July 01, 2017

The Legal Consequences of Noncompliance with Federal Tax Laws: Civil Penalties and Criminal Liability

Allen D. Madison

Reprinted with permission from The Tax Lawyer, Fall 2016 (70:1), at 367–402. Copyright © 2016 American Bar Association. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.



III. Civil Penalties

A.  Background

One of the potential consequences of noncompliance with the tax laws is the imposition of civil penalties.216 The Code authorizes the government to impose over 100 civil tax penalties.217 In the federal tax system—which relies on voluntary compliance—penalties are important. Without them, it is doubtful taxpayers would ever voluntarily comply.

This Article focuses on penalties the taxpayer must consider in the process of determining whether to comply with the tax laws. In deciding whether to comply, a taxpayer must focus on the basic penalties. It is not necessary to consider all 100 penalties when deciding whether to file a tax return, pay a tax owed, or report all taxable income. Rather, an individual taxpayer need only consider the basic tax filing, paying, and fraud penalties.


B.    Basic Penalties

1. Failure to File. Section 6651(a)(1) imposes a penalty for failing to file a required tax return.218 This penalty applies at a rate of five percent of the correct tax liability.219 It then increases by five percent every month up to 25%.220 The penalty amount is based on the taxpayer’s actual net tax liability arising out of operation of law.221 For income tax returns (i.e., not estate, gift, excise, or other taxes) filed more than 60 days late, the penalty cannot be less than $205 or 100% of the correct tax liability.222

Generally a taxpayer must file a prescribed tax return to avoid the filing penalty, but there is an exception. A taxpayer may file an informal statement as a tentative return.223 If a taxpayer files a tentative return, a proper return must follow, or the Service will impose the filing penalty.224

A taxpayer may not avoid the filing penalty by filing a “return” with insufficient information or on an altered form that masks the information relevant to determining the return’s accuracy.225 In Beard v. Commissioner, the taxpayer altered a Form 1040 by relabeling it such that his income was offset by an artificial amount of “nontaxable receipts” that exceeded the amount of his income.226 With this modification, the Form 1040 showed no taxable income, so the taxpayer requested a refund of his withholdings in the amount of $1,770.227 The Service refused to accept it as a return and imposed a failure to file penalty under section 6651(a)(1).

The Tax Court held that for a document filed with the Service to constitute a return for purposes of the “failure to file” penalty, the document must contain enough information for the Service to determine the amount of tax owed, purport to be a tax return, represent a sincere effort to comply with the tax laws, and reflect a signature made under penalty of perjury.228

According to the court, the taxpayer’s document did not satisfy all the requirements of a tax return.229 The document did not reflect a sincere effort to comply with the tax laws because it contained false information labeled “nontaxable receipts.”230 And this false information appeared in the return to deceive the Service.231

The document satisfied some of the requirements of a tax return. It was on a Form 1040, so it purported to be a return.232 The document contained the taxpayer’s actual income so there was technically sufficient information for the Service to compute the tax.233 It was even signed under penalty of perjury.234 However, satisfying these requirements was insufficient to overcome the document’s deceptiveness.235 Accordingly, the court held that the document did not constitute an income tax return for purposes of avoiding the failure to file penalty.236

2. Failure to Pay. Section 6651(a)(2) imposes a penalty for failure to pay a tax due.237 The penalty applies at a rate of .5% of the correct tax liability.238 It increases, like the filing penalty, by .5% every month up to 25%.239 It is notable that the penalty rate for a failure to pay a tax is substantially lower than the penalty for failure to file a tax return. One can infer from the difference in penalty rates that legislators place more importance on filing a return for penalty purposes. Perhaps legislators accord more importance to the filing penalty because if no return is filed the Service has to spend time and resources to find the taxpayer, determine the amount that the taxpayer should have reported without any information, and collect the tax. Where a taxpayer has filed a return, the taxpayer has made himself known, provided income information to verify, and all that may remain is collection.

3. Reasonable Cause for Delinquency. As a general matter, a penalty will not be imposed for delinquency if it is shown that the failure to file or pay is “due to reasonable cause and not due to willful neglect.”240 There are two ways to establish reasonable cause. One way that a taxpayer might show reasonable cause is to show that he was unable to comply with his disclosure obligation due to factors beyond his control.241 An example would be the loss of records due to an accidental fire.

