16.00 FRAUDULENT RETURNS, STATEMENTS, OR OTHER DOCUMENTS

Updated May 2001

16.01 STATUTORY LANGUAGE:  26 U.S.C. § 7207

16.02 POLICY LIMITING THE USE OF SECTION 7207

16.03 ELEMENTS

16.04 RETURN, STATEMENT, OR OTHER DOCUMENT

16.05 FALSE OR FRAUDULENT MATERIAL MATTER

16.06 WILLFULNESS

16.07 LESSER-INCLUDED OFFENSE CONSIDERATIONS

16.08 VENUE

16.09 STATUTE OF LIMITATIONS
    

        16.01  STATUTORY LANGUAGE:  26 U.S.C. § 7207

      Section 7207 of the Internal Revenue Code (Title 26) provides, in
pertinent part:

      §7207.  Fraudulent returns, statements, or other
documents

            Any person who willfully delivers or discloses to the Secretary
      any list, return, account, statement, or other document, known by him to
      be fraudulent or to be false as to any material matter, shall be fined*
      not more than $10,000 ($50,000 in the case of a corporation), or
      imprisoned not more than 1 year, or both. [FN1]

            * As to offenses committed after December 31, 1984, the Criminal
      Fine Enforcement Act of 1984 (P.L. 98-596) enacted 18 U.S.C.
      § 3623 [FN2] which increased the maximum permissible fines for both
      felonies and misdemeanors.  For the misdemeanor offenses set forth in
      section 7207, the maximum permissible fine for offenses committed after
      December 31, 1984, is increased to $100,000 in the case of individuals
      and $200,000 in the case of corporations.  Alternatively, if the offense
      has resulted in pecuniary gain to the defendant or pecuniary loss to
      another person, the defendant may be fined not more than the greater of
      twice the gross gain or twice the gross loss.

         
         16.02  POLICY LIMITING THE USE OF SECTION 7207

      The Tax Division's policy regarding the use of section 7207 in criminal
prosecutions has undergone dramatic changes.  For a number of years,
prosecutions were not authorized under this section. [FN3]  On September 17,
1976, the Attorney General approved a Tax Division proposal to modify this
policy.  The modification in policy allowed for the use of section 7207 in a
limited number of criminal tax cases, commonly referred to as altered document
cases.  Such cases routinely involve the submission to the Internal Revenue
Service of checks containing amounts which had been altered (usually,
increased) after the checks had cleared the bank ("raised cancelled checks"),
altered invoices, and similar altered documents as support for overstated
deductions.

      Section 7207 prosecutions, however, were not authorized where the
altered document was a federal tax return.  And, the use of section 7207 was
restricted to those cases where the Tax Division determined that the
circumstances did not warrant a felony prosecution.  Under this policy, the
Tax Division considered the following factors in determining whether
prosecution under the misdemeanor section was justified: (1) whether the
computed tax deficiencies were such as to be considered de
minimis in relation to the circumstances of the particular case under
consideration; and (2) whether the means and methods utilized in committing
the offense were commensurate with charging a misdemeanor rather than a
felony.

      Recognizing that its policy created obstacles for the government in
negotiating with lower-echelon individuals in a wider scheme who expressed a
desire to cooperate in ongoing or future investigations in return for
leniency, the Tax Division reconsidered its long-standing position that an
income tax return could not form the basis of a section 7207 prosecution.  On
March 21, 1989, the Tax Division issued Directive No. 75, permitting
misdemeanor prosecution under section 7207 where the false document is a
federal income tax return under very limited circumstances:  

            The Department of Justice, Tax Division, agrees to consider
      approving plea agreements with charges brought under 26 U.S.C., Section
      7207 for witnesses cooperating in Title 18 and Title 26 grand jury
      investigations and in no other circumstances under the following
      conditions:

      1.    Approval for Section 7207 charges will not be given in any case in
            which the Tax Division has previously authorized charges against
            the subject under Section 7206(1), Section 7201, or a tax
            (Klein) conspiracy.

      2.    The Tax Division must be provided with a prosecution statement or
            letter describing the outlines of the Title 26 and/or Title 18
            investigation, the involvement of the cooperating witness who will
            plead, and the anticipated cooperation that the witness is
            expected to provide in the investigation.

      3.    The subject must have agreed to be a cooperating witness in a
            Title 18 or Title 26 investigation to which the witness' proposed
            income tax violation related.

      4.    In addition to his cooperation in the ongoing criminal
            investigation and prosecution, the subject must agree to cooperate
            fully and truthfully with the Internal Revenue Service in any
            civil audit or adjustment of the tax liability arising out of the
            circumstances of the criminal case.

