Criminal Tax Law Violations

The criminal tax laws are enforced through the United States Department of Justice, Tax Division, and the Office of the United States Attorney for the federal district in which the offense has occurred. Generally speaking, a tax case may be treated as a criminal matter when the public interest in preserving the integrity of the nation's tax system would not be served by forbearance. Thus, criminal prosecutions of tax cases are limited. Criminal tax prosecutions both punish the offender and deter others from disrespecting the tax laws. In criminal tax cases, as in all criminal prosecutions, the concern of the government is that the gravity of the offense will be matched by the gravity of the sentence. The United States Sentencing Guidelines are intended to level the playing field, so to speak, so that all criminal tax violations will be treated in the same way, irrespective of the federal district in which a sentence for a violation is handed down.

Federal Sentencing Guidelines

Before the enactment of the United States Sentencing Guidelines, individuals convicted of tax crimes found themselves bound at sentencing to the discretion of the trial court. However, after Congress established the United States Sentencing Commission and mandated the drafting of guidelines for all federal criminal offenses, the Unites States Sentencing Guidelines became, upon enactment, a force of law regarding sentencing required to be followed by the sentencing judges. The Sentencing Guidelines had a long history during which many challenges were made that they were either incorrectly applied or unconstitutional. The courts consistently held that the guidelines had the force of law and had to be given controlling weight in sentencing. In the United States v. Booker, 543 U.S. 220 (2005), however, the Supreme Court held that the Federal Sentencing Guidelines must be interpreted as advisory and not mandatory. Now, although the Sentencing Guidelines still provide sentencing factors and guideline sentencing ranges in tables cross-referenced to particular sentencing factors, the trial courts at sentencing again have more discretion in imposing a sentence. Because the guidelines are advisory in nature, they still exert considerable influence over the sentence that might be imposed. Sentencing factors, the tax loss table (cross-referenced to offense level "points" that increase with tax loss) and the sentencing table (cross referencing offense levels with applicable periods of incarceration in accordance with the Guidelines) appear below:

Offenses involving taxation (References are to United States Sentencing Guidelines-Tax Offenses-Part T):

§2T1.1:Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents- 26 U.S.C. §§7201, 7203 (other than a violation based on 26 U.S.C. 6050I), 7206 (other than a violation based upon 26 U.S.C. 6050I or §7206(2)), and 7207.

(a) Base Offense Level:
(1) Level from 2T4.1 (Tax Table) corresponding to the tax loss; or
(2) 6, if there is no tax loss.
(b) Specific Offense Characteristics
(1) If the defendant failed to report or to correctly identify the source of income exceeding $10,000 in any year from criminal activity, increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.
(2) If the offense involved sophisticated means, increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.
(c) Special Instructions
For the purposes of this guideline --
(1) If the offense involved tax evasion or a fraudulent or false return, statement, or other document, the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).
[Note: if the offense involved filing a tax return in which gross income was underreported, the tax loss is treated as equal to 28% of the unreported gross income (34% if the taxpayer is a corporation) plus 100% of any false credits claimed against tax. If the conduct involved both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses added together.]
(2) If the offense involved failure to file a tax return, the tax loss is the amount of tax that the taxpayer owed and did not pay.
[Note: If the offense involved failure to file a tax return, the tax loss is treated as equal to 20% of the gross income (25% if the taxpayer is a corporation) less any tax withheld or otherwise paid, unless a more accurate determination of the tax loss can be made. If the offense involved both individual and corporate tax returns, the tax loss is the aggregate tax loss from the offenses added together.]
(3) If the offense involved willful failure to pay tax, the tax loss is the amount of tax that the taxpayer owed and did not pay.
(4) If the offense involved improperly claiming a refund to which the claimant was not entitled, the tax loss is the amount of the claimed refund to which the claimant was not entitled.
(5) The tax loss is not reduced by any payment of the tax subsequent to the commission of the offense.
[Commentaries excluded]

§ 2T1.4: Aiding, Assisting, Procuring, Counseling, or Advising Tax Fraud- 26 U.S.C. §7206(2) (other than a violation based upon 26 U.S.C. 6050I).

(a) Base Offense Level:
(1) Level from 2T4.1 (Tax Table) corresponding to the tax loss; or
(2) 6, if there is no tax loss.
For purposes of this guideline, the "tax loss" is the tax loss, as defined in 2T1.1, resulting from the defendant's aid, assistance, procurance or advice.
(b) Specific Offense Characteristics
(1) If (A) the defendant committed the offense as part of a pattern or scheme from which he derived a substantial portion of his income; or (B) the defendant was in the business of preparing or assisting in the preparation of tax returns, increase by 2 levels.
(2) If the offense involved sophisticated means, increase by 2 levels. If the resulting offense level is less than 12, increase to level 12.
Note: In certain instances, such as promotion of a tax shelter scheme, the defendant may advise other persons to violate their tax obligations through filing returns that find no support in the tax laws. If this type of conduct can be shown to have resulted in the filing of false returns (regardless of whether the principals were aware of their falsity), the misstatements in all such returns will contribute to one aggregate "tax loss."
Note: "Sophisticated means" means especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense. Conduct such as hiding assets or transactions, or both, through the use of fictitious entities, corporate shells, or offshore financial accounts, ordinarily indicates sophisticated means.
Note: An increased offense level is specified for those in the business of preparing or assisting in the preparation of tax returns and those who make a business of promoting tax fraud because their misconduct poses a greater risk of revenue loss and is more clearly willful.

