18 Sep 23

26 U.S.C. § 7203 – Willful failure to file tax return, supply information, or pay tax

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Last Updated on: 27th September 2023, 12:14 am

26 U.S.C. § 7203 – Willful failure to file tax return, supply information, or pay tax

Not filing your taxes can get you in big trouble with the IRS. 26 U.S.C. § 7203 is the law that makes it a crime to intentionally not file your tax return, not give required information, or not pay your taxes. This article will explain what § 7203 means, what the penalties are, and potential defenses.

What does 26 U.S.C. § 7203 say?

Section 7203 says that any person who “willfully fails” to file a tax return, keep records, supply information or pay tax as required by law can be charged with a misdemeanor. If convicted, the penalties are:

  • Up to 1 year in prison
  • Fined up to $25,000 for individuals or $100,000 for corporations
  • Pay back taxes plus interest and penalties

The law covers both individual income taxes and business taxes like payroll taxes. The failure just has to be “willful,” meaning on purpose and not by mistake or due to reasonable cause.

When can you be charged with § 7203?

To face charges under § 7203, the IRS has to prove beyond a reasonable doubt that you:

  1. Were required by law to file a return, supply information or pay taxes
  2. Willfully failed to do so

The IRS will look for things like:

  • A history of not filing returns or underreporting income
  • Using cash extensively or having offshore accounts to hide income
  • Making strange deductions or business expenses

They can use circumstantial evidence to prove willfulness, even without an outright admission. The penalties are higher if it involves a corporation.

What are some defenses against § 7203 charges?

It’s not illegal to just owe the IRS money or accidentally file late. Potential defenses against § 7203 charges include:

  • Good faith – You had a legitimate reason to think you didn’t need to file or pay.
  • Reliance on a tax pro – You gave all your info to an accountant and relied on their advice.
  • Medical incapacity – Illness, mental disability, or hospitalization prevented you from filing properly.

You may also argue there’s no proof you “willfully” failed to file. Honest mistakes, simple negligence or forgetfulness usually don’t meet the standard for criminal charges.

What are the consequences of a § 7203 conviction?

Beyond potential jail time and fines, a conviction under § 7203 can cause:

  • A felony conviction if the failure to file involved certain offshore accounts.
  • Problems qualifying for government contracts or licenses that require no prior convictions.
  • The IRS filing tax liens to seize property.

Any assets hidden from the IRS may also be subject to forfeiture. And you still have to pay back taxes plus interest and penalties, which can add up to more than the original amount due.

Recent cases and controversies

There are a few high-profile instances of § 7203 charges and convictions:

  • In 2009, actor Wesley Snipes was convicted of three misdemeanor counts under § 7203 and sentenced to 3 years in prison.
  • A Cleveland businessman was sentenced in 2016 to a year in prison for failing to pay over $8.8 million in payroll taxes.
  • Some argue § 7203 penalties are too harsh for simple failure to file offenses. But prosecutors say jail time can deter major tax evasion.

The outcomes really depend on the specific circumstances of each case. Consulting a tax attorney is recommended if you’re under investigation for § 7203 violations.

The bottom line on § 7203

Not filing your taxes on time is a civil matter. But if the IRS believes it was done intentionally, they may pursue criminal charges under 26 U.S.C. § 7203. This “failure to file” law makes it a misdemeanor punishable by fines and jail time.

An experienced tax defense lawyer can often negotiate reduced penalties or even avoid charges for minor first-time offenses. But repeated or egregious violations can result in stiff sentences. When in doubt, file for an extension rather than not filing at all. And consult a tax pro if you have any concerns about meeting your filing obligations.