Evasion of Payment
The first crime under the Internal Revenue Code is 26 USC § 7201, “attempt to evade or defeat tax.” On the surface, the language of this statute is straightforward and simple: “Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony.” But a careful examination of the statute will reveal that it doesn’t merely create one crime but actually creates two distinct crimes: attempts to evade assessment and attempts to evade payment of taxes. Evading payment is also a crime under 26 USC § 7203, “willful failure to file return, supply information, or pay tax.”
We have already covered numerous instances of how the IRS prosecutes those who attempt to avoid taxes either by concealing income, falsely reporting expenses, making false statements in tax filings or failing to report income or assets. But many of these same methods are also means by which taxpayers will attempt to evade payment of taxes. The principal difference between evading assessment and evading payment is that while those that evade assessment are concealing assets before taxes are assessed, those accused of evading payment have typically concealed assets after an assessment by the IRS. Other than this key difference, many of the same activities and schemes are involved in both crimes. The key difference is timing.
While violating the Internal Revenue Code is never advised, evading payment can be even more problematic than merely attempting to evade assessment. While the IRS may not be alerted to taxpayers who attempt to conceal income to avoid assessment, the taxpayer who attempts to evade payment has already attracted the attention and energies of the IRS. While assets may be concealed, the assessed taxes and penalties have already attracted their focus. Evading payment is a good way for a taxpayer already accused of evading assessment to find himself prosecuted for additional offenses. Because while a taxpayer may have committed one act to evade payment for multiple years of taxes, the IRS can prosecute each year as a separate count of tax fraud.
But the IRS cannot successfully prosecute an individual merely for failing to pay their taxes. To prosecute an individual under either of the above statutes, the IRS must prove that the individual took some sort of affirmative act to avoid paying an assessed tax. So without concealment of assets or sheltering funds from the IRS, an individual cannot be prosecuted for these crimes. In other words, it’s no crime to be unable to pay or tax bill. It’s only a crime if they prove you are able to pay the bill and refuse to do so.