I.Tax Crime Statutes
A.Criminal Offenses Under the Internal Revenue Code
1.§7201 — Attempt to Evade or Defeat Assessment or Payment of Tax
Tax evasion, the most well-known of crimes under the Internal Revenue Code, is a felony defined in §7201 as the willful attempt to evade or defeat any tax imposed by Title 26.1All section references are to the Internal Revenue Code of 1986, as amended, and the regulations thereunder, unless otherwise indicated. The basic elements of a prima facie case are: (1) the existence of a tax deficiency (an additional tax due and owing);2Boulware v. United States, 552 U.S. 421, 424 (2008); Sansone v. United States, 380 U.S. 343, 351 (1965); Lawn v. United States, 355 U.S. 339, 361 (1958). (2) an affirmative act constituting an evasion or attempted evasion of the tax;3Sansone v. United States, 380 U.S. 343, 351 (1965); Spies v. United States, 317 U.S. 492, 497–99 (1943). and (3) willfulness.4Cheek v. United States, 498 U.S. 192, 193 (1991); United States v. Pomponio, 429 U.S. 10, 12 (1976); United States v. Bishop, 412 U.S. 346, 358–59 (1973); Sansone v. United States, 380 U.S. 343, 351 (1965); Holland v. United States, 348 U.S. 121, 124, 139 (1954).
Conviction under §7201 requires an affirmative act evidencing an intent to conceal so as to defeat the assessment or payment of a tax.6United States v. Hook, 781 F.2d 1166 (6th Cir. 1986), cert. denied, 479 U.S. 882 (1986); United States v. Kaatz, 705 F.2d 1237 (10th Cir. 1983); United States v. Hecht, 705 F.2d 976 (8th Cir. 1983). See Hesser v. United States, 40 F.4th 1221 (11th Cir. July 13, 2022) (absent evidence that move was aimed at evasion, transfer of house to trust after tax liability accrued but before tax lien filed did not constitute affirmative act); United States v. Litwok, 678 F.3d 208 (2d Cir. 2012) (citing United States v. Romano, 938 F.2d 1569, 1573 (2d Cir. 1991)) (absent other evidence of intent, failure to file return by itself did not constitute affirmative act); United States v. Miller, 588 F.3d 897 (5th Cir. 2009). An affirmative act “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 . . . any conduct, the likely effect of which would be to mislead or to conceal.”7Spies v. United States, 317 U.S. 492, 499 (1943). “Congress intended some willful commission in addition to the willful omissions that make up the list of misdemeanors.”8Spies v. United States, 317 U.S. 492, 499 (1943). See also United States v. Masat, 896 F.2d 88 (5th Cir. 1990). For example, filing a false return could be a felonious evasion under §7201, while failing to file a return is a misdemeanor under §7203.
The proposed regulations require that domestic federal agencies establish a permanent, secure, auditable system of standardized records for their BOI requests.457Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.955(d)(1)(i)(D), 31 C.F.R. §1010.955(d)(1)(i)(E)). Required information includes the date of the request, the name of the individual who made the request, the reason for the request, any disclosure of BOI made to requesting agency, and other information sufficient to reconstruct the initial justification for the request. Id. The proposed regulations detail restrictions on which personnel may access BOI, requiring that those individuals:458Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.955(d)(1)(i)(F)).
Federal functional regulators or other appropriate regulatory agencies, acting through their respective agency heads, must also submit written certifications to FinCEN that: (1) declare that the regulator or regulatory agency is authorized by law to assess, supervise, enforce, or otherwise determine compliance of a relevant FI with CDD requirements; and (2) state that the regulator or regulatory agency will use the BOI it obtains solely for the purpose of conducting such assessment, supervision, enforcement, or investigation.460Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.955(d)(1)(ii)(B)(5)).
d.Use of FinCEN Identifiers
For each beneficial owner and company applicant, the CTA requires reporting companies to submit to FinCEN:47331 U.S.C. §5336(b)(2).
The use of FinCEN identifiers is not without controversy; comments received in response to an earlier proposed regulation regarding BOI reporting expressed concern that the use of FinCEN identifiers could obscure the identities of beneficial owners in a manner that might result in greater secrecy, or incomplete or otherwise misleading disclosures, undermining the main purpose behind the CTA's BOI reporting, access, and disclosure regime.475Preamble to Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. at 77,424. In response, FinCEN is now proposing that a reporting company may only use a FinCEN Identifier when:476Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.380(b)(4)(ii)(B)).
e.Administration of Requests
Requests for BOI must be submitted to FinCEN in the form and manner prescribed.477Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.955(e)(1)). If a request is not submitted in the form and manner prescribed by FinCEN, it may reject the request.478Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.955(e)(2)(i)). Additionally, FinCEN may reject or otherwise decline to disclose BOI if:479Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (proposed Dec. 16, 2022) (to be codified at 31 C.F.R. §1010.955(e)(2)(ii)).
