6.26.7201 TAX EVASION (26 U.S.C. § 7201)

The crime of tax evasion as charged in [Count[s] of] the indictment has three essential elements, which are:

One, the defendant owed substantial income tax in addition to that which [he] [she] reported on his return;

Two, the defendant attempted to evade¹ and defeat that additional tax; and

Three, the defendant acted willfully.

To "attempt to evade or defeat" a tax involves two things: first, an intent to evade or defeat the tax; and second, some act willfully done in furtherance of such intent. So, the word "attempt" contemplates that the defendant knew and understood that, during the calendar year charged, [he] [she] had some income which was taxable, and which he was required by law to report; but that [he] [she] nevertheless attempted to evade or defeat all or a substantial portion of the tax on that income, by willfully failing to report all [his] [her] known income which [he] [she] knew [he] [she] was required by law to state in [his] [her] return for such year; or in some other way or manner.

To "evade and defeat" a tax means to escape paying a tax by means other than lawful avoidance.

Various schemes, subterfuges, and devices may be resorted to, in an attempt to evade or defeat a tax. [The one alleged in the indictment is that of filing false and fraudulent returns with the intent to evade or defeat the tax.]² The statute makes it a crime willfully to attempt, in any way or manner, to evade or defeat any income tax imposed by law.³

An attempt to evade an income tax for one year is a separate offense from the attempt to evade the tax for a different year.⁴

Even though the indictment alleges a specific amount of tax due for each of the calendar years, the proof need not show the precise amount of the additional tax due.⁵ The Government is only required to establish, beyond a reasonable doubt, that the defendant attempted to evade a substantial income tax, whether greater or less than the amount charged in the indictment.⁶

[The fact that an individual's name⁷ is signed to a return means that, unless and until outweighed by evidence in the case which leads you to a different or contrary conclusion, you may find that a filed tax return was in fact signed by the person whose name appears to be signed to it. If you find proof beyond a reasonable doubt that the defendant had signed [his] [her] tax return, that is evidence from which you may, but are not required to, find or infer that the defendant had knowledge of the contents of the return.⁸]

To act "willfully" means to voluntarily and intentionally violate a known legal duty.⁹

(Insert paragraph describing Government's burden of proof, see Instruction 3.09, supra.)

Committee Comments

See 2 Edward J. Devitt, et al., FEDERAL JURY PRACTICE AND INSTRUCTIONS: Criminal §§ 56.03, 56.04, 56.08, 56.24 (4th ed. 1990); Sansone v. United States, 380 U.S. 343, 351 (1965); United States v. Johnson, 319 U.S. 503, 517-18 (1943); United States v. Frederickson, 846 F.2d 517 (8th Cir. 1988).

Various schemes or devises may constitute tax evasion. Most commonly, the filing of a false and fraudulent return understating income is sufficient to satisfy the requirement of an attempt to evade. Sansone v. United States, 380 U.S. at 351; United States v. Schafer, 580 F.2d 774 (5th Cir.), cert. denied, 439 U.S. 970 (1978).

Whether the tax evaded was "substantial" is a jury question. Canaday v. United States, 354 F.2d 849, 851 n.2 (8th Cir. 1966). That case defined "substantial" as follows:

The word "substantial,", as applicable here, is necessarily a relative term and not susceptible of an exact meaning. This concept is implicit in United States v. Nunan, 236 F.2d 576, 585 (2d Cir. 1956), cert. denied, 353 U.S. 912, 77 S. Ct. 661, 1 L. Ed. 2d 665, where the court, in pertinent part, stated:

* * * The showing by the government must warrant a finding that the amount of the tax evaded is substantial. (Citing cases.) But this is not measured in terms of gross or net income nor by any particular percentage of the tax shown to be due and payable. All the attendant circumstances must be taken into consideration. * * * But a few thousand dollars of omissions of taxable income may in a given case warrant criminal prosecution, depending on the circumstances of the particular case. Otherwise the rich and powerful could evade the income tax with impunity.

345 F.2d at 851-52. Generally "substantial" is not defined in the jury instructions.

While a defendant must intend to evade or defeat the tax, this need not be his sole motive. For example, the defendant may also desire to suppress information as to acts which are unrelated to tax evasion, including other criminal acts. Spies v. United States, 317 U.S. 492 (1943).

The Supreme Court has recognized certain facts and circumstances as indicating an intent to evade taxes:

By way of illustration and not by way of limitation, we would think affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal. If the tax evasion motive plays any part in such conduct, the offense may be made out even though the conduct may also serve other purposes such as the concealment of other crimes.

Spies v. United States, 317 U.S. at 499. "Willfulness" may also be shown by a consistent pattern of under-reporting, United States v. DiBenedetto, 542 F.2d 490 (8th Cir. 1976).

