The government must establish that at the time the offense was committed the defendant owed more tax than he/she reported. However, the government is not required to prove the precise amount of tax evaded. Rather, the government may satisfy its obligation by showing that the amount of tax evaded was substantial. "Substantial" is a relative term and need not be measured in terms of gross and net income or by any particular percentage of the tax shown to be due and payable.

Carryback losses are technically no legal impediment to prosecution for years in which they eliminate a tax liability. However, the probability of conviction could be lessened where it is shown that a tax deficiency does not exist by operation of law.

Likewise, the acceptance by government agents of a waiver agreement (Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment) does not bar prosecution. However, experience has demonstrated that attempts to pursue both the criminal and the civil aspects of an investigation concurrently may jeopardize the successful completion of the criminal investigation. As a result, Policy Statement 4-26 (formally P–4–84, Balancing Civil and Criminal Aspects) provides, among other things, that the consequences of civil enforcement actions on matters involved in a criminal investigation and prosecution investigation should be carefully weighed.

The substance of the offense under 26 USC §7201 is the term "attempt in any manner" . The statute does not define attempt, nor does it limit or define the means or methods by which the attempt to evade or defeat any tax may be accomplished.

Courts have held, however, that the term "attempt" implies some affirmative act or the commission of some overt act. This affirmative act need not be the filing of a false or fraudulent return, although most cases in this area do involve the filing of such a return. Courts have also held that a false statement made to Treasury agents for the purpose of concealing unreported income is an attempt to evade or defeat a tax.

The willful omission of a duty or the willful failure to perform a duty imposed by statute does not per se constitute an attempt to evade or defeat a tax. However, a willful omission or failure (such as a willful failure to make and file a return) when coupled with affirmative acts or conduct from which an attempt may be inferred would constitute an attempt. The Supreme Court in Spies v. United States provided examples of conduct that may imply "the attempt to evade or defeat any tax" , such as:

The term "attempt" does not mean that one whose efforts are unsuccessful cannot be convicted under 26 USC §7201. The crime is complete when the attempt is made and nothing is added to its criminality by success or consummation, as would be the case with respect to attempted murder. It has been held that attempts cover both successful and unsuccessful endeavors or efforts. As the courts have stated, the real character of the offense lies, not in the failure to file a return or in the filing of a false return, but rather in the attempt to evade any tax.

It is well settled that a separate offense may be committed with respect to each year. Therefore, an attempt for one year is a separate offense from an attempt for a different year.

There may also be more than one violation in one year resulting from the same acts, such as the willful attempt to evade the payment of tax and the willful attempt to evade tax. Likewise, there may be a willful attempt to evade tax and a willful failure to file a return for the same year.

The mere failure or willful failure to pay a tax does not constitute an attempt to evade or defeat the payment of that tax. The above discussion of the need for an affirmative action or the commission of some overt act applies equally to this offense. Examples of actions that might constitute the attempted evasion of the payment of tax include:

Courts have held that disbursement of available funds to creditors other than the government, or to corporate stockholders is not in itself an attempt to evade or defeat the payment of taxes.

To satisfy the third element of 26 USC §7201, the attempt to evade or defeat a tax or the payment thereof must be willful. Willfulness is defined as the voluntary, intentional violation of a known legal duty. Mere understatement of income and the filing of an incorrect return does not in itself constitute a willful attempt to evade tax. Absent an admission or confession, willfulness is rarely subject to direct proof and generally must be inferred from the facts and circumstances. Willfulness may be inferred from any conduct, the likely effect of which would be to mislead or conceal, such as that exemplified in Spies.

This definition of willfulness applies to all Title 26 offenses where willfulness is an element, unless stated otherwise.

The duty to truthfully account for and pay over any tax is considered to be an inseparable dual obligation. Failure to pay, even though an accounting is made in the return filed, leaves the duty as a whole unfulfilled.

However, considerable difficulty has been encountered in determining the person charged with the duty of collecting, accounting for and paying over taxes, especially in investigations involving small corporations where the precise duties of the officers are not clearly defined or consistently carried out. For example, in one investigation, it was determined that although the president of the corporation was the dominating force in the management of the firm, there were other officers who signed some returns and engaged in financial activities on behalf of the corporation. As a result, it was unclear whether the president was the officer under a duty to perform the required acts and the indictment was ultimately dismissed. Another case held that the term "person" includes a chief executive officer of a corporation who possesses the authority to determine how corporate funds should be expended. Accordingly, it is imperative to ascertain the various activities and responsibilities of all officers of a corporation before recommending prosecution against any one of them as the "person" referenced in 26 USC §7202 and defined in 26 USC §7343.

