Cashing a Tax Refund Check for a False Return is a Crime

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Reporting Debt Discharged In A Court Settlement To The Irs
Reporting Debt Discharged In A Court Settlement To The Irs

Cashing a tax refund check that was triggered by filing a false tax return is a crime. It is theft of government money. Theft of government money is different than tax evasion. The recent United States v. Box, No. 18-13935 (11th Cir. 2019) court case provides an opportunity to consider the crime of theft of government money.

Facts & Procedural History

The defendant was an attorney. He was charged with theft of government money for cashing a tax refund check for his personal income tax return. The income tax return reported a fraudulent tax position.

The court summarized the facts as follows:

[the defendant] falsely reported on his 2011 tax return that he had gross gambling winnings of $3,775,000 from a poker tournament, $1,057,000 in tax withholdings, and $3,525,266 in gambling losses, resulting in a claimed refund of over $900,000. The IRS approved payment of the refund, applied $250,000 to [the defendant]’s 2005 and 2006 tax liabilities, and issued a check to [the defendant] for the remaining $735,463.69.

The court sentenced the defendant to three years imprisonment and three years of supervised release. The defendant appealed the sentence given certain adjustments the judge made in setting the sentence. We won’t address the arguments on appeal, as this article is just providing the facts to provide context to show how one commits theft of government money by filing a false tax return. Let’s look at the law.

Cashing a Refund Check from the IRS

Cashing a refund check from the IRS can be a crime if one is not entitled to the check. This is theft of government funds.

If the IRS check is $1,000 or more, the punishment can be up to 10 years imprisonment; if the IRS check is under $1,000, the punishment can be up to one