Report No. 29
Appendix 22
Tax Evasion Provision In U.S.A. (Section 7201, Internal Revenue Code)
Section 7201. Internal Revenue Code.-There is a general provision as to tax evasion in section 7201 of the Internal Revenue Code of the United States of America, and it will be of some use to deal with it in detail: The section is quoted below:-
"7201. Attempt to evade or defeat taxes.-Any person who wilfully attempts in any manner to evade or defeat any tax imposed by this title1 or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony, and, upon conviction thereof, shall be fined not more than $ 10,000:00 or imprisoned not more than 5 years, or both, together with the costs of prosecution."
There is another section dealing with wilful failure to file return, but we are not concerned with that section here.2
This section has replaced section 145 (b) of the Internal Revenue Code, 1939, which in its turn had replaced section 1017(b), Revenue Act, 1924. The old section was regarded as the "capstone of a system of sanctions which singly or in combination were calculated to induce prompt and forthright fulfilment of every duty" under the income tax law3. The important words in the section are "wilfully attempts in any manner to evade or defeat any tax". The constitutional validity of the section (with reference to the due process clause) appears to have been upheld4.
Prosecutions under the section have been instituted mainly in the following situations (if the requisite intent is proved):-
(a) substantial understatement of income;
(b) substantial overstatement of deductions;
(c) attempted evasion of tax by5 evading joint income-taxes of spouses (where the spouse or spouses charged are party to the fraud);
(d) lawyers and accountants participating in tax frauds;
(e) officials of corporations attempting evasion of the tax payable by the corporation concerned;
(f) false claims to exemption.
We may first take up the word "wilful" in the section. This requires proof beyond reasonable doubt of a specific intention to evade or defeat the tax or its payment. A bona fide belief in a particular legal position would take the case out of "wilful"6.
1. Summarised from G&G Government Law, etc., in Soviet Union, pp. 1120 to 1122.
The taxes covered by the various sub-titles of the Internal Revenue Code are-
A. Income Taxes;
B. Estate & Gift Taxes;
C. Employment Taxes;
D. Miscellaneous Excise Taxes;
E. Alcohol, Tobacco and certain other Excise Taxes.
2. Section 7203 of the Internal Revenue Code is quoted below:-
"7203. Wilful failure to file return, supply information, or pay tax.-Any person required under this title to pay any estimated tax or tax, or required by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who wilfully fails to pay such estimated tax, make such return, keep such records, or supply such information, at the time or time required by law or regulations, shall, in addition to other penalties provided by law, be guilty of misdemeanor and, upon conviction thereof, shall be fined not more than $ 10,000, or imprisoned not more than one year, or both, together with the costs of prosecution."
3. Spies v. United States, (1943) 317 US 492 (497).
4. U.S. v. Skidmore, 123 F. 2d, 604 cert. denied, (1942) 315 US 800.
5. A husband and wife can file a joint return. Tax is computed on half the combined income and multiplied by two. Sections 2(a) and 6013(a), Internal Revenue Code.
6. Cf. James v. U.S., (1961) 366 US 215.