Willfulness under 26 USC §7202 is the same as for all Title 26 offenses (i.e., the voluntary, intentional violation of a known legal duty). Evil motive or bad purpose is not needed to establish willfulness. For example, a successful prosecution under this section was based upon the following facts: The subject filed timely employment tax returns but habitually failed to pay the amount of tax shown to be due thereon. He willingly signed agreements for partial payments, made the first payment, and then ignored further requests for payments. When his bank accounts were levied upon, he closed the accounts and made arrangements with his customers to receive future payments in cash. All his assets were then transferred to the names of others. His only defense was that he used the money withheld from his/her employees to meet current operating expenses. An analysis of his bank accounts and records of personal expenditures showed that, contrary to his contentions, a profit was realized from the business in all years and funds were available to pay the taxes shown on the returns.

The position of the Department of Justice (DOJ), Tax Division, is that the statute of limitations for violations of 26 USC §7202 is six years, as provided in 26 USC §6531(4).

In general, persons liable under 26 USC §7203 include those defined in 26 USC §7343 as follows:

The requirements for making and filing a return are set forth in Chapter 61 of the Code. In corporate investigations, it may be difficult to determine which officer is responsible for filing the corporate returns. The issue of who has the legal duty to file is a question of fact to be determined by competent evidence. Such evidence may include proof of signing past Federal or state returns, or a statement in the corporate bylaws or minutes of directors' meetings.

The general requirement or duty to keep records is provided by 26 USC §6001. However, the types of records kept by various individuals are not alike, and neither the statute nor the regulations defines minimum standards for specific transactions or types of businesses. For example, evidence that a return was prepared from third-party records (banks, brokers, employers) may obviate the necessity for an individual to keep records.

In order to show that a return was not filed timely, the government must establish the due date of the return as provided by statute or regulations and a failure to file the return within such time. The time within which a return must be filed has been held to be the date set out in the USC or under regulations prescribed by the Secretary, as extended (if applicable) by the Secretary or the Secretary's delegate. The date when a return is due under the USC or regulations varies, depending upon the type of tax involved or the type of return required to be filed. Thus, individual income tax returns, self-employment tax returns, and partnership returns made on the basis of the calendar year must be filed on or before the 15th day of April following the close of the calendar year; or, if made on a fiscal year basis, such returns must be filed on the 15th day of the fourth month following the close of the fiscal year (26 USC §6072(a)). Corporate returns for calendar years are due on the 15th day of March; or, if on a fiscal year basis, such returns are due on the 15th day of the third month following the close of the fiscal year (26 USC §6072(b)). Title 26 USC §6075 provides the deadlines for filing estate and gift tax returns, and 26 USC §6071 and the regulations promulgated thereunder provide the deadlines for filing excise tax returns and other returns required under the particular type of tax involved.

The Treasury regulations under 26 USC 6050I provide that Form 8300 is required to be filed by the 15th day after the date the cash was received. If that date falls on a Saturday, Sunday or legal holiday, the form is required to be filed the next business day. In addition, the statute itself provides that the individual/entity filing the form must provide a written statement to each person required to be named on the Form 8300 on or before January 31 of the year following the calendar year for which the return was required to be made.

In addition to proving the due date of the return, the government must establish that the person did not file the return by that date. Usually, this is accomplished by providing evidence that the subject did not file a return in the area of his/her legal residence or principal place of business or IRS Campus.

Willfulness means the voluntary, intentional, violation of a known legal duty.

The government must establish that the failure to file the return was willful. However, as distinguished from willfulness in a tax evasion investigation, the government need not prove a tax evasion motive. In this context, "willful" means voluntary, purposeful, deliberate, and intentional, as distinguished from accidental, inadvertent, or negligent.

Under 26 USC §6531(4), the statute of limitations for willful failure to file returns (other than information returns) or to pay tax is six years. A three-year statute of limitations applies to willful failure to file information returns such as partnership returns, and to willful failure to keep records or supply information. The statute of limitations for willful failure to file a Form 8300 is three years.

A three year statute of limitations applies (26 USC §6531), and the offense is a misdemeanor.

For offenses that involve furnishing false or fraudulent information, the statute of limitations runs from the date the document is filed.

It is unclear whether willful failure to supply information to an employer is a continuing offense for purposes of determining when the statute of limitations begins to run, in which case the limitations period would begin when the last act of the offense had occurred. The safe practice is to assume that it is not a continuing offense, and that the statute of limitations runs from the date the information was required to be supplied. However, if all other facts indicate that prosecution should be recommended for this offense, the continuing offense theory may be argued.

The statute of limitations for removal or concealment with intent to defraud is three years (26 USC §6531).