Another way, a taxpayer might establish reasonable cause is by showing he made reasonable efforts to comply with the law.242 Under this standard, an honest and reasonable misunderstanding of fact or law might sometimes support a finding of reasonable cause.243

On occasion, taxpayers have taken the “reasonable efforts to comply” rule too far. In Unites States v. Boyle, the question was whether reliance on an attorney or advisor constitutes reasonable cause for a failure to file in a timely manner.244 The Court held that relying on an attorney or advisor does not excuse delinquency where the issue is one that does not require the expertise of an attorney or advisor.245 An executor of his mother’s will relied on an attorney for filing an estate tax return due nine months after the date of death.246 The attorney filed the tax return late.247 The Court held reliance on an attorney cannot constitute reasonable cause for a nontechnical issue requiring no advice from an expert, like not keeping track of the deadline.248 Reliance on an attorney can constitute reasonable cause, however, for a legal question where expert advice may help like whether a taxpayer is required to file a return or not.249

4. Civil Fraud. Another basic penalty is for civil fraud.250 This penalty is imposed on the portion of the underpayment due to fraud.251 It applies at rate of 75% of the underpayment.252 However, the penalty applies to the whole underpayment if the taxpayer fails to demonstrate that only a portion of the underpayment occurred due to fraud.253

In a Tax Court proceeding, the Service has the burden of presenting clear and convincing evidence of fraud.254 Taxpayers often fail to respond to the fraud penalty in pleadings so they essentially concede the fraud penalty if they lose the case, and the Service does not have to present any evidence.255 If the case is properly pleaded and the Service introduces some evidence, the taxpayer will have the burden of producing responsive evidence or lose the issue.


IV. Criminal Liability

Criminal liability is the last of the three major consequences of noncompliance. In addition to seizure of assets and penalties, the government can ultimately throw a taxpayer in jail. Potential jail time is an important consideration in the decision whether to comply with the tax laws.

A. Criminal Tax Enforcement

The process of investigating a tax crime is different than in other areas of the law. In other areas of criminal law, a crime is committed and authorities investigate to figure out who did it.256 For example, when a bank reports a robbery, the police investigate to determine who robbed it. Where a tax crime has taken place, the victim is a collective group—the people of the United States. An individual member of the collective group is unlikely to have any way of knowing the crime occurred. Thus, a criminal tax investigation must start with a taxpayer to determine whether he committed a crime.

Although the Service’s criminal investigators—special agents—and the Service’s civil investigators—revenue agents—have some overlapping tools, their investigations of the same tax stay somewhat separate to avoid due process problems. The Service may not trick a taxpayer into making a statement by conducting a criminal investigation under the guise of a civil tax audit.257

The Service does not have sufficient resources to find and extinguish all criminal tax activity. Therefore, the Service has to make the most of the resources it has. The Service has to prove that a taxpayer was willful (i.e., that he was aware of his obligation to pay taxes).258 When it pursues a criminal case, there is usually a publicity angle to it. The Service will make examples out of high profile taxpayers. One example is celebrities. When a celebrity gets caught, the Service gets free publicity for its enforcement efforts. Another example is tax protesters. When tax protesters get caught, it sends a message to other tax protesters that their arguments have no merit. The Service gets the value for its money when it prosecutes a celebrity tax protester. Recently, Wesley Snipes was prosecuted for tax evasion and failure to file tax returns. He was acquitted of the evasion charges but still went to jail for three years for failing to file a tax return for three years.259

B. Tax Crimes

The Code creates a number of tax crimes. Here, the concern is with the tax crimes that constitute basic noncompliance that a taxpayer would consider in deciding whether to comply with the tax laws. The basic tax crimes are

(1) willful failure to file a tax return, (2) attempted tax evasion, and (3) false statement.260

Attempted tax evasion under section 7201 is the evasion provision. The elements of tax evasion are as follows: (1) a tax deficiency, (2) an attempt to evade or defeat the tax, and (3) willfulness.261 Tax evasion is a felony.262 The government may impose a fine up to a $100,000 for an individual or $500,000 for a corporation.263 In addition, the government may imprison a taxpayer for up to five years per violation.264 The five-year maximum can be misleading. Most often, the government prosecutes alleged tax evaders for more than one violation, which can lead to longer sentences.265