C.Cash Transactions Reporting Requirements
1.Reporting Requirements — 31 U.S.C. §5331; §6050I
Section 6050I requires businesses that receive cash in excess of $10,000 in one transaction (or two or more related transactions) to file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, with the IRS, and to provide a related statement to the payer. Consequently, a tax practitioner may be required to file Form 8300 if he receives cash in excess of $10,000 either for client fees, for the account of a client, or as an agent for a client.488United States v. Blackman, 72 F.3d 1418 (9th Cir. 1995) (unless receipt of cash for fees is so intertwined with subject of representation, attorneys must comply with Treasury regulation). The general rules of confidentiality of tax return information under §6103 do not apply to the information on Form 8300. Section 365 of the USA Patriot Act, Pub. L. No. 107-56, provides for government-wide access on matters such as reports on cash transactions. See 31 U.S.C. §5331. Taxpayers required to report information about financial transactions to the Financial Crimes Enforcement Network, pursuant to 31 U.S.C. §5331, must report on Form 8300. Reg. §1.6050I-1(a)(1)(ii). The 2002 Job Creation and Worker Assistance Act, Pub. L. No. 107-147, §401, provides that any person required to file Form 8300 for any tax year after March 9, 2002, may electronically furnish such statement to any recipient who has consented to the electronic provision of the statement in a manner similar to the one permitted under Reg. §31.6051-1(j), or in such other manner as provided by the IRS. On September 19, 2012, FinCEN announced that businesses could electronically file Form 8300 using its Bank Secrecy Act Electronic Filing System. See https://www.fincen.gov/news/news-releases/fincen-announces-electronic-filing-form-8300. See IR-2020-168 (July 22, 2020) for guidance on filing Form 8300 electronically.
Reporting is required for any “transaction,” or two or more related transactions, involving the receipt of more than $10,000 in cash.
A transaction includes: a sale of goods or services; a sale of real property; a sale of intangible property; a rental of real or personal property; an exchange of cash for other cash; the establishment or maintenance of or contribution to a custodial, trust, or escrow arrangement; a payment of a preexisting debt; a conversion of cash to a negotiable instrument; a reimbursement for expenses paid; or the making or repayment of a loan. A transaction cannot be divided into multiple transactions in order to avoid reporting.491Reg. §1.6050I-1(c)(7)(i). Transactions are related if they are conducted between a payer (or its agent) and the recipient of cash in a 24-hour period, or if the recipient knows or has reason to know that each transaction is one of a series of connected transactions.492Reg. §1.6050I-1(c)(7)(ii). See Reg. §1.6050I-1(c)(7)(iii) Ex. (5). It is a felony for a purchaser to cause a seller to file a materially false Form 8300.493United States v. Guevara, 894 F.3d 1301, 1307 (11th Cir. 2018) (defendant who used straw buyer to purchase several luxury automobiles with cash so that his name did not appear on Form 8300 is guilty of violating 31 U.S.C. §5324(b)(2)), on remand, No. 14-CR-20792-JLK, 2019 BL 13036 (S.D. Fla. 2019).
The manner in which the receipt of multiple payments is reported depends on the dollar amounts of the initial and subsequent payments. An initial payment in excess of $10,000 must be reported within 15 days of its receipt.494Reg. §1.6050I-1(e)(1). The 15-day rule may be extended for taxpayers affected by federally declared disasters or (effective for fires for which assistance is provided after November 15, 2021) significant fires or terroristic or military actions (§7508A, Pub. L. No. 117-58, §80504) or Armed Forces serving in combat zones (§7508). See also Tables, Charts and Lists (Federal), Postponements, Listing of Postponements Due to Combat Zone Service or Federally Declared Disaster Area. If the initial payment does not exceed $10,000, payments received within one year must be aggregated with the initial payment and reported within 15 days after the aggregate amount exceeds $10,000. Payments received after Form 8300 has been filed must be reported if the aggregate amount received within a one-year period exceeds $10,000. The report must be filed within 15 days after receipt of the payment which causes the aggregate amount to exceed $10,000. If, within a 15-day period, more than one report would otherwise be required for multiple cash payments that relate to a single transaction (or two or more related transactions), the recipient can file a single combined Form 8300 with respect to these payments. The combined Form 8300 must be filed no later than the due date of the first of the separate reports.495Reg. §1.6050I-1(b)(1)–(3). See, e.g., CCA 200102049. Additionally, in PMTA 2018-11, the IRS advised that in the event of a failure to file Form 8300, there is no legal prohibition against the IRS requesting one Form that summarizes all of the Forms 8300 that a taxpayer should have reported in a given tax year. Note, however, that the IRS may still assess a penalty for each Form the taxpayer should have filed. PMTA 2018-11.
For Forms 8300 required to be filed before January 1, 2016, the civil penalty for an intentional failure to file Form 8300 is the greater of $250 multiplied by the number of failures, or $25,000 or the amount of cash received in the transaction, limited to $100,000 per failure.501§6721(e)(2)(C), before amendment by the Trade Preferences Extension Act of 2015 (2015 TPEA), Pub. L. No. 114-27, §806(d).
While the failure to file a required return or information report normally is a misdemeanor under §7203, due to the importance of the information reporting requirements under §6050I in combating money laundering and illegal drug trafficking, Congress amended §7203 in 1998 to provide that a willful failure to provide information reports required in §6050I would be considered a felony, rather than a misdemeanor.502Section 7203 is discussed further at I.A.3., above.
Most of the IRS’s enforcement activity for violations of §6050I has involved the application of the civil penalties. However, the government has brought a number of felony criminal prosecutions under §7203 for violations of §6050I, where they could demonstrate willfulness, i.e., “an intentional violation of a known legal duty.” The defendant must have known of the reporting requirements and knowingly acted to avoid them.503See Cheek v. United States, 498 U.S. 192, 201 (1991); United States v. Rogers, 18 F.3d 265 (4th Cir. 1994); Kruse, Inc. v. United States, 213 F. Supp. 2d 939 (N.D. Ind. 2002) (where defendant was advised by accountant that he did not need to file Form 8300 and where once defendant was made aware of filing requirement he filed from then on, jury was provided with sufficient evidence to conclude that his violation of reporting requirement was unintentional).
2.Failure to File Currency Transaction Reports and Related “Structuring” Violations — 31 U.S.C. §5313 and §5324
The Bank Secrecy Act of 197050431 U.S.C. §5311 et seq. was enacted, in part, to provide the government with certain reports or records which have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.50531 U.S.C. §5311. Pursuant to 31 U.S.C. §5313(a) and implementing regulations, all domestic “financial institutions” are required to file a Currency Transaction Report (Form 4789), commonly referred to as a “CTR,” for all cash transactions of more than $10,000.50631 C.F.R. §1010.311. The Money Laundering Control Act of 1986 added §5324 to Title 31507The Money Laundering Control Act of 1986 also created the money laundering offenses (18 U.S.C. §1956 and §1957) discussed at I.B.4., above. to prohibit certain acts done “for the purpose of evading the reporting requirements of 31 U.S.C. §5313(a).” Pursuant to 31 U.S.C. §5324(a)(1)–(2) and §5324(c)(1), it is a crime for any person to cause or attempt to cause a financial institution to fail to file a CTR or to file a false CTR.
Pursuant to 31 U.S.C. §5324(a)(3) and §5324(d)(1),508As amended by Pub. L. No. 107-56, §365. it is a crime for any person to structure, to attempt to structure or to assist in structuring a transaction for the purpose of evading the reporting requirements. For example, if one desires to deposit in a bank $15,000 in cash but breaks down the transaction into three $5,000 deposits over three days with the purpose to evade having the bank file a CTR, then one commits a felony51031 U.S.C. §5324(d)(1). in violation of 31 U.S.C. §5324(a)(3).511See, e.g., United States v. Davenport, 929 F.2d 1169, 1171–72 (7th Cir. 1991) (husband and wife convicted for structuring by making 10 separate cash deposits of less than $10,000, totaling $81,500, at multiple branches of two banks); United States v Malewicka, 664 F.3d 1099, 1109–1110 (7th Cir. 2011) (that defendant was aware of the reporting requirement for cash withdrawals over $10,000 established by evidence that she withdrew between $9,000 and $10,000 on 244 separate occasions, with two or more withdrawals in a 24-hour period on 80 occasions, and she never withdrew over $10,000). Similarly, a person who purchases multiple money orders of less than $3,000 each to avoid reporting requirements is guilty of a felony.512United States v. Fisher, 291 F. Supp. 3d 356 (W.D. NY. 2017) (an indictment charging defendant with purchasing several money orders from different Western Union locations on the same day to avoid reporting requirements stated an offense under 31 U.S.C. §5324(a)(1)). Making multiple withdrawals not exceeding $10,000 to avoid reporting requirements is also a felony.513United States v Malewicka, 664 F.3d 1099, 1109–1110 (7th Cir. 2011) (defendant convicted for violating 31 U.S.C. 5324(a)(3) by withdrawing between $9,000 and $10,000 on 244 separate occasions, with two or more withdrawals in a 24-hour period on 80 occasions, and never withdrawing over $10,000); United States v. Leon, 841 F.3d 1187, 1192–93 (11th Cir. 2016) (defendant guilty of violating 31 U.S.C. §5324(a)(1) by making multiple cash withdrawals of under $10,000 that, when combined, exceeded $10,000).
A business is ineligible to be exempted if more than 50% of its gross revenues is from certain specified activities, including: (i) auctioning of goods; (ii) chartering of boats, buses or aircraft; (iii) gaming; (iv) providing investment advisory or investment banking services; (v) pawnbrokering; (vi) practicing law, accounting or medicine; (vii) engaging in real estate brokering, real estate closings or title insurance; (viii) purchasing or selling any kind of motor vehicles to customers; (viii) trade union activities; and (ix) serving as a financial institution.52131 C.F.R. §1020.315(e)(8).
Before 1994, most courts held that a willful violation of the anti-structuring law meant no more than that the defendant knew what he was doing. It did not require that he knew it was illegal.522United States v. Rogers, 962 F.2d 342, 344 (4th Cir. 1992). See also United States v. McNamara, 74 F.3d 514 (4th Cir. 1996) (listing cases from nine other circuits in accord with the holding in Rogers). In Ratzlaf v. United States,523510 U.S. 135 (1994). the Supreme Court rejected this view. The Court held that, to support a conviction under the anti-structuring provisions, the government must prove that a defendant knew that structuring a cash transaction to avoid the reporting requirements was unlawful, not simply that the defendant’s purpose was to circumvent the bank’s reporting requirements. The Supreme Court noted that, while some individuals attempt to elude reporting requirements in order to hide criminal activity from government inspectors, currency structuring “is not inevitably nefarious”. It gave as examples a person who structures transactions to prevent banks from filing reports in order to reduce the risk of an IRS audit, to prevent the likelihood of a burglary, or to hide wealth from a former spouse.525510 U.S. at 144–45. The Court was unpersuaded that structuring was “so obviously ‘evil’ or inherently ‘bad’” as to satisfy the willfulness requirement “irrespective of the defendant’s knowledge of the illegality of structuring.”526510 U.S. at 146. The Court held therefore that the requirement of willfulness meant that the defendant knew “that the structuring in which he engaged was unlawful.”527510 U.S. at 149.
In 1996, regulations became effective concerning the reporting of suspicious transactions by financial institutions.53112 C.F.R. §21.11(c)(4). A Suspicious Activity Report (SAR) has to be filed with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) if the financial institution knows, suspects, or has reason to suspect that a customer has violated a federal law or regulation, and the transaction involves or totals $5,000 or more.53212 C.F.R. §21.11(c)(4). The financial institution is barred under the regulations from disclosing to its customer the fact that it filed an SAR or the information contained in the SAR. A financial institution is subject to civil penalties53331 U.S.C. §5321(a)(1). if it fails to file an SAR in appropriate circumstances.
The maximum criminal penalty for a violation of 31 U.S.C. §5324 is a fine of not more than $250,000, imprisonment for not more than five years, or both.53431 U.S.C. §5324(d)(1); 18 U.S.C. §3571. A person violating these provisions while violating another law of the United States or as part of a pattern of illegal activity involving more than $100,000 in a 12-month period shall be fined not more than $500,000, imprisoned for not more than 10 years, or both.53531 U.S.C. §5324(d)(2); 18 U.S.C. §3571.
A person who transports more than $10,000 in currency or monetary instruments into or out of the United States is required to file with the U.S. Bureau of Customs and Border Protection a Report of International Transportation of Currency or Monetary Instruments (FinCen Form 105), commonly referred to as a “CMIR.”53631 U.S.C. §5316; 31 C.F.R. §1010.340(a). A person who, with an intent to evade currency reporting requirements, conceals more than $10,000 in currency in any conveyance, article of luggage or merchandise container, in order to transport or attempt to transport it into or out of the United States is subject to a maximum of five years imprisonment and forfeiture upon conviction.53731 U.S.C. §5332.