Statute of Limitations: The Taxpayer's Ultimate Defense in a Criminal Tax Case

In a previous post (click here), I discussed the civil statute of limitations (SOL) the IRS has for assessing additional tax, penalties and interest against a taxpayer. In this post, I will briefly discuss the SOL for criminal tax cases and a recent case where the defendant effectively used the SOL as a defense.

The SOL for criminal tax cases can vary from three years to six years depending on the particular crime. The most commonly charged tax crimes, filing a false tax return (Section 7206(1)), tax evasion (IRC Section 7201) and failure to file a tax return (Section 7203) are subject to a 6 year SOL. The SOL begins on the date the criminal offense is completed. In false tax return cases, the crime is completed the day the tax return at issue is deemed filed. In tax evasion cases, the SOL begins to run on the later of the date of the last affirmative act in furtherance the evasion or the filing due date of the tax return. In failure to file cases, the SOL starts on the day the tax return was due. If the taxpayer files an extension to file the return, the SOL for failure to file a tax return does not start until the extension date. Pursuant to Section 6531, the running of the SOL is tolled during any time the taxpayer is “outside the United States or is a fugitive from justice.”

In United States v. Johnson on April 16, 2013 the defendant was charged with filing a false 2006 Form 1040, which he filed in February 2007. Pursuant to Section 6501(b)(1), “a return…filed before the last day prescribed by law...shall be considered as filed on such last day.” Therefore, Mr. Johnson’s return was deemed filed on April 15, 2007, and it would appear that the government’s indictment is one day beyond the applicable 6 year statute of limitations. Mr. Johnson raised the SOL defense prior to trial but the trial court denied his motion to dismiss the indictment. The government convinced the court that the indictment was timely because April 15, 2007 was a Sunday and April 16, 2007 was a holiday, pursuant to Section 7503 the last date for filing the 2006 tax return was April 17, 2007. Section 7503 provides, “When the last day prescribed…for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if is performed on the next succeeding day which is not a Saturday, Sunday or a legal holiday.” After the jury convicted him, Mr. Johnson appealed his case to the 6th Circuit Court of Appeals. In its brief to the 6th Circuit, the government reconsidered its position and agreed that its indictment was untimely. In conceding the case, the government agreed that Section 7503 provides only that a return “shall be considered timely” if due on a Saturday, Sunday or legal holiday and filed on the next business day. Section 7503 does not change the “last day prescribed for the filing” of a tax return within the meaning of Section 6513(a). Mr. Johnson’s subsequent motion for recovery of attorney's fees and litigation expenses under the Hyde Amendment for a “vexatious, frivolous or bad faith” prosecution was recently denied by the district court and the 6th Circuit (click here).

As the Johnson case illustrates, the calculation of the SOL in a criminal tax case can be complicated and confusing for both the defendant and the government.