Previously in this blog we discussed federal offenses such as money laundering, bulk cash smuggling, unlicensed money transmitting businesses, and smurfing. These are all serious offenses in their own right; offenses that can send someone to prison for up to 20 years. But as is the case in many financial crimes there are two offenses related to all the above that the goverment can additionally charge someone of at its own discretion. They are tax evasion and filing a false tax return.

Although these tax crimes are separate and distinct from the other financial crimes mentioned, the conduct of the underlying financial offense often overlaps and quite organically evolves into a subsequent tax crime. For example, someone who launders money, smuggles cash, or structures payments isn’t likely to truthfully report this illicit income in their tax returns. But let’s take a closer look at the offenses and understand why the government can convict someone of the tax offenses even if it cannot convict the person for the underlying financial crimes that originally motivated its investigation.

Tax evasion, 26 U.S.C. 7201, is the more serious of the two tax crimes because it carries the harshest penalties. An individual defendant can be charged with a separate tax evasion charge for every year the defendant evaded taxes. For each tax evasion charge the defendant faces a maximum penalty of 5 years and a $100,000 fine. For corporate defendants the fine could be as steep as $500,000 for each offense.

There does not need to be a filing or a false statement to convict someone of tax evasion. All the government must do is demonstrate beyond a reasonable doubt that the defendant (1) underpaid taxes; (2) engaged in an affirmative act of evasion or attempt to evade; and (3) acted willfully. So even if the government doesn’t catch a defendant smuggling cash out of the country it can still charge him with tax evasion if it later finds out that the money was put into an overseas bank account with the intent of evading tax liabilities.

Filing a false tax return, 26 U.S.C. 7206, is very similar to the offenses of false statements and perjury. Each individual ‘false’ filing can be charged as a separate offense and an individual defendant can face prison sentences as lengthy as 3 years and a $100,000 fine per offense. Corporate defendants can be fined as much as $500,000 per offense.

For the government to successfully prosecute someone under this offense they must prove beyond a reasonable doubt that the defendant (1) signed the tax return or related document; (2) signed under penalty of perjury; (3) the return or related document was in fact false; (4) the falsity was material; and (5) the defendant acted willfully. Most people file their taxes but probably don’t report illicit funds in their returns. By under-reporting or concealing material facts about the sources of income may subject a defendant to the provisions of this statute. For example, a defendant that fails to accurately mention in his return the funds that he received from overseas because they were under the $10,000 reporting requirement may never be investigated for a structured transaction offense but could very well be investigated for filing a false tax return. The government may not be able to prove that the underlying transaction was intended to evade a reporting requirement; but the government knows the money exists in the defendant’s account and that it is unaccounted for in the return.

It is evident that the government has plenty of tools in its kit when it suspects someone of committing a financial crime. With the ever growing link between global terrorism and financial crime it would be unwise to expect the government to withold from using any of its tools to prosecute people.

The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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