IRS agents and employees. First, the statute does not require the defendant’s actions to actually have an adverse effect on the investigation, audit, payment of taxes or other government process. Second, the defendant does not have to act for her or his own benefit, but rather can take action on behalf of a company, friend or client. Finally, the statute does not require the defendant to take any direct action against an IRS official.
Our Texas Tax Fraud Firm Can Help You Defend Against Omnibus Clause Charges
Do not delay in retaining experienced representation to fight the serious omnibus clause charges alleged. Brown, PC, a tax fraud firm in Texas, will aggressively defend your rights during a criminal investigation and in trial.