Page 9 - White-Collar Crime

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White-Collar Crime | MONDAY, SEPTEMBER 29, 2014 | S9

a tax: iling a false return; iling a false W-4; income tax returns approximately six years in a ictitious name.
which is the statutorily required recording of

diverting corporate funds to pay personal after being employed. He also claimed an The government was able to prove will-
a tax liability. Once an assessment is made,
expenses; consistently overstating deduc- increasing number of withholding allow- fulness in U.S. v. Brooks, 174 F.3d 950 (8th if it is not challenged, the taxpayer must pay
tions; or concealing bank accounts. Structur- ances, and indicated on his W-4 forms that Cir. 1999), where the defendant had similarly the monies due and owing therein.
ing of false cash transactions is another typi- he was exempt from federal income taxes obtained information from certain tax semi- Merely failing to pay an assessed tax, with-
cal afirmative act. Structuring occurs when when his income during all times far exceeded nars as in Cheek. The difference with this out more, does not demonstrate an attempt to
the taxpayer systematically makes deposits, the minimum necessary to trigger the statu- defendant, however, was that Brooks was told evade payment. The government must prove
so as not to trigger the bank’s mandatory tory iling requirement. As a result, Cheek, several times by federal agents that he had that there was an afirmative act done by the
cash transaction report for cash deposits was charged with 10 violations under the an afirmative duty to pay his taxes. Brooks taxpayer to avoid payment. Afirmative acts of
exceeding $10,000.
federal law, including the willful failure to disregarded these instructions and instead
evasion of payment typically involve schemes
In most tax evasion cases, a defendant’s ile federal tax returns and willful attempt established different trusts in an effort to dis- with currency, such as transferring assets to
initial response is that the accountant pre- to evade income taxes.
associate himself from his personal property other countries or to someone else’s name,
pared the returns and that there was no Cheek admitted that he did not ile cer-
and income. He also cashed his paychecks,
or the like. A classic example of evasion of
actual act by the taxpayer. Such a defense payment was demonstrated in United States
was used by the defendant in U.S. v. Trevino, v. Shoppert, 362 F.3d 451 (8th Cir. 2004), where
394 F.3d 771 (9th Cir. 2005), who owned and defendant concealed assets by using his fam-
operated a lower shop. Trevino’s business ily’s bank accounts. He made expenditures Airmative acts of evasion include keeping a double set of books,
was audited, wherein the agents discovered
extensively by cash or through the use of making false or altered entries, making false invoices, destroying re-
that she was making much more proit than third parties’ credit cards. He placed assets cords, concealing sources of income, handling transactions to avoid
what was reported in her returns. Trevino in in the names of others and made false state-
turn tried to blame the incorrect numbers ments to agents regarding his ownership of usual records and any other conduct likely to conceal or mislead.
on her accountant. The accountant testiied real property and assets.
that Trevino often complained of the high Taxpayers may be saved from evasion
taxability and “instructed him to reduce it, crimes by the statute of limitations. The
and that he did so by increasing the cost of government has a six-year limitation period, tain personal income tax returns; however, instead of depositing his wages into bank
goods sold.” Id. In an attempt to reduce her he argued that his conduct was not willful. accounts.
tax liability, Trevino directed her accountant which begins to run either six years from To support his position, Cheek told the jury In Brooks, the government further proved
the date of the last afirmative act done, or
to fabricate numbers that reduced her actual from the statutory due date of the return, about the seminars he frequently attended, willfulness by providing evidence that Brooks
proits and generated a false return. There was whichever is later. IRC §6531(2). However, if in which the group of attendees believed that had prepared and signed inaccurate IRS Form
no question that Trevino’s behavior was an the taxpayers’ offense is within the statutory federal taxes were unconstitutional. Some of W-4s claiming false allowances and incorrect
actual afirmative act that was done to evade period and is proved beyond a reasonable the speakers at these seminars were lawyers, exempt status. Brooks also claimed “non-
tax, satisfying the irst element of the crime.
doubt, the taxpayer may be ined, imprisoned one of whom provided a letter to Cheek stat- resident alien” status incorrectly, which
The U.S. Supreme Court has also set out and even deported in certain cases.
ing that the “Sixteenth Amendment did not the courts have construed as indicative of
the following examples of other conduct that authorize a tax on wages and salaries but willfulness.
constitute afirmative acts of evasion, from In addition to tax evasion, there are many only on gain or proit.” Id. Cheek’s defense The government is also allowed to use
Spies v. United States, 317 U.S. 492 (1943): serious tax crimes that the government was that “based on the indoctrination he factual evidence of a defendant’s state of
similarly enforces. The following are a brief
keeping a double set of books, making false or synopsis of a few: Included in the other tax received from this group and from his own mind to prove willfulness. Hearsay rules of
altered entries, making false invoices, destroy- crimes are the willful failure to collect or pay study, he sincerely believed that the tax laws evidence may not be applicable, since cer-
ing records, concealing sources of income, tax pursuant to IRC §7202; the failure to ile, were being unconstitutionally enforced and tain forms of evidence may come from third
handling transactions to avoid usual records supply information or pay tax pursuant to IRC that his actions were lawful.” Id. In this regard, parties contributing to a defendant’s state of
and any other conduct likely to conceal or §7203; fraudulent withholding exemption or Cheek’s main defense was that he acted with- mind. For example, love letters from a mis-
mislead.
out the willfulness required for conviction tresses’ wealthy lover who gave her excessive
To prove the second element of tax eva- failure to supply information pursuant to IRC of the various offenses with which he was amounts of money in U.S. v. Harris, 942 F.2d
sion—that an additional tax is due and §7205; fraud and false statements pursuant charged.
1125 (7th Cir. 1991), were allowed as evidence
IRC §7206; fraudulent returns, statements
owing—the government does not have to or other documents pursuant to IRC §7207; The U.S. Supreme Court held in Cheek that to show the defendant’s state of mind regard-
state an exact amount with mathematically attempts to interfere with administration of there is no willfulness if one fails to pay tax ing those monies. The U.S. Court of Appeals
certainty. Rather a mere tax deiciency is suf- internal revenue laws pursuant to IRC §7212; under a good-faith belief that it is not legally held that these letters were correctly offered
icient. As a general rule, the government has aiding and abetting pursuant to 18 U.S.C. §2; owing. On the contrary, willfulness may be into evidence to prove the woman’s lack of
to use the taxpayer’s method of accounting in conspiracy to defraud the government with inferred from “any conduct, the likely effect willfulness in evading a tax obligation. Accord-
computing income.1 In the same manner, the of which would be to mislead or conceal.”3 ingly, the mistress could not be convicted
taxpayer is bound by the method he used, respect to claims pursuant to 18 U.S.C. §286; Willfulness has been inferred from a pletho- for willful failure to ile tax returns, or willful
and may not change from the cash method false, ictitious or fraudulent claims pursu- ra of cases that demonstrate the following failure to evade tax on the substantial monies
to an accrual method, or vice versa, even if ant to 18 U.S.C. §287; conspiracy to commit examples of conduct: signing a return knowing that she received from her lover.
offense or to defraud the United States pur-
the unreported income would be less than suant to 18 USC §371; ictitious obligation that the contents of that return understated Generally, to prove willfulness, if the defen-
the government’s inal igures.
pursuant to 18 U.S.C. §514; and identity theft income, prior and subsequent similar acts dant does not make an admission, or if there
For the inal element of tax evasion—will- pursuant to 18 U.S.C. §1028(a)(7).
reasonably close to the prosecution years, was no confession or accomplice testimony,
fulness—the government must show that the Needless to say, despite the creative efforts failure to supply an accountant with accu- willfulness would be inferred from the circum-
taxpayer had a “voluntary, intentional viola- rate and complete information, making false stances of each particular case and is rarely
tion of a known legal duty.”2 Surprisingly, a used by taxpayers to commit tax crimes, exculpatory statements to agents, destroying subject to direct proof.
defendant’s good faith belief that he is not whether civil or criminal, the government is or throwing away books and records, making This leads to the other form of tax evasion
violating a tax law, no matter how unreason- keen to the same and is always on the prowl or using false documents, entries in books, under §7201: a willful attempt to evade or
able that belief may be, is a defense in tax for offenders.
records or invoices, keeping a double set defeat the payment of a tax. In order for the

prosecution. See Cheek v. United States, 498 •••••••••••••••••••••••••••••
of books, placing property in the name of government to establish that there was an
U.S. 192 (1991).
1. Fowler v. United States, 352 F.2d 100 (8th Cir. 1965). another, extensively using cash or cashier’s attempt to evade or defeat the payment of a
In Cheek, the defendant was an Ameri- 2. Cheek v. United States, 498 U.S. 192 (1991).
checks, spending large amounts of cash that tax, a missed payment is required. Payments
can Airlines pilot who stopped iling federal
3. Spies v. United States, 317 U.S. 492 (1943).
could not be reconciled and holding accounts
are ascertained by way of an assessment,

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