The criminal failure to file a tax return is a misdemeanor.266 The elements of criminal failure to file a return are: (1) an obligation to file tax return, (2) failure to file, and (3) willfulness.267 It is punishable by a fine of $25,000 for individuals.268 The government may also imprison the perpetrator for up to one year.269 It should be noted that taking affirmative steps beyond merely not filing a tax return—such as requesting cash payments, holding deposits under a pseudonym, or keeping misleading records—could elevate the offense to tax evasion.270

Another basic tax crime is fraud or false statements under section 7206.271 It is essentially a perjury provision. It makes the following actions all felonies: false declarations under penalty of perjury, aiding or assisting in filing a false return, fraudulently executing a document for tax purposes (like a bond or permit), moving or concealing assets to evade tax or defeat tax collection, or making false statements to the Service regarding financial condition.272 The most relevant part of the decision whether to comply with the tax laws is making a false declaration under penalty of perjury.

The elements of a false statement crime are: (1) the making of a false a return, statement, or other document, (2) a declaration under penalty of perjury, (3) the taxpayer’s belief that the return was not true and correct to every material matter, and (4) willfulness.273 A conviction carries a fine of up to $100,000 and imprisonment for up to three years.274 No affirmative act other than filing a return is required for a violation to occur.

C. Willfulness and Affirmative Acts

A common component of punishable criminal tax behavior discussed here is willfulness. Willful in the criminal tax context means: “A voluntary, intentional violation of a known legal duty.”275 A taxpayer has not committed a crime, however, if he was unaware of his tax obligations when the act occurred.276 This is an exception to the rule that ignorance of the law is no defense.277 If a taxpayer subjectively believes his actions are legal, his actions are not willful.

In Cheek, the taxpayer was a pilot who stopped filing tax returns in 1979. Prosecutors charged Mr. Cheek with six counts of willfully failing to file an income tax return and three counts of willfully attempting to evade his income taxes. Cheek admitted he had not filed his returns. His position was, however, that he had not acted willfully because he sincerely believed his actions were lawful.278 The trial court instructed the jury that an honest but unreasonable belief is not a defense and does not negate willfulness, and, further, that Cheek’s beliefs that he did not owe tax were objectively unreasonable. The jury convicted him, and the court of appeals affirmed.279

The Supreme Court reviewed the jury charge applying an objective standard of willfulness and the instruction negating Cheek’s subjective beliefs. The Court held that a good-faith misunderstanding of the law or a goodfaith belief that one is not violating the law negates willfulness regardless of whether the belief or misunderstanding is objectively reasonable.280 The application of a subjective standard protects the average citizen from prosecution for innocent mistakes made due to the complexity of the tax laws. The Supreme Court remanded the case for a retrial.

Cheek holds that a good-faith belief need not be objectively reasonable. This is not, however, an invitation to convince one’s self that there is no obligation to comply with the tax laws. A taxpayer without subjective knowledge of his obligations may still have violated the law if his ignorance is deliberate and in bad faith.281

Although felony evasion and misdemeanor failure to file a tax return have the same willfulness element, an element of evasion is a positive act rather than a mere omission.282 The positive act is the differentiating factor between a misdemeanor tax crime and a felony tax crime. In Spies, prosecutors convicted a taxpayer of felony tax evasion, which the appellate court affirmed.283 The taxpayer had failed to file a federal income tax return and pay the tax he owed.284 The conviction was for felony tax evasion, and his failure to file a return combined with his failure to pay together constituted the crime.285 Failure to file a tax return or pay tax, however, is a misdemeanor, but tax evasion is a felony.286 Rather than differentiate between the misdemeanor and felony acts, the trial court explicitly permitted the jury to find the taxpayer guilty of a felony on the mere failures to file a return and pay the tax.287 The Supreme Court held that the taxpayer was entitled to a jury charge that evasion required an affirmative act—which was not in the charge—and, therefore, reversed conviction288.