      5.    The subject must be informed that any plea agreement to tax
            misdemeanors under 26 U.S.C. § 7207 is subject to the
            approval of the Tax Division, Department of Justice.  No such plea
            agreement is to be executed until authorized by the Tax Division
            or, if executed, unless it contains a provision that the plea
            agreement is subject to the approval of the Tax Division.

      6.    Approval for use of Section 7207 will not be given, hence should
            not be requested, if the underpayment of taxes resulting from the
            false statements in the return exceeds $2500 in any of the years. 
            In such cases the plea must be to a tax felony.

      7.    The IRS must make a referral pursuant to 26 U.S.C.
            § 6103(h)(3)(A).  The United States Attorney must have
            obtained tax disclosure confirming the filing of the return(s). 
            The Tax Division should be provided with an abbreviated SAR, a
            computation of the taxes due, the tax return(s) involved, and a
            copy of the plea agreement or a statement of its terms.  Section
            7207 approval will not be given if the tax disclosure material
            suggests that a tax misdemeanor would be an inappropriate
            disposition of the case.

      8.    The subject must sign a statement reflecting the amount of the
            unreported income or fraudulent deductions and the circumstances
            involved in all the years under investigation.

Tax Division Directive No. 75, dated March 21, 1989. 

      Willfully delivering to the Secretary any false or fraudulent list,
return, account, statement, or other document can serve, with appropriate Tax
Division approval, as the basis for other charges, including felony charges.  
For example, a false document can constitute an attempt to evade and defeat a
tax in violation of section 7201 of the Code (Title 26).  See Section
8.04, Attempt To Evade Or Defeat, supra.  A false
document can also be the basis for a felony charge of violating 18 U.S.C.
§ 1001 even though the document could also be the basis for a section
7207 misdemeanor violation.  United States v. Fern, 696 F.2d
1269, 1273-74 (11th Cir. 1983); United States v. Schmoker,
564 F.2d 289, 291 (9th Cir. 1977) (concurring opinion).  In
Fern, the court rejected the defendant's argument that he should
have been prosecuted under section 7207 instead of 18 U.S.C. § 1001,
noting  that under long-established precedent,  where statutes overlap, the
government can select the statute under which it wishes to prosecute. 
Fern, 696 F.2d at 1273-74.  See also United States
v. Batchelder, 442 U.S. 114, 123-24 (1979)(noting that it is within
the government's discretion to charge one statute over another).

                         
                         16.03  ELEMENTS

      To establish a violation of section 7207, the following elements must be
proved beyond a reasonable doubt:

      1.    Submitting to the Internal Revenue Service a return, statement, or
            other document;

      2.    The return, statement, or other document is false or fraudulent as
            to a material matter; and,

      3.    Willfulness.

Sansone v. United States, 380 U.S. 343, 352 (1965).

           
           16.04  RETURN, STATEMENT, OR OTHER DOCUMENT

      By its express terms, section 7207 applies to "any list, return,
account, statement, or other document."  Aside from the policy considerations
discussed above, there is no limit on the type of document that can be the
subject of a violation.  The usual situation will involve an Internal Revenue
Service audit and the submission to the auditor of altered cancelled checks,
altered invoices, or altered receipts and the like, as support for overstated
deductions.  Unlike a section 7206(1) violation, there is no requirement in
section 7207  that the document be signed under penalties of perjury, or even
signed at all.  United States v. Bishop, 412  U.S. 346, 357
(1973).  It is enough to show that the document was delivered or disclosed to
the Internal Revenue Service.  26 U.S.C. § 7207; Bishop,
412 U.S. at 358.

           
           16.05  FALSE OR FRAUDULENT MATERIAL MATTER

      The requirement of establishing that the document in issue is false or
fraudulent as to a material matter is an element that is common to sections
7206(1), 7206(2), and 7207 violations -- "does not believe to be true and
correct as to every material matter,"  26 U.S.C. § 7206(1);  "fraudulent
or is false as to any material matter,"  26 U.S.C. § 7206(2); 
"fraudulent or to be false as to any material matter,"  26 U.S.C. § 7207. 
Reference should accordingly be made to the discussion of materiality in
Sections 12.08 and 13.05, supra.

      As with other Title 26 offenses which require a showing of materiality,
in section 7207 cases, it is now an open question whether materiality is a
question of law for the court, or a question of fact for the jury in the wake
of United States v. Gaudin, 515 U.S. 506 (1994).   No court has
addressed this question in the context of a section 7207 prosecution. 
However, the "better practice" in section 7207 cases would seem to be to
submit "all questions of materiality to the jury."   See 2
Edward J. Devitt et al, Federal Jury Practice--Civil and Criminal,  §
56.18 (4th ed. Supp. 1999).  See also Pattern Jury Instructions--
Criminal Cases Instruction 84 (11th Cir. 1997)(noting in comment to
instruction for section 7207 prosecution that "[t]he issue of "materiality" is
for the jury, not the Court," citing Gaudin).

