Criminal Tax: Tax Fraud and Tax Evasion vs. Failure to File Tax Returns

May 14, 2012
By Dennis N. Brager on May 14, 2012 12:00 PM | | Comments (0)

A physician in Kentucky was arrested and charged last month with four counts of tax fraud pursuant to Internal Revenue Code Section 7201, and two counts of failure to file tax returns in violation of IRC section 7203. According to the indictment Dr. Werner Grentz had failed to file income tax returns since 1999. There is a common myth that it is better not to file a tax return at all than to file a false tax return. Like most myths there is some truth to this one. The willful failure to file a tax return is a misdemeanor punishable by "only" one year in jail, and a fine of not more than $100,000. IRC Section 7203. On the other hand tax evasion a/k/a/ tax fraud is a felony, and the resulting imprisonment can run up to 5 years, plus a fine of not more than $100,000. IRC Section 7201.
1125087_person_jail.jpg

One advantage of a misdemeanor over a felony conviction is that it won't result in possible deportation for green card holders. We talked about this tax problem in a past blog post. Still, as Wesley Snipes found out, three years of failing to file a tax return can result in three years in prison.

Any "advantages" should not be used as an excuse not to file a tax return when there is some uncertainty about the correct position to take on a return. It is much better to file a return with missing or even incorrect information (provided that appropriate disclosures are made) than not to file a return.

In addition, in some instances the failure to file a tax return can be charged as tax evasion. That's what happened to Dr. Grentz. The indictments spells out that he was being charged with failure to file for two of the years, but tax evasion for four different years. In order to be convicted of tax evasion it is necessary for the IRS to show an "affirmative act", not merely an omission to do something like the failure to file a tax return. According to the indictment in addition to not filing his tax returns he engaged in the following affirmative acts:


  • He filed Form W-4 claiming that he was exempt from income tax; and

  • He set up bank accounts in the name of two corporations (which the IRS referred to by the pejorative term "nominees"), and deposited some of his compensation into bank accounts set up in the corporate names.

Those two actions were enough to cause a shift from charges of not filing a tax return to tax evasion.

If you have been contacted by the IRS Criminal Investigation division for any reason contact our criminal tax attorneys at Brager Tax Law Group for a confidential consultation to discuss the options available to you.

Leave a comment