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).