D. Voluntary Disclosure Policy

The government generally will not prosecute a taxpayer who has made a voluntary disclosure.289 A voluntary disclosure is where a taxpayer voluntarily discloses a tax liability, and the disclosure is: (1) truthful, (2) timely (no criminal investigation has begun), (3) complete (accounts for all taxes due), and shows a willingness to cooperate regarding the determination of his tax liability.290

Why is the government willing to forgive criminal activity when a taxpayer makes a voluntary disclosure? The first reason is that the government gets its money. The second reason is that it would be difficult to prevail in a prosecution because the taxpayer negates willfulness by voluntarily disclosing his tax liability.

There is more than one way to go about making a voluntary disclosure. One way—referred to as a quiet voluntary disclosure—is to file an amended return without contacting the government.291 Another way—referred to as a noisy voluntary disclosure—is to contact the Service or the department of justice to confirm that there is no current investigation of the taxpayer going on.292 This inquiry is important for timeliness. If a taxpayer is making a disclosure because he has been notified of an investigation, there is no negation of willfulness.


V. Conclusion

The study of tax controversies should include a discussion of what taxpayers must consider when deciding whether to comply with the tax laws. In deciding whether to comply, taxpayers should understand there are consequences the government imposes for not complying. A taxpayer should consider that the government has the authority to collect his tax liability, impose civil penalties, and, ultimately, imprison him.

Although it may seem obvious that these are the appropriate considerations for a taxpayer who asks about potential consequences of noncompliance, neither primary nor secondary sources direct a taxpayer or his representative to a cohesive answer to the question. The Code discusses collection, collection alternatives, penalties, and criminal sanctions in unrelated chapters in subtitle F.293 Moreover, the Code’s chapters for these topics either contain excessive amounts of noise or are overly cryptic. A taxpayer trying to figure out what constitutes basic noncompliance will have to wade through the over 100 penalties in the Code rather than the three discussed in this Article. A taxpayer trying to determine how to deal with a collection action will find in chapter 74 of the Code only that the Service is authorized to enter into closing agreements and compromise liabilities but no material on how to ask for either.

Secondary sources have not consolidated the topics on the consequences of failing to comply either. The leading secondary sources are organized chronologically based on the events that can occur throughout the controversy process. The events discussed in secondary sources, however, rarely occur chronologically. The decisions and determinations made in the tax controversy process, however, (whether to comply, how to comply, deficiency determinations, and judicial determinations) do occur sequentially.

The first step, the taxpayer’s decision whether to comply with the tax laws, occurs before the taxpayer prepares a return, the Service reviews it, and the taxpayer challenges it in court. The government’s authority to assert criminal liability, impose civil penalties, and collect any unpaid amounts are the important considerations for making the decision.



216. See generally I.R.C. §§ 6651–6725.

217. See Michael Doran, Tax Penalties and Tax Compliance, 46 Harv. J. on Legis. 111, 114 n.9 (2009) (“The Treasury Department reported in 1999 that the tax law “presently contains over 100 civil and criminal penalties.”); U.S. Gov’t Accountability Office, GAO-09-567, Tax Administration: The IRS Should Evaluate Penalties and Develop a Plan to Focus its Efforts 1 (2009) (“The Internal Revenue Code (I.R.C.) has more than 150 penalties.”).

218. See § 6651(a)(1) (“In case of failure to file any [tax] return . . . on the date prescribed therefor . . . there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax . . . .”). But see infra note 239 and accompanying text.

219. See § 6651(a)(1) (The penalty delinquency penalties apply to the correct tax liability in, described as “the amount required to be shown on the return.”). For standard-of-care penalties not discussed here, such as the section 6662 “accuracy-related” penalty, the penalty applies only to the amount the taxpayer underpaid. See I.R.C, § 6662(a) (“If this section applies to any portion of an underpayment of tax required to be shown on a return, there shall be added to the tax an amount equal to 20 percent of the portion of the underpayment to which this section applies.”).

220. See § 6651(a)(1) (The filing penalty increases “an additional 5 percent for each additional month . . . during which such failure continues, not exceeding 25 percent in the aggregate . . . .”).

221. See § 6651(b)(1) (“[T]he amount of tax required to be shown on the return [for the filing penalty] shall be reduced by the amount of any part of the tax which is paid . . . and by the amount of any credit . . . .”).

222. See § 6651(a) (“In the case of a failure to file a return of [income] tax. . . within 60 days of the [due date], the addition to tax . . . shall not be less than the lesser of $205 or 100 percent. . . .”)

