Las Vegas criminal defense attorney Paul Wommer, was convicted of tax evasion based on his failure to pay approximately $13,000 of interest and penalties imposed on the principal of his delinquent taxes. In a somewhat novel appeal to the 9th Circuit he argued he hadn't committed "tax evasion" under Internal Revenue Code § 7201 because he had paid all of his tax debt, just not the penalties and interest. The court disagreed and instead took a more broad approach to the definition of taxes. Citing Internal Revenue Code § 6665(a)(2), which states that a tax shall also refer to the "additions to the tax, additional amounts, and penalties provided by this chapter," the court found that the penalties would be considered taxes for tax evasion purposes. The Court also pointed to IRC Sections 6601(e) and 6671(a). IRC Section 6601(e) provides:
Interest prescribed under this section on any tax shall be paid notice and demand, and shall be assessed, collected, and paid in the same manner as taxes. Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.
IRC Section 6671(a) provides:
Any reference to this title (except subchapter B of chapter 63, relating to deficiency procedures) to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax.
Thus, as the 9th Circuit saw it, tax evasion includes evading the payment of interest and tax penalties. Still its striking that the IRS would choose to pursue a criminal tax case based upon such a small amount of unpaid interest and penalties. Clients often do not view their conduct as being criminal, or they believe that because they are "small fish," that the IRS will not bring a criminal tax case. While that may be true a lot of the time as Mr. Wommer found out with the wrong set of facts even small tax debts can morph into big tax problems.
Wommer's case illustrates an increasing use of the evasion of payment prong of the criminal tax evasion statute. Internal Revenue Code Section 7201 makes it a crime not only to evade tax (as in filing a fraudulent tax return), but also willfully evading the payment of tax. Thus someone who willfully fails to pay their tax debt can be convicted of tax fraud even though their original tax return was perfectly proper. Of course not all non-payment of tax debt is considered tax evasion. However, Wommer stepped over the line when he started depositing money into the account of another individual in order to prevent the IRS from issuing a tax levy.
Call our experienced criminal tax attorneys at 1-800 Tax Litigator (1-800-208-6200) for a confidential consultation to discuss available options if you have been contacted by the IRS in connection with civil or criminal tax fraud or tax evasion, or any other high stakes tax problem.
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