Tax Fraud Conspiracy

(1) Tax Fraud Conspiracy - "Klein Conspiracies" -

A Klein Conspiracy relates to alleged tax fraud. The general federal conspiracy statute discussed above has two clauses. One makes it a crime for two or more persons to conspire to commit an offense against the United States by violating a specific statute or statutes, and the second clause makes it a crime for two or more persons to agree "to defraud the United States, or any agency thereof in any manner or for any purpose. . .". Both clauses of section 371 require that at least one of the conspirators do any act to affect the object of the conspiracy. "Klein conspiracies" are prosecuted under the second clause of section 371 using the IRS as the United States agency purportedly defrauded. These types of prosecutions were first sanctioned in the case of United States v. Klein, thus the moniker "Klein Conspiracy."

In a "Klein Conspiracy," the government must allege and prove that there was an agreement whose purpose was to thwart and impede the IRS, and that each defendant knowingly, willfully and intentionally participated in that conspiracy. As in all criminal tax prosecutions, "willfulness" requires that the government prove that the law imposed a duty, the defendant knew of the duty, and that he or she voluntarily and intentionally violated that duty, or in the case of "Klein Conspiracies", conspired to do so. Also as in all specific intent criminal tax cases, the government is required to negate any claim that a putative defendant had a good-faith misunderstanding of the law, or believed that he or she was not violating any provision of the tax laws, whether or not the claimed belief or misunderstanding is objectively reasonable. Thus, even if the government establishes a climate of activity that "reeks of something foul", that is not enough. Instead, the law requires independent evidence of shared intent to evade taxes in order to sustain a "Klein conspiracy."

Tax Fraud Substantive Violations

a. Tax Evasion -26 U.S.C. § 7201 -

To obtain a conviction for tax evasion under 26 U.S.C. § 7201, the government must prove the following beyond a reasonable doubt: (1) that the defendant acted willfully; (2) the existence of a tax deficiency; and (3) an affirmative act constituting an evasion or attempted evasion of the tax.

To prove that a defendant acted willfully, the government must show more than just that he acted in "careless disregard for the truth." Thus, a mere under reporting of income does not require a finding of willfulness as the under reporting could be caused by inadvertence or negligence. Also, as stated above, a good-faith misunderstanding of the law will not be enough to show willfulness. Instead, willfulness requires the "intentional violation of a known legal duty."

As to the existence of a tax deficiency, in the Eleventh Circuit, all that the government needs to prove is that there is a deficiency, not the type or amount owed.

Finally, with regards to proving the act of evasion, the government must prove some act of commission rather than merely an act of omission. Mere passive neglect is not enough. However, what constitutes an "affirmative act" has been interpreted broadly by the courts. By way of illustration, and not by way of limitation, we would think affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries of alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal.

b. Filing a False Tax Return - 26 U.S.C. § 7206(1) -

In order to convict a defendant for filing a false tax return pursuant to the provisions of 26 U.S.C. § 7206, the government must establish each of the following elements beyond a reasonable doubt: (1) the making and subscribing of a tax return containing a written declaration that it was made under the penalties of perjury; (2) by one who did not believe the return to be true and correct as to every material matter; and (3) who acted in a willful, as opposed to a negligent manner. In general, a false statement is material if it has "a natural tendency to influence, or [is] capable of influencing, the decision of the decision making body to which it was addressed." Several courts have determined that "any failure to report income is material" in a prosecution under §7206(1). Usually, showing that the taxpayer signed the return or another document submitted to the IRS is sufficient to establish that the taxpayer made and subscribed to the tax return or other document submitted to the IRS. See, I.R.C. § 6064 ("The fact that an individual’s name is signed to a return, statement, or other document shall be prima facie evidence for all purposes that the return, statement, or other document was actually signed by him.")

c. 26 U.S.C. § 7212 -

26 U.S.C. § 7212(a) prohibits any act that either obstructs or impedes or endeavors to obstruct or impede, the "due administration" of the Internal Revenue Code through corrupt or forcible acts. Section 7212(a) consists primarily of two clauses. The first, more specific clause, prohibits corrupt or forcible endeavors to interfere with United States employees acting pursuant to Title 26. The second, more general omnibus clause, relevant here, requires proof of three elements: (1) that the defendant in any way corruptly (2) endeavored (3) to obstruct or impede the due administration of the Internal Revenue Code.

Section 7212 is one of the several general criminal provisions contained in the Internal Revenue Code, most of which are discussed above. These provisions establish what the Supreme Court has described as a system of sanctions which singly or in combination were calculated to induce prompt and forthright fulfillment of every duty under the income tax law and to provide a penalty suitable to every degree of delinquency. Section 7212(a) is the government’s "catch-all" statute for prosecuting tax law violations, and because if its broad language, it has become the darling of the IRS and tax prosecutors.

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H. Manuel Hernández, P.A.
P.O. Box 916692, Longwood, Florida 32791 ∙ 2816 E. Robinson Street, Orlando, FL 32803 ∙ 407-682-5553