Tax Crime Statute of Limitations

Tax Crime Statute of Limitations

How Tax Crimes & Statute of Limitations Leads to Prosecutions: While most tax violations are considered civil violations and therefore not considered a crime — sometimes tax violations can become criminal. Oftentimes, criminal tax crimes involve several facets including Money Laundering, Structuring and Tax Evasion. Since with tax crime a Person’s freedom is at stake — there are strict limitations when it comes to the amount of time the government has to enforce tax crime violations. Let’s go through some of the basics of tax crime statute of limitations.

Criminal Tax Violations vs Civil

As provided by the IRS:

• • • Burden of Proof in Civil and Criminal Fraud

      • Understanding the requirements of proof is essential in establishing fraud. In Criminal Fraud all criminal and civil tax fraud cases, the burden of proof is on the government.

      • Civil fraud cases are remedial actions taken by the government such as assessing the correct tax and imposing civil penalties as an addition to tax, as well as retrieving transferred assets.

      • Criminal fraud cases are punitive actions with penalties consisting of fines and/or imprisonment. Civil penalties are assessed and collected administratively as a part of the tax. The civil fraud penalty is recommended by the examiner in the audit report and may be applied with or without pursuit of criminal prosecution.

      • Criminal fraud results in a punitive action with penalties consisting of fines and/or imprisonment.

    • Criminal Penalties

      • Are enforced only by prosecution

      • Are provided to punish the taxpayer for wrongdoings

      • Serve as a deterrent to other taxpayers

      • A tax fraud offense may result in both civil and criminal penalties.

        • The normal 3-year statute of limitations does not apply if civil fraud can be sustained.

        • If fraud is established, there is no statute of limitation for civil assessments, IRC § 6501(c)(1) and (2).

        • The criminal statute of limitations is usually 6 years from the time the offense was committed (5 years in some cases).

26 USC 6531 & Tax Crime Statute of Limitations

IRC section 6531 provides some background on how criminal prosecutions are limited by statute of limitations when it comes to enforcing tax crimes against people who have committed violations of the Internal Revenue Code.

• • • 26 U.S. Code § 6531 (Periods of Limitation on Criminal Prosecutions)

    • No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years—

      • (1) for offenses involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner;

      • (2) for the offense of willfully attempting in any manner to evade or defeat any tax or the payment thereof;

      • (3) for the offense of willfully aiding or assisting in, or procuring, counseling, or advising, the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a false or fraudulent return, affidavit, claim, or document (whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document);

      • (4) for the offense of willfully failing to pay any tax, or make any return (other than a return required under authority of part III of subchapter A of chapter 61) at the time or times required by law or regulations;

      • (5) for offenses described in sections 7206(1) and 7207 (relating to false statements and fraudulent documents);

      • (6) for the offense described in section 7212(a) (relating to intimidation of officers and employees of the United States);

      • (7) for offenses described in section 7214(a) committed by officers and employees of the United States; and

      • (8) for offenses arising under section 371 of Title 18 of the United States Code, where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof.

        • The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings. (The preceding sentence shall also be deemed an amendment to section 3748(a) of the Internal Revenue Code of 1939, and shall apply in lieu of the sentence in section 3748(a) which relates to the time during which a person committing an offense is absent from the district wherein the same is committed, except that such amendment shall apply only if the period of limitations under section 3748 would, without the application of such amendment, expire more than 3 years after the date of enactment of this title, and except that such period shall not, with the application of this amendment, expire prior to the date which is 3 years after the date of enactment of this title.)

        • Where a complaint is instituted before a commissioner of the United States within the period above limited, the time shall be extended until the date which is 9 months after the date of the making of the complaint before the commissioner of the United States. For the purpose of determining the periods of limitation on criminal prosecutions, the rules of section 6513 shall be applicable.

Common Tax Offenses & Tax Crime Statute of Limitations

While there are many different types of criminal tax offenses, the following list as detailed in the Criminal Tax Manual provides a summary of some of the most common criminal tax offenses:

• • • Tax Evasion 26 U.S.C. § 7201 6 years 26 U.S.C. § 6531(2)

    • Failure to Collect, Account For or Pay Over 26 U.S.C. § 7202 6 years1 26 U.S.C. § 6531(4)

    • Failure to Pay Tax 26 U.S.C. § 7203 6 years 26 U.S.C. § 6531(4)

    • Failure to File a Return 26 U.S.C. § 7203 6 years2 26 U.S.C. § 6531(4)

    • Failure to Keep Records 26 U.S.C. § 7203 3 years 26 U.S.C. § 6531

    • Failure to Supply Information 26 U.S.C. § 7203 3 years 26 U.S.C. § 6531

    • Supplying False Withholding Exemption Certificate 26 U.S.C. § 7205 3 years 26 U.S.C. § 6531

    • Filing a False Tax Return 26 U.S.C. § 7206(1) 6 years 26 U.S.C. § 6531(5)

    • Aid or Assist in Preparation or Presentation of False Tax Return 26 U.S.C. § 7206(2) 6 years 26 U.S.C. § 6531(3)

    • Deliver or Disclose False Document 26 U.S.C. § 7207 6 years 26 U.S.C. § 6531(5) Attempt to Interfere With Administration of Internal Revenue Laws 26 U.S.C. § 7212(a) 6 years 26 U.S.C. § 6531(6)

    • Conspiracy to Commit Tax Evasion 18 U.S.C. § 371 6 years 26 U.S.C. § 6531(8)

    • Conspiracy to Defraud the Internal Revenue Service 18 U.S.C. § 371 6 years 26 U.S.C. § 6531(1)

    • False Claim for Refund 18 U.S.C. § 286/287 5 year4 18 U.S.C. § 3282

    • False Statement 18 U.S.C. § 1001 5 years 18 U.S.C. § 3282

      • The limitations period for Section 7202 offenses has been the subject of recent litigation. It is the view of the Tax Division that the six-year statute of limitations provided for in Section 6531(4) is applicable to prosecutions under Section 7202. Reference should be made to the discussion of this issue in the chapter dealing with Section 7202. See Chapter 9.00, infra.

      • As provided by Section 6531(4), the six-year rule for failure to file a return does not apply to returns that are required to be filed under part III of subchapter A of chapter 61. Part III covers information returns required to be filed under 26 U.S.C. §§ 6031-6060, and includes, for example, partnership returns, returns of exempt organizations, subchapter S returns, and returns relating to cash received in a trade or business (Form 8300).

      • The rules in this area are rather complicated, as there is a further exception that makes the applicable limitations period for failure to file a subchapter S return six years, rather than the three-year period generally applicable for failures to file information returns. See 26 U.S.C. § 6037(a). Reference should be made to these specific Code provisions for a more detailed discussion of applicable limitations periods.

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