For most crimes, the government must prove that the defendant acted intentionally. This seems like it should be a fairly high bar particularly in white-collar criminal cases but it’s not.
For most crimes, the government need only prove that the conduct was not accidental or that the defendant intended to engage in the conduct. This is called “general intent.”
Tax fraud is another matter. In a tax fraud case the government must prove a higher level of intent called “specific intent.” Specific intent means that the defendant not only intended to engage in the conduct but also that he intended a specific result (e.g., to defraud someone). To denote specific intent, criminal statutes often use the word “willful.”
To prove criminal tax evasion, the government must prove (1) a tax deficiency, (2) an affirmative act constituting evasion or attempted evasion of taxes, and (3) willfulness. Under section 7201, willfulness is the “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 U. S. 192, 201 (1991).
In other words, the government must prove not only that the defendant acted intentionally and not accidentally, but also that the defendant knew that he was breaking the law.
Many defendants in criminal cases–particularly white-collar criminal cases–try to argue that they didn’t realize what they were doing was illegal. In most criminal cases, that defense holds no water because they are simply general intent crimes. But that defense could work in a tax evasion case.
So does this mean the defendant often wins in tax evasion cases? Nope.
A recent case out of the Tenth Circuit is a good example of this higher intent. In United States v. Boisseau, the court addressed a case in which a lawyer was accused of committing tax fraud. The case shows that this higher level of intent is far from insurmountable for the government.
Mr. Boisseau was a lawyer in Wichita, Kansas. He was charged with tax evasion for taxes incurred between 1998 and 2008. During most of that time, Mr. Boisseau filed tax returns reporting tax liability but did not pay all of the taxes he owed.
According to the court of appeals:
Thus, at the time of the filing of this 2008 tax return, he had in the aggregate reported some $712,972 in tax, but only paid $212,511. Into 2001, he was also assessed a trust fund recovery penalty of 250 $929 for failing to pay withholding taxes, most of which would ultimately be paid by the controller of his former law firm.
The problem wasn’t so much his failure to pay the taxes (although that was a problem). The problem was what Mr. Boisseau apparently did to try to conceal his assets from seizure from the IRS to pay this tax liability.
After the IRS placed a tax levy on him, Mr. Boisseau created an LLC for his law firm and placed it in the hands of a “nominee” owner. The nominee owner was his son’s father-in-law. However his son’s father-in-law had never been to the law firm and handled no cases for the law firm.
According to the opinion, Mr. Boisseau also switched the form of compensation that his firm paid him–from payment of a salary from to payment of his direct personal expenses. A salary is subject to a tax levy; payment of expenses are not.
The timing of this change was significant. Right after the IRS placed the levy, Mr. Boisseau drafted a letter saying that he was resigning from law firm and wanted to terminate his pay agreement. But he continued to work on cases. And the firm began to pay his personal expenses directly instead of paying him a salary.
The nail in the coffin for Mr. Boisseau on appeal, however, seemed to be his misleading statements given to the IRS revenue officer. When she asked him how he was paying his personal expenses given that he did not receive a salary, he told her that his children and family members paid them. It’s unclear how this happened, but apparently “his lawyer informed the IRS that the firm had been paying his personal expenses.”
Based on this evidence, Mr. Boisseau was convicted in the trial court (in a bench trial) of criminal tax evasion.
Affirming the Conviction
The Tenth Circuit affirmed his conviction, analyzing the evidence of an affirmative act and wilfulness in some detail.
Between the use of a nominee owner, the changed compensation form and the misrepresentations to the IRS revenue officer, the court of appeals had no problem concluding the trier fact was correct in finding sufficient affirmative acts by Mr. Boisseau to evade taxes.
Mr. Boisseau also challenged whether the government had met its burden with respect to proving willfulness. The court found that the government had met its burden.
First, the fact that Mr. Boisseau was an “inexperienced attorney” hurt his argument that he didn’t know about his legal obligation to pay taxes for substantial tax liabilities.
Second, the court concluded that Mr. Boisseau’s “conduct over time demonstrated his intent to avoid collection.” Specifically, it looked to the three affirmative acts described above. The court made clear that evidence of willfulness need not be direct. It can arise from circumstantial evidence and there was plenty of that here based on these three affirmative acts.
The Tenth Circuit concluded “the facts speak to his specific intent to evade, thereby demonstrating that his conduct was willful.”
Tax Fraud Cases Are Still Hard to Win
Mr. Boisseau may have had an innocent explanation for each of the affirmative acts of evasion. But, even for a specific intent crime, the court will look to the totality of what happened, and it will not hesitate to convict a defendant based on circumstantial evidence.
Most white-collar cases are built on this type of evidence. (It’s rare for a white-collar defendant to draft an email saying, “let’s go defraud people and here’s how we’ll do it.”) There’s nothing stopping the government from relying on circumstantial evidence in a specific intent criminal case.
A criminal tax evasion case–with its higher intent standard–gives a defense attorney a fighting chance at winning. You should realize, though, that the deck remains stacked against you. Mr. Boisseau learned that the hard way.