Willfulness

A mere failure to pay income taxes by itself is not a crime.  For a failure to pay taxes to be a crime, the avoidance must be willful.  This requirement is in the first sentence of the first criminal statute of the Internal Revenue Code, 26 USC § 7201, an attempt to evade or defeat tax.  The statute requires for a conviction that an individual be convicted of “willfully [attempting] in any manner to evade or defeat any tax.”  This means that merely failure to pay or file properly is not enough to sustain a criminal prosecution.  While the IRS can assess a deficiency and penalties for any failure to pay, criminal prosecution requires the agency to prove that the taxpayer willfully attempted to avoid paying taxes.

This means that the IRS must prove that the taxpayer not only failed to pay taxes but did so deliberately, knowing that taxes were owed.  Merely proving that the taxpayer evaded taxes is not enough for a conviction if the taxpayer can prove a good faith belief that he was not violating tax laws.  And while the fact that the taxpayer lived a luxurious lifestyle while failing to pay taxes is probative, this is not by itself enough to prove willfulness.  Even an unreasonable and incorrect belief that the taxpayer was not violating tax laws is enough to defeat a conviction as long as the taxpayer can prove this belief was held in good faith.  But affirmative acts taken to conceal income can defeat a good faith defense.

With proliferation of tax protesters, tax evaders have increasingly claimed that the tax code is unconstitutional and that they are not required to obey the tax laws of the United States.  Needless to say, the courts have consistently found to the contrary, upholding the validity and the constitutionality of the tax code in every tax evasion prosecution.  Furthermore, however sincere this belief may be on the part of a defendant, it does not sufficiently disprove willfulness if the defendant knew of the duties required by the tax code.  The Supreme Court has ruled that someone who claims to believe that the tax code is unconstitutional is fully aware of the duties and obligations imposed by the law and that defendants cannot defeat criminal prosecution merely by proving that he disagrees with the laws.

However, if a taxpayer sincerely believes he did not owe taxes or that his income was not taxable due to an incorrect interpretation of the tax code, this is sufficient to disprove willfulness regardless of how reasonable the belief is. But disproving that the taxpayer’s conduct was willful is not always so easy.  Once a criminal investigation is commenced, merely paying past due taxes will not be enough to negate willfulness.  A taxpayer will only be able to defeat a tax prosecution on the grounds of willfulness if he can prove that he paid all taxes he believed he owed under the tax code, even if unpaid taxes were unpaid based on an unreasonable but good faith belief.

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