In order to get a conviction on tax evasion, the United States Attorney must prove beyond a reasonable doubt each of the elements of tax evasion.
The crime of tax evasion is found at Title 26, United States Code, Section 7201. The statute provides the elements of tax evasion are the following:
- A tax deficiency.
- An affirmative act of evasion or attempted evasion of tax.
- Willfulness by the defendant.
If federal prosecutors cannot prove any one of the above elements, the defendant should be acquitted. The burden of proof is on the government, the defendant is presumed innocent, and the prosecution must prove each element beyond a reasonable doubt.
The offense of tax evasion is a felony, not a misdemeanor. The fact that the amount owed in taxes is small does not make the crime a misdemeanor.
Tax evasion can be punished by 5 years in prison and fines. The fines increase relevant to the amount that is owed, but this is determined by the Federal Sentencing Guidelines. The statute provides that the maximum fine is $100,000. If the defendant is a corporation rather than a person, the maximum fine can be $500,000.
In addition to fines, the offender will be required to pay restitution (eg, the tax that was owed).
Some federal judges have required that the government must prove that the tax deficiency, or amount owed, is substantial. However, the statute does not have a requirement of a substantial amount owed in taxes.
That being said, the Department of Justice is typically not interested in cases where the amount owed is small.
The fact that a person has unpaid taxes does not necessarily constitute tax evasion. The statute provides that a person with a tax deficiency is guilty of tax evasion only where that person committed some affirmative act to evade paying taxes. Moreover, the affirmative act must have been willful.
Federal courts have said that almost anything can constitute an affirmative act to evade taxes. For instance, keeping a double set of books, making false entries in records, altering records, generating false invoices or receipts, destroying records, concealing assets or sources of income, or handling business in a way to avoid any records may all constitute an affirmative, willful act of evasion.
Filing a false tax return can also constitute tax evasion.