Fraudulent Withholding Exemption or Failure to Supply Information

A. Fraudulent Withholding Exemption Certificate or Failure to Supply Information Statute – IRC 7205

(a) Withholding on wages

Any individual required to supply information to his employer under section 3402 who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under section 3402, shall, in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.

(b) Backup withholding on interest and dividends

If any individual willfully makes a false certification under paragraph (1) or (2)(C) of section 3406 (d), then such individual shall, in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.

 B. Interpretation of IRC 7205

IRC 7205 creates two crimes: (1) willfully supply false information to an employer; and (2) making false certifications regarding dividend and interest reporting requirements or about not being subject to backup withholding. Willfully supplying false information to an employer is far more common than the other crime.

1. Failing to Supply or Supplying Fraudulent Information to an Employer

a. Elements of Crime

The elements of the crime are:

  1. The individual had the duty to supply information to the employer;
  2. The individual supplied false or fraudulent information, or failed to supply information which would require increase in withheld tax; and
  3. The act or omission was willful.

The statute of limitations is 3 years.

b. Willfulness

Willfulness is generally the same as for other tax offenses. Examples of willfulness in the context of this crime include:

  • Evidence that the defendant had tax liabilities in a prior tear, and then filed a W-4 which claimed and falsely declared that he did not have tax liabilities in the prior year and anticipated none in the year at issue.
  • Filing frivolous returns after notice that the frivolous returns were invalid.
  • Failing affidavits of revocation stating that taxpayer is not required to file returns or pay taxes.
  • Evidence of prior tax paying history, and attempts by employer and IRS to explain legal requirements.

2. Making False Certifications Regarding Certain Dividend or Interest Reporting Requirements, or Making False Certifications About Not Being Subject to Backup Withholding

a. Elements of the Crime

The elements of the crime are:

  1. Making false certifications on a statement required by a payor who is attempting to satisfy certain dividend or interest reporting requirements; or
  2. Making a false certification about not being subject to backup withholding; and
  3. Willfulness.

The statute of limitations for this crime is 3 years.

C. Conclusion

Care must be exercised if you are or suspect you are being investigated by the IRS for one of these crimes. These crimes carry a one year sentence in federal prison, and they have elements that are very similar to the even more serious evasion charges. If you are or suspect you are being investigated by the IRS, then it is important that you have counsel to assist you in interrogations and investigation. Call our office at (408) 459-8427 for criminal legal representation.