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Court Rejects Taxpayer's Reliance on "Outlier" Fifth Circuit Decision

(Parker Tax Publishing July 2017)

A district court denied a taxpayer's motion to dismiss felony charges that he violated Code Sec. 7206(1) when he made false statements on Form 433-A regarding the transfer of assets for less than full value. The court found that a Fifth Circuit decision the taxpayer was relying on, U.S. v. Levy, 533 F.2d 969 (5th Cir. 1976), was an outlier and that many other courts have since disagreed with the result and the rationale of that decision. U.S. v. Yurek, 2017 PTC 292 (D. Colo. 2017).

Daryl Yurek was charged with violating Code Sec. 7206(1) after submitting to the IRS two Form 433-As, Collection Information Statement for Wage Earners and Self-Employed Individuals, that the IRS said contained false information. On the Form 433-As, Yurek answered "No" to the question, "In the past 10 years, have any assets been transferred by the individual for less than full value?" According to the IRS, Yurek had, in fact, made such transfers, by transferring stock to his sons and to one of his affiliated companies for less than full value.

Code Sec. 7206(1) provides that if a person willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which the person does not believe to be true and correct as to every material matter, such person is guilty of a felony and, upon conviction thereof, will be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than three years, or both, together with the costs of prosecution.

Yurek argued that the charges should be dismissed pursuant to U.S. v. Levy, 533 F.2d 969 (5th Cir. 1976). In Levy, a defendant was convicted in a district court under Code Sec. 7206(1) based on having signed an IRS Form 433-AB. On appeal, the Fifth Circuit addressed whether Form 433-AB was a "statement or other document" within the meaning of Code Sec. 7206(1). The court acknowledged that the statute uses the words "statement" and "other document" with no limiting exception, and that "[i]f we had only to look to the unadorned words, 'statement' and/or 'document,' no difficulty, at least as to the meaning of the statute, would be involved." However, the Levy court went on to review the "inconclusive" legislative history and noted that criminal statutes must be strictly construed and reasoned that, because Code Sec. 7206(1) is a perjury statute, the party taking the statement must have the authority to take that particular statement. The court then held that Code Sec. 7206(1) applies only to any statement or document required by the Internal Revenue Code or by any regulation lawfully issued for the enforcement of the Code, and therefore reversed the defendant's conviction because Form 433-AB had not been required by statute or regulation.

In the instant case, the district court noted that other courts, such as the Tenth Circuit in U.S. v. Franks, 723 F.2d 1482 (10th Cir. 1983), and the Second Circuit in U.S. v. Holroyd, 732 F.2d 1122 (2d Cir. 1984), have since disagreed with the result and the rationale of Levy. The court rejected Yurek's argument that the issue is "unsettled" and found that the Levy decision remains a significant outlier. The court concluded that the language of Code Sec. 7206(1) provides no hint that it applies only to those statements or documents which are authorized by statute or regulation, and includes no other exception that would make it inapplicable to Yurek's Form 433-A submissions. To the contrary, the court said, Code Sec. 7206(1) applies to any return, statement, or other document. Interpreting the plain language of the Code and in keeping with Franks and Holroyd, the district court denied Yurek's motion to dismiss the charges that he violated Code Sec. 7206(1).

For a discussion of the penalties for making false and fraudulent statements on returns, see Parker Tax ¶265,125.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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