223. See Reg. § 1.6011-1(b) (permitting a taxpayer to file a tentative return “disclosing his gross income and the deductions,” which will “relieve the taxpayer from liability” regarding the delinquency penalty if a proper return is filed soon after).

224. See id.

225. See Beard v. Commissioner, 82 T.C. 766, 769, 780 (1984), aff’d, 793 F.2d 139 (6th Cir. 1986) (“Section 6651(a)(1) provides that an addition to tax is due if a taxpayer fails to timely file a return unless such failure is due to reasonable cause and not due to willful neglect. The evidence is clear that petitioner’s actions were deliberate, intentional and in complete disregard of the statute and respondent’s regulations. Petitioner made no attempt to file an authentic tax return, as he did for 1979, and offers no excuse for his failure to do so.”).

226. Id. at 769 (“On line 7 entitled ‘Wages, salaries, tips, etc.’ taxpayer inserted the amount of $24,401.89. On line 23, under the category of ‘Non-taxable receipts,’ petitioner claimed an adjustment to ‘Receipts’ of $29,401.89.”).

227. Id. (“He therefore showed a tax liability of zero. On line 55, entitled ‘Total Federal income tax withheld,’ he showed an amount of $1,770.75. The total $1,770.75 that had been withheld from his wages was claimed as a refund.”).

228. See id. at 777 (considering what constitutes a return in the context of a number of issues including the filing penalty, providing as follows: “First, there must be sufficient data to calculate tax liability; second, the document must purport to be a return; third, there must be an honest and reasonable attempt to satisfy the requirements of the tax law; and fourth, the taxpayer must execute the return under penalties of perjury.”).

229. See id.

230. See id. at 769 (“Petitioner’s scheme in submitting this tampered form apparently was to conceal from the Service Center operators the fact that his inclusion of his wages on the tampered form was negated by his fabrication of ‘Non-taxable receipts’ on line 23.”).

231. See id. at 769, 779 (noting that the taxpayer ‘s “scheme in submitting this tampered form apparently was to conceal from the Service Center operators the fact that his inclusion of his wages on the tampered form was negated by his fabrication of ‘Non-taxable receipts’” and holding that “[t]he critical requirement that there must be an honest and reasonable attempt to satisfy the requirements of the Federal income tax law clearly is not met”).

232. See id. at 778 (“The tampered form before us may purport to be a return in that it may ‘convey, imply or profess outwardly’ to be a return.”).

233. See id. at 786 (Chabot, J., dissenting on this issue) (“The Form 1040 in question shows the necessary income information, and does so on the correct line, and that line has not been altered.”).

234. See id. at 778 (majority opinion) (“It [the income tax return] was also sworn to.”).

235. See id. at 779 (“It [the document] in fact makes a mockery of the requirements for a tax return, both as to form and content.”).

236. See id. at 781.

237. I.R.C. § 6651(a)(2) (“In case of failure to pay the amount shown as tax on any [tax] return . . . on or before the [due] date . . . there shall be added to the amount shown as tax on such return 0.5 percent . . . .). But see infra note 239 and accompanying text.

238. See § 6651(a)(2).

239. See § 6651(a)(2) (The payment penalty increases “an additional 0.5 percent for each additional month . . . during which such failure continues, not exceeding 25 percent in the aggregate . . . .”).

240. § 6651(a) (The quoted language appears in each paragraph of subsection (a).).

241. See Reg. § 301.6651-1(c)(1) (A taxpayer who has exercised ordinary care and business prudence but was unable to file on time or was unable to pay tax on time, has acted with reasonable cause.).

242. See Reg. § 1.6664-4(b) (regarding a taxpayer’s underpayment of tax).

243. See id.

244. See 469 U.S. 241, 242 (1985) (stating the issue as “whether a taxpayer’s reliance on an attorney to prepare and file a tax return constitutes ‘reasonable cause’ under § 6651(a)(1) of the Internal Revenue Code, so as to defeat a statutory penalty incurred because of a late filing”).

245. See id. at 251 (“[T]ax returns imply deadlines. Reliance by a lay person on a lawyer is of course common; but that reliance cannot function as a substitute for compliance with an unambiguous statute.”).

246. See id. at 242 (“Robert W. Boyle, was appointed executor of the will of his mother; . . . [Boyle] retained Ronald Keyser to serve as attorney for the estate . . . . [T]he return was due within nine months of the decedent’s death . . . .”).

247. See id. at 243 (“When respondent called Keyser on September 6, 1979, he learned for the first time that the return was by then overdue. Apparently, Keyser had overlooked the matter because of a clerical oversight in omitting the filing date from Keyser’s master calendar.”).

248. See id. at 251–52.

249. See id. at 251 (“When an accountant or attorney advises a taxpayer on a matter of tax law, such as whether a liability exists, it is reasonable for the taxpayer to rely on that advice. Most taxpayers are not competent to discern error in the substantive advice of an accountant or attorney.”).

250. See I.R.C. § 6663(a) (“If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.”).

251. See § 6663(a).

252. See § 6663(a).

253. See § 6663(b) (“If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes . . . is not attributable to fraud.”).

254. I.R.C. § 7454(a); see Tax Ct. R. Prac. & P. 142(b) (“In any case involving the issue of fraud with intent to evade tax, the burden of proof in respect of that issue is on the respondent, and that burden of proof is to be carried by clear and convincing evidence.”).

255. Tax Ct. R. Prac. & P. 37(c) (“Where a reply is filed, every affirmative allegation set out in the answer and not expressly admitted or denied in the reply shall be deemed to be admitted.”).

256. Andreoni, et. al, supra note 2, at 818 (“Unlike other law enforcers . . . tax agents do not start from a crime and work backward to suspects, but scan tax records looking for evidence of evasion.”).

257. See United States v. Toussaint, 456 F. Supp. 1069, 1073 (S.D. Tex. 1978) (“[T]he Fourth Amendment is violated if a taxpayer’s cooperation is obtained through fraud or deceit.”).

258. Cheek v. United States, 498 U.S. 192, 201 (1991) (“Willfulness, as construed by our prior decisions in criminal tax cases, requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.”); see infra notes 274-75 and accompanying text.

259. See United States v. Snipes, 611 F.3d 855, 863 (11th Cir. 2010).

260. I.R.C §§ 7201-7203.

261. See § 7201; Sansone v. United States, 380 U.S. 343, 351 (1965) (“[T]he elements of § 7201 are will-fulness; the existence of a tax deficiency; and an affirmative act constituting an evasion or attempted evasion of the tax.” (citations omitted)).

262. § 7201.

263. § 7201.

264. § 7201.

265. See, e.g., United States v. Cohen, 510 F.3d 1114, 1117, 1117 n.2 (9th Cir. 2007) (noting that, in addition to tax evasion, the government convicted Mr. Irwin Schiff of conspiracy to defraud the government for the purpose of impeding and impairing the Service; five counts of aiding and assisting in the filing of false federal income tax returns, and six counts of filing false income tax returns). These multiple counts resulted in a prison sentence for Mr. Schiff of 13.5 years despite only one charge of evasion. See Allen D. Madison, The Futility of Tax Protester Arguments, 36 T. Jefferson L. Rev. 253, 271 (2014).

266. I.R.C. § 7203 (“Any person required . . . to make a return . . . who willfully fails to . . . make such return . . . shall, in addition to other penalties provided by law, be guilty of a misdemeanor . . . .”).

267. See § 7203.

268. § 7203.

269. § 7203.

270. See Spies v. United States, 317 U.S. 492, 499 (1943).

271. I.R.C. § 7206.

272. § 7206.

273. See United States v. Bishop, 412 U.S. 346, 350 (1973) (“Section 7206(1) . . . is violated when one ‘(w)illfully makes and subscribes any return,’ under penalties of perjury, ‘which he does not believe to be true and correct as to every material matter.’”) (quoting § 7206(1)).

274. § 7206.

275. United States v. Pomponio, 429 U.S. 10, 12 (1976).

276. See Cheek v. United States, 498 U.S. 192, 203 (1991) (holding that a taxpayer must be subjectively aware of the obligation to file a tax return to satisfy the willfulness element of felony evasion); United States v. Pensyl, 387 F.3d 456, 459 (6th Cir. 2004); United States v. Grunewald, 987 F.2d 531, 535-36 (8th Cir. 1993).

277. See Cheek, 498 U.S. at 199-200 (1991) (“[T]he Court almost 60 years ago interpreted the statutory term ‘willfully’ as used in the federal criminal tax statutes as carving out an exception to the [‘ignorance of the law is no defense’] rule.”).

278. See id. at 196 (“Petitioner’s defense was that . . . he sincerely believed that the tax laws were being unconstitutionally enforced and that his actions during the 1980-1986 period were lawful. He therefore argued that he had acted without the willfulness required for conviction of the various offenses with which he was charged.”).

279. United States v. Cheek, 882 F.2d 1263, 1271 (7th Cir. 1989), vacated, 498 U.S. 192 (1991).

280. Cheek, 498 U.S. at 203 (1991).

281. See United States v. Anthony, 545 F.3d 60, 65 (1st Cir. 2008); United States v. Dean, 487 F.3d 840, 851 (11th Cir. 2007) (per curiam); United States v. Bussey, 942 F.2d 1241, 1249 (8th Cir. 1991); United States v. Bissell, 954 F. Supp. 903, 927 (D.N.J. 1997); Madison, supra note 265, at 285-86 (noting with respect to willful ignorance of tax compliance obligations that “it would be difficult to live under the rule of law if it were so easy to bypass the law by choosing to be unaware of it”).

282. See Spies v. United States, 317 U.S. 492 (1943) (holding that a failure to file cannot be a felony without an affirmative act beyond inaction).

283. See id. at 492-93 (“Petitioner has been convicted of attempting to defeat and evade income tax [and] the Circuit Court of Appeals affirmed.”).

284. See id. at 493 (“Petitioner admitted at the opening of the trial that he had sufficient income during the year in question to place him under a statutory duty to file a return and to pay a tax, and that he failed to do either.”).

285. See id. at 494-95 (“It is the Government’s contention that a willful failure to file a return together with a willful failure to pay the tax may, without more, constitute an attempt to defeat or evade a tax.”).

286. Compare I.R.C. § 7201 (“Any person who willfully attempts . . . to evade . . . any tax . . . shall . . . be guilty of a felony. . . .”), with I.R.C. § 7203 (“Any person required . . . to make a return . . . who willfully fails to . . . make such return . . . at the time . . . required by law . . . shall . . . be guilty of a misdemeanor.”).

287. See Spies, 317 U.S. at 494 (“The Court refused a request to instruct that an affirmative act was necessary to constitute a willful attempt.”).

288. See id. at 500 (“[W]e think a defendant is entitled to a charge which will point out the necessity for such an inference of willful attempt to defeat or evade tax from some proof in the case other than that necessary to make out the misdemeanors; and if the evidence fails to afford such an inference, the defendant should be acquitted.”).

289. See Allen D. Madison, An Analysis of the IRS’s Voluntary Disclosure Policy, 54 Tax Law. 729, 731 (2001) (“In general, under certain circumstances the Service will not prosecute a taxpayer who has voluntarily disclosed particular tax indiscretions to the Service.”).

290. See Madison, supra note 289, at 734; I.R.M.

291. See Saltzman & Book, supra note 3, at ¶ 12.06[2][b] (“Still another approach followed where there is no examination or investigation pending is preparing and filing delinquent or amended returns without drawing attention to them. The advantage of these ‘quiet disclosures’ is that the Service may not examine the returns after receipt.”).

292. See Scott D. Michel, Developments in Offshore Tax Compliance in ss020 International Trust and Estate Planning, ALI-ABA Course of Study 801, 835 (2010) (“Noisy Disclosures. A second method is to contact [CID] in the appropriate district. . . . In some districts, the CID agent will accept the name of the taxpayer and confirm the taxpayer’s eligibility for a voluntary disclosure without seeking much more additional information.”).

293. See Chapters 64 (collection), 68 (additions to tax and penalties), 74 (compromises) and 75 (criminal offenses) of the Code.



Allen D. Madison



Allen D. Madison is associate professor, University of South Dakota School of Law. Many thanks to Professors Sonya Miller, Ramon Ortiz-Velez, Wendy Hess, Tom Simmons, and Mike McKey for comments on earlier drafts; Ms. Emily Lessin and Ms. Mallory Schulte for their research assistance; and Ms. Teresa Carlisle for her administrative support. This Article would not have been possible without a grant from the Taxpayer Advocate Service for a Low Income Taxpayer Clinic.