Taxable income includes illegally acquired funds as well as legally acquired funds. James v. United States, 366 U.S. 213 (1961) [embezzled funds taxable]; United States v. Fogg, 652 F.2d 551, 555-56 (5th Cir.), reh. denied, 660 F.2d 449 (5th Cir. 1981), cert. denied, 456 U.S. 905 (1982) [commercial bribes and kickbacks taxable]; Hartman v. United States, 245 F.2d 349, 352-53 (8th Cir. 1957); United States v. Meyer, 808 F.2d 1304 (8th Cir. 1987) [diverted corporate funds taxable]. In a proper case, where there is evidence of illegal income, the jury may be so instructed. See 2 Edward J. Devitt, et al., FEDERAL JURY PRACTICE AND INSTRUCTIONS: Criminal § 56.21 (4th ed. 1990). United States v. Renfro, 600 F.2d 55 (6th Cir.), cert. denied, 444 U.S. 941 (1979).

Gifts are not taxable items of income. If the defendant contends that certain payments are gifts, the jury may be instructed as follows:

It is for you, the jury, to decide whether certain funds are taxable or nontaxable to the defendant. In determining whether a payment of money or property to the defendant is a nontaxable gift, you should look to the intent of the parties at the time the payment was made, particularly the intent of the person making the payment. Such payments are gifts if they proceed from a detached and disinterested generosity, out of affection, respect, admiration, charity, or like impulses. In making this determination, however, you must look at all the facts and circumstances in this case. The characterization given to a certain payment by either the defendant or the person making the payment is not conclusive. Rather you, the members of the jury, must make an objective inquiry as to whether a certain payment is a gift. In this instruction a "payment" includes any form of payment whether it be in cash, goods, or services, made directly to defendant or on his behalf. You should look at the terms and substance of any request made by the defendant for the payment.

United States v. Terrell, 754 F.2d 1139, 1149 n.3 (5th Cir.), cert. denied, 472 U.S. 1029 (1985); Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 285-86 (1960). In United States v. Shelton, 588 F.2d 1242 (9th Cir. 1978), cert. denied, 442 U.S. 909 (1979) it was held proper to instruct the jury that whether the item was a gift was dependable on the transferor's intent.

Other nontaxable items such as loans, insurance proceeds, inheritances, etc. may also be identified and defined in the instructions as appropriate to the case.

Good faith is a theory of defense in tax evasion. Where defendant has presented evidence of good faith, he is entitled to a jury instruction. See Instruction 9.08, infra. See also United States v. Kouba, 822 F.2d 768, 771 (8th Cir. 1987); United States v. Meyer, 808 F.2d 1304 (8th Cir. 1987). Advice of counsel is a form of a good faith theory of defense. See Instruction 9.08 infra.

In United States v. Parshall, 757 F.2d 211 (8th Cir. 1985) the court held it was not error to instruct the jury that "disagreement with the law or governmental policies does not constitute good faith misunderstanding of the requirements of the law."

One method of tax evasion, known as a Spies evasion, consists of failure to file a return coupled with an affirmative act of evasion. See United States v. Goodyear, 649 F.2d 226 (4th Cir. 1981). If this type of evasion is charged, the jury may be instructed on failure to file in violation of Section 7203 as a lesser included offense.

Notes on Use

¹ "Evade" should be defined to clarify that it means more than lawful avoidance of a tax, Distinctive Theatres of Columbus v. Looker, 165 F. Supp. 410, 411 (S.D. Ohio 1958), and to avoid confusion with the requirement of willfulness, United States v. Bishop, 412 U.S. 346, 360 n.8 (1973).

² Insert the method charged in the indictment. If more than one method has been charged, the jury may be instructed that it need find only one matter false, however its finding as to which matter must be unanimous. There must be sufficient evidence to support each method charged in the instructions. United States v. Kneen, 879 F.2d 345 (8th Cir. 1989).

³ Sansone v. United States, 380 U.S. 343, 351 (1965); 2 Edward J. Devitt, et al., FEDERAL JURY PRACTICE AND INSTRUCTIONS: Criminal § 35.03 (4th ed. 1990).

⁴ United States v. Smith, 335 F.2d 898, 900-01 (7th Cir. 1964), cert. denied, 379 U.S. 989 (1965).

⁵ See United States v. Calderon, 348 U.S. 160, 167 (1954); Swallow v. United States, 307 F.2d 81, 83 (10th Cir. 1962); cert. denied, 371 U.S. 950 (1963).

⁶ See United States v. Johnson, 319 U.S. 503, 517-18 (1943); United States v. Gardner, 611 F.2d 770, 775-76 (9th Cir. 1980).

⁷ Section 6064, United States Code, Title 26 refers to individuals. Corporate and partnership returns are covered by sections 6062 and 6063 of Title 26. The appropriate language should be used. See also Instruction 4.13, supra.

⁸ Volume 2 Edward J. Devitt, et al., FEDERAL JURY PRACTICE AND INSTRUCTIONS: Criminal § 56.22 (4th ed. 1990); United States v. Wainwright, 413 F.2d 796, 802 n.3 (10th Cir. 1969), cert. denied, 396 U.S. 1009 (1970); United States v. Brink, 648 F.2d 1140 (8th Cir.), cert. denied, 454 U.S. 1031 (1981); United States v. Cashio, 420 F.2d 1132, 1135 (5th Cir. 1969), cert. denied, 397 U.S. 1007 (1970).

This instruction should only be used when a signed return is involved. Evasion may be accomplished without the filing or signing of a return.

⁹ See United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Jerde, 841 F.2d 818, 821 (8th Cir. 1988) and Instruction 7.02 of this Manual.