      Materiality in a section 7207 case does not depend on whether the false
statement has any bearing on the tax liability of the defendant.  To the
contrary, the Supreme Court has pointed out that conduct can violate section
7207 where the false material statement does not have the effect of reducing
the defendant's tax liability.  Sansone v. United States,
380 U.S. 343, 352 (1965).

                       
                       16.06  WILLFULNESS

      Section 7207 is a misdemeanor, but the word "willfully" has the same
meaning in the "misdemeanor and felony sections of the Revenue Code." 
United States v. Pomponio, 429 U.S. 10, 12 (1976). 
Accord United States v. Bishop, 412 U.S. 346, 361 n.9
(1973).  In both the misdemeanor and felony provisions of the Code, willfully
"generally connotes a voluntary, intentional violation of a known legal duty." 
United States v. Bishop, 412 U.S. at 360.

      For a discussion of willfulness, see Sections 8.06 and 12.09,
supra.

          
          16.07  LESSER-INCLUDED OFFENSE CONSIDERATIONS

      The Tax Division, on February 12, 1993, outlined its position with
respect to lesser-included offenses in a memorandum to the United States
Attorneys by then Acting Assistant Attorney General Bruton.  See
Section 3.00, supra.  With respect to a section 7201 charge, the Tax
Division, relying upon the Court's holdings in Sansone v. United
States, 380 U.S. 343 (1965), and Schmuck v. United
States, 489 U.S. 705 (1989), stated that a lesser included offense
instruction based on section 7207 could be appropriate where the defendant has
been charged with attempted income tax evasion by the filing of a false tax
return or other document.  Yet, where the defendant has been charged with
violating section 7206(1), the Tax Division has unequivocally stated that
"neither party is entitled to an instruction that willfully delivering
or disclosing a false return or other document to the Secretary of the
Treasury (section 7207) is a lesser included offense of which the defendant
may be convicted."  Memorandum from Acting Assistant Attorney General Bruton,
dated February 12, 1993, p.3.  If the government fears that "there may be a
failure of proof as to one of the elements unique to section 7206(1), the
prosecutor may wish to consider including charges under both section 7206(1)
and section 7207 in the same indictment, . . . ."  Memorandum, at p.3. 
Therefore, the government should object to a request for a charge that section
7207 is a lesser-included offense of section 7206(1).

                          
                          16.08  VENUE

      The Sixth Amendment to the United States Constitution provides that
trials shall be in the "State and district wherein the crime shall have been
committed."  See also Fed. R. Crim. P. Rule 18.

      If a statute does not indicate where Congress considers the place of
committing a crime to be, "the locus delicti must be determined
from the nature of the crime alleged and the location of the act or acts
constituting it."  United States v. Anderson, 328 U.S. 699, 703
(1946).  In section 7207 prosecutions, venue is proper in the judicial
district in which the false document is delivered or disclosed to the Internal
Revenue Service.

      See also the discussion of venue in Section 6.00,
supra.

                  
                  16.09  STATUTE OF LIMITATIONS

      The statute of limitations for section 7207 offenses is six years from
the time the false or fraudulent document is delivered or disclosed to the
Internal Revenue Service.  26 U.S.C. § 6531(5).

      See also the discussion of the statute of limitations in
Section 7.00, supra.


FN 1. That portion of section 7207 dealing with information furnished to the
Internal Revenue Service in connection with section 6047(b) of the Code
(information relating to certain trusts and annuity plans), and section
6104(d) of the Code (public inspection of private foundations' annual reports)
is not covered in this manual.

FN 2. Changed to 18 U.S.C. § 3571, commencing November 1, 1986. 

FN 3. As a matter of history, section 7207's statutory predecessor was section
3616(a) of the Internal Revenue Code of 1939.  The Supreme Court held, in
Achilli v. United States, 353 U.S. 373, 376-79 (1957), that
Congress did not intend section 3616(a) to apply to income tax returns. 
Cf. Berra v. United States, 351 U.S. 131, 133
(1956)(assuming arguendo, without deciding, that section 3616(a)
applied to income tax returns).  With the adoption of the 1954 Internal
Revenue Code, however, Congress moved the location of the section from the
Code's "General Administrative Provisions" and placed section 7207 with other
Code sections clearly applicable to income tax violations.  In addition, the
language in section 3616(a) requiring an intent to evade or defeat a tax was
eliminated.  Finally, the requirement that the defendant act "willfully" was
added,  thus conforming the language of section 7207 to the language in other
misdemeanor provisions clearly applicable to income taxes.  The result was
that the Supreme Court reversed its prior holding and found that section 7207
"applies to income tax violations."  Sansone v. United States,
380 U.S. 343, 349 (1965).