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Failure to Pay Tax or Estimated Tax

IRC § 7203 enumerates a crime for failure to pay tax or estimated tax and other lesser tax crimes, including failure to supply information and failure to maintain records. In reality, the willful failure to pay tax offense is rarely prosecuted. According to the statute, the elements of the crime are as follows:

  1. the taxpayer had a legal duty to pay tax;
  2. the tax was not timely paid as required by law; and
  3. the failure to pay was willful.

If the taxpayer’s failure to pay offense is related to an estimated tax amount, then the penalty under section 7203 does not apply unless there is an additional civil penalty under IRC § 6654 or 6655.

An essential element of the failure to pay tax or estimated tax offense is that the failure to do so must have been willful. Merely failing to pay tax, without willfulness, is not criminal. According to the Supreme Court in Spies v. United States, willful failure to pay tax must be proved by evidence demonstrating that the defendant had the ability to pay tax but intentionally and deliberately refused to do so. The Fifth and Sixth Circuit have also held that the mere unavailability of liquid assets on the tax due date does not automatically excuse the defendant from criminal prosecution: “Otherwise, a recalcitrant taxpayer could spend his money as fast as he earns it and evade criminal liability while not paying taxes as long as his bank balance is zero when the taxpayer's taxes are due.”. Obviously, any taxpayer who claims inability to pay but has a track record of making lavish expenditures is not likely to receive sympathetic treatment from a judge when prosecuted under IRC § 7203. On the other hand, a taxpayer who claims inability to pay due to more compelling circumstances, such as catastrophic medical bills, may have a valid defense to escape prosecution for IRS tax fraud under the statute.

What is the Failure to Supply Information Offense?

Another crime enumerated under IRC § 7203 is the willful failure to supply information. The elements of this particular offense are as follows:

  1. the taxpayer was under a legal duty to supply information;
  2. the taxpayer failed to supply information; and
  3. the failure to supply information was willful.

The charge is often related to the failure to file a return offense because the two crimes both involve failure on the part of the taxpayer to provide certain necessary information to the IRS. Because of this, a taxpayer cannot be convicted of both crimes at the same time.

A minor offense listed under IRC § 7203 is the failure to maintain records. This crime has three elements:

  1. the defendant was required by law to maintain records;
  2. the defendant failed to maintain records as required by law; and
  3. the defendant’s failure to maintain records was willful.

In reality, the chances of prosecution under this statute are minimal, and there are no reported prosecutions under this statute.

What is the Lesser-Included Offense Doctrine?

The Lesser-Included Offense Doctrine impacts the criminal offenses listed under IRC § 7203 because those offenses are related to the tax evasion statute of section 7201. In Sansone v. United States, the Supreme Court held that “there can be no doubt that the lesser-included offense doctrine applies to [§§ 7201 and 7203] in an appropriate case.” In Sansone, the taxpayer chose not to report income on his tax return because he knew that he would not have sufficient funds to pay the tax associated with the income. He was charged with two counts of tax evasion for failing to report the income associated with the sale of land. In his defense, he argued that his understatement of income was not willful because he believed that his future expenses would wipe out any gains he received from the land. He also claimed that he intended to report the land sale on future tax returns and pay the tax when he had more money to be able to do so. At his trial, he requested that the jury be instructed that they could acquit him for tax evasion under IRC § 7201 but convict him of the lesser-included charge of willful failure to pay tax under IRC § 7203.

The Court rejected his argument, and refused to give the lesser-included offense instruction. The lesser-included offense instruction can only be used where the greater offense requires the jury to find an additional factual element compared to the lesser offense. Where there are no factual elements in dispute between the lesser and greater offenses, then there is no need to give the lesser-included offense instruction because the lesser offense is “swallowed up” by the greater offense. Thus, in an evasion prosecution, a lesser-included offense instruction under IRC § 7203 is proper where there is a disputed issue of fact as to the existence of the affirmative act in addition to the IRC § 7203 omission. If a taxpayer is found guilty of both IRC § 7201 and § 7203 for the same taxable year, the offenses merge and separate punishments for both offenses may not be imposed.

How a Tax Attorney Can Help with Failure to Pay Tax

If you are under investigation by the IRS under the failure to pay tax statute, then you must consult with an experienced tax attorney. The Tax Lawyer - William D Hartsock Tax Attorney Inc. has been successfully helping clients with criminal tax issues since the early 1980s. Mr. Hartsock offers free consultations with the full benefit and protections of attorney client privilege to help people clearly understand their situation and options based on the circumstances of their case. To schedule your free consultation simply fill out the contact form found on this page, or call (858) 481-4844.

Tax Law Referneces:

  1. IRC § 7203.
  2. United States v. Tucker, 686 F2d 230, 232 (5th Cir.), cert. denied, 459 US 1071 (1982); United States v Ausmus, 774 F2d 722 (6th Cir. 1985).
  3. United States v. Chrane, 529 F2d 1236, 1238 (5th Cir. 1976)

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The Tax Lawyer - William D. Hartsock, Esq. – San Diego Tax Attorney

Author: William D. Hartsock, Esq

A "Certified Tax Law Specialist" for over 37 years, Mr. Hartsock is one of the most trusted and respected tax attorneys in Southern California. Call today to discuss the facts of your case and learn about your options. Mr. Hartsock offers free consultations and all conversations are protected under attorney-client privilege; meaning that no information shared with a tax attorney will be shared with the IRS or California Franchise Tax Board.