§2T1.6: Failing to Collect or Truthfully Account for and Pay Over Tax – 26 U.S.C. § 7202.

(a) Base Offense Level: Level from 2T4.1 (Tax Table) corresponding to the tax not collected or accounted for and paid over.

(b) Cross Reference: If the employer not only failed to account to the Internal Revenue Service and pay over the tax, but also collected the tax from employees and did not account to them for it, it is both tax evasion and a form of embezzlement.

§2T1.7: Failing to Deposit Collected Taxes in Trust Account as Required After Notice – 26 U.S.C. § 7215, 7215(b)

(a) Base Offense Level (Apply the greater):
(1) 4; or
(2) 5 less than the level from 2T4.1 (Tax Table) corresponding to the amount not deposited.

§2T1.8. Offenses Relating to Withholding Statements- 26 U.S.C. § 7204, 7205

(a) Base Offense Level: B

§2T1.9. Conspiracy to Impede, Impair, Obstruct, or Defeat Tax - 18 U.S.C. § 371

(a) Base Offense Level (Apply the greater):
(1) Offense level determined from 2T1.1 or 2T1.4, as appropriate; or
(2) 10.
(b) Specific Offense Characteristics
If more than one applies, use the greater:
(1) If the offense involved the planned or threatened use of violence to impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue, increase by 4 levels.
(2) If the conduct was intended to encourage persons other than or in addition to co-conspirators to violate the internal revenue laws or impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue, increase by 2 levels. Do not, however, apply this adjustment if an adjustment from 2T1.4(b)(1) is applied.

Note: This section applies to conspiracies to "defraud the United States by impeding, impairing, obstructing and defeating . . . the collection of revenue." It does not apply to taxpayers, such as a husband and wife, who merely evade taxes jointly or file a fraudulent return. The enhancement in Subsection (b)(2), above, is for instances in which the conduct was intended to encourage persons, other than the participants directly involved in the offense, to violate the tax laws ( e.g. , an offense involving a "tax protest" group that encourages persons to violate the tax laws, or an offense involving the marketing of fraudulent tax shelters or schemes). This type of conspiracy generally involves substantial sums of money. It is typically complex, such as offshore schemes that are "shams" for tax purposes, and it may be far-reaching, involving several "layers" of entities, transactions, individuals, etc., making it quite difficult to evaluate the extent of the revenue loss caused. Additional specific offense characteristics are included because of the potential for these tax conspiracies to subvert the revenue system and the danger to law enforcement agents and the public.

§2T2: ALCOHOL AND TOBACCO TAXES- 26 U.S.C. §§5601-5605, 5607, 5608, 5661, 5671, 5691, and 5762: The conduct is tax evasion or a regulatory violation. These offenses are not a current enforcement priority.

§2T2.1. Non-Payment of Alcohol And Tobacco Taxes- 26 U.S.C.§§5601-5605, 5607, 5608, 5661, 5671, 5691, and 5762: The Base Offense Level: Level from 2T4.1 (Tax Table) corresponding to the tax loss. [For purposes of this guideline, the "tax loss" is the amount of taxes that the taxpayer failed to pay or attempted not to pay on the alcohol and/or tobacco, or that the defendant was attempting to evade.]

§2T2.2. Regulatory Offenses:

Base Offense Level: 4

§2T3. CUSTOMS TAXES: 18 U.S.C. 496, 541-545, 547, 548, 550, 551, 1915 and 19 U.S.C. 283, 1436, 1464, 1465, 1586(e), 1708(b). This provision is designed to address violations involving revenue collection or trade regulation.

§2T3.1. Eva ding Import Duties or Restrictions (Smuggling); Receiving or Trafficking in Smuggled Property: 18 U.S.C. 496, 541-545, 547, 548, 550, 551, 1915; 19 U.S.C. 283, 1436, 1464, 1465, 1586(e), 1708(b).

(a) Base Offense Level:
(1) The level from 2T4.1 (Tax Table) corresponding to the tax loss, if the tax loss exceeded $1,000; or
(2) 5, if the tax loss exceeded $100 but did not exceed $1,000; or
(3) 4, if the tax loss did not exceed $100.
For purposes of this guideline, the "tax loss" is the amount of the duty.
(b) Specific Offense Characteristic
(1) If the offense involved sophisticated means, increase by 2 levels. If the resulting offense level is less than level 12, increase to level 12.
(c) Cross Reference
(1) If the offense involves a contraband item covered by another offense guideline, apply that offense guideline if the resulting offense level is greater than that determined above.

§2T4. TAX TABLE

§2T4.1. Tax Table

Tax Loss (Apply the Greatest) Offense Level

(A) $2,000 or less

(B) More than $2,000

(C) More than $5,000

(D) More than $12,500

(E) More than $30,000

(F) More than $80,000

(G) More than $200,000

(H) More than $400,000

(I) More than $1,000,000

(J) More than $2,500,000

(K) More than $7,000,000

(L) More than $20,000,000

(M) More than $50,000,000

(N) More than $100,000,000

6

8

10

12

14

16

18

20

22

24

26

28

30

32

Note: The materials above are provided for general informational purposes only. No inference concerning the sentencing ranges that may apply to listed offense levels may be drawn from the foregoing information. These materials should not be relied upon for any reason and do not constitute, nor are they intended to be interpreted as legal advice.

Department of Justice, Tax Division Sentencing Policy and Guidelines