Section 7206 establishes, among other crimes, the federal tax crime of making false or fraudulent statements to the IRS, and aiding or assisting a taxpayer in making such statements. This post focuses on the crime of aiding or assisting the preparation of a false or fraudulent document that is presented to the IRS.
The relevant statute provides as follows:
I.R.C. § 7206 – FRAUD AND FALSE STATEMENTS
Any person who-
. . .
(2) AID OR ASSISTANCE.–Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document;
. . .
shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.
Aiding or Assisting the Preparation of a False or Fraudulent Document
In order to establish an offense under 7206(2) for aiding or assisting in the preparation of a false or fraudulent document, the government must establish the following three elements beyond a reasonable doubt:
- The defendant aided or assisted in, or procured, counseled, or advised the preparation or presentation of a return, affidavit, claim, or other document which involved a matter arising under the Internal Revenue laws.
- The return, affidavit, claim, or other document was fraudulent or false as to a material matter.
Notably, there is no requirement that the document at issue have been signed under penalty of perjury. Nor is a tax deficiency a requirement under Section 7206(2).
Aiding and Assisting
Section 7206(2) is frequently used by prosecutors to charge tax return preparers and other representatives. It can also be used against anyone who causes a false return to be filed, including:
- Corporate officers;
- Tax shelter promoters;
- consultants or professionals who provide documents or advice that will be used for tax return preparation;
- Other responsible persons
In some cases involving tax professionals, the government may utilize civil alternatives to criminal prosecution. Those alternatives may include:
- I.R.C. § 6694 penalties – $100 per return for negligence, $500 per return for willful understatement of tax liability.
- I.R.C. § 6701 – $1,000 ($10,000 in the case of a corporate return) penalty for aiding and abetting in the understatement of tax liability.
- I.R.C. § 7407 – injunctive relief.
The actual preparation of the false return is not necessary to lay the foundation for a section 7206(2) charge. Supplying false information, itself, may be enough in certain situations. In this sense, a section 7206(2) charge differs from a “tax perjury” charge under 7206(1), which requires a willful false and material misstatement on a tax return under penalty of perjury. Section 7206(2) is also distinguishable from the more general crime of “aiding and abetting” under 18 U.S.C. Section 2 in that it does not hinge on whether the other person (the taxpayer) actually committed a crime. In other words, section 7206(2) can apply even if the taxpayer is innocent.
The element of materiality is analyzed using the same principles that apply with respect to I.R.C. section 7206(1).
The concept of willfulness bears the same meaning in the context of section 7206(2) as it does in the context of other criminal tax violations. Willfulness means a voluntary, intentional violation of a known legal duty. Cheek v. United States, 498 U.S. 192, 200 (1991). Willfulness is typically proven through circumstantial evidence.