2023-07-07
The Fifth Circuit affirmed the district court in US v. Kevin L. Crandell, 2023-2 U.S.T.C. ¶50,199, (5th Cir., Jun. 29, 2023)
Taxpayer submitted a Form 433-A that downplayed Taxpayer’s income and omitted key assets. Different documents stated or implied a large range of incomes, and the income figure on the Fork 433-A was well below all other contemporaneous evidence of his income. Moreover, Taxpayer wrote himself two checks from his corporation for a total of $40,000 shortly after submitting the Form 433-A, providing a substantial financial boost. The form 433-A did not accurately list his personal assets, including a $50,000 gun collection, and did not list the bank accounts associated with Taxpayer’s corporations, even though he often used the accounts to pay for personal expenses.
Taxpayer raised two claims on appeal: (1) the evidence at trial was insufficient to support a conviction for tax evasion under 26 U.S.C. §7201; and (2) the district court abused its discretion by denying his motion for a mistrial. Both claims failed.
Preserved challenges to the sufficiency of the evidence are reviewed de novo. Taxpayer’s sufficiency challenge takes two independent forms: (1) submitting a false Form 433-A cannot support a conviction for tax evasion as a matter of law.; and (2) the evidence does not show that he willfully evaded his tax obligations. Taxpayer claimed that since he supplied other documents to the IRS and the preparer that reflected a much higher income around the same time proves he was not willfully attempting to hide his income from the IRS, and establish that the preparer had access to all his financial information and thus bears the responsibility for any errors in the Form 433-A. The Court held that these arguments missed the mark.
IRC §7201 penalizes “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof.” Courts have long held that §7201 has three elements: “(1) willfulness, (2) existence of a tax deficiency; and (3) an affirmative act constituting an evasion or attempted evasion of the tax.”
The Fifth Circuit had not previously ruled on this issue and the parties identified little precedent from other courts. The statute text proscribes evading ‘any tax imposed by this title or the payment thereof. Understating financial status on a Form 433-A does not change tax liability, but reduces the payments due on that debt, especially so where, as here, the form states that the debtor’s expenses exceed his income. A taxpayer could rack up huge tax debts and arrange slow repayment schedules using Form 433-As that undersell his income and assets, that would be an “attempt[] … to evade or defeat” the “payment” of due taxes. The Court held that based on this evidence, a rational juror could conclude that Taxpayer knew that his true income was considerably higher than that listed on the form and willfully misled the IRS about his ability to pay.
Taxpayer must show: (1) he relied in good faith on a professional and (2) he made complete disclosure of all the relevant facts, to constitute a sufficient defense. Here, the preparer drafted a Form 433-A reflecting income about $5,000 higher than Taxpayer’s living expenses, then Taxpayer submitted new pay stubs suggesting his income was slightly lower than his living expenses, contrary to all other documentation. Taxpayer’s intervention in the preparation for Form 433-A is incompatible with the reliance defense.