Guest Author: Daniel Waters, Esq., Columbus, Ohio
The Defendant in U.S. v. Richards, 107 AFTR 2d 2011-1742 was indicted on one charge of attempting to evade and defeat federal income tax under Internal Revenue Code ("IRC") § 7201. The indictment covered the tax years 1994-2003. The Defendant timely filed a motion to dismiss the indictment citing that some or all of the tax returns in question were barred from prosecution by IRC § 6531(2)'s six year statute of limitations. The Government opposed the motion, and the District Court ultimately granted the motion to dismiss. The decision is important because it gives good insight into how the Government failed to draft a proper indictment, and how one may still be liable for tax evasion for tax years falling outside the six year window.
The Court first addresses the elements of § 7201, which are: (i) the existence of a tax deficiency, (ii) willfulness, and (iii) an affirmative act of evasion or affirmative attempt to evade. It also states the there are two crimes included in § 7201: (i) the willful attempt to evade the assessment of a tax and (ii) the willful attempt to evade or defeat the payment of a tax. The difference in the two crimes arises in that the "evasion of assessment" involves acts surrounding the filing/non-filing of the return and the reporting of income. Whereas, "evasion of payment" is concerned with conduct that is designed to place assets beyond the government's reach after the tax has been assessed. The Court further explains that while § 6531(2) imposes a six year statute of limitations on the tax evasion crimes, the statute runs from the occurrence of the last act necessary to complete the offense. As the Court goes on to state, the final occurrence is not the filing of the return, but the last date a defendant engaged in an affirmative act to evade payment of their liability.
The Government ultimately lost this case because they were ineffective in the drafting of the indictment to connect actions by the Defendant in 2005, 2006, and 2008 with his failure to pay the taxes for the years under the indictment. While the result was optimal for this defendant, the analysis done by the Court should not be ignored by tax practitioners and taxpayers alike. For tax practitioners handling such cases, we need to be diligent in our review of the indictment. And, ensure that the government has met their burden at each stage of litigation. Having dealt with numerous taxpayers, it appears that many assume the six year statute of limitations is a definite window of time from the filing date. As tax practitioners, we need to be able to explain how six years is not always six years.