Civil Tax Fraud - IRS Burden of Proof and Negative Inference from Fifth Amendment Silence (8/2/12)

In the Tax Procedure class, we study fraud with respect to tax obligations.  Fraud has criminal and civil components.  Although we cover briefly the criminal components, I cover those in detail in a separate class, titled Tax Fraud and Money Laundering which will be taught next in the Spring of 2013 (see web page here).  In this Tax Procedure class we focus more on the civil components.

There are two key civil fraud penalties in the Code.  The one principally encountered in practice is Section 6663, here.  That section imposes a civil fraud penalty of 75% of the portion of an underpayment required to be shown on a return if "attributable to fraud."  The other key civil fraud penalty is Section 6651(f), here, which triples the failure to file penalty, to a maximum of 75%, if the failure to file is "fraudulent."  Each of these is viewed as a civil counterpart of the tax evasion crime under Section 7201 which can apply to a fraudulent return and a fraudulent failure to file.

Tax Procedure students might want to review an example of how the Government proves civil fraud that I discuss in a recent Federal Tax Crimes Blog entry, titled Tax Court Finds Fraud Based, in Part, On Negative Inference from Fifth Amendment Assertion (7/31/12), here.  The key points relevant to Tax Procedure that I discuss in that blog entry are:  (1) general rules of civil tax fraud cases, including certain "badges of fraud" permitting an inference of fraud for purposes of meeting the requirement that the IRS prove fraud by clear and convincing evidence and (2) the role of a negative inference when the taxpayer asserts the Fifth Amendment in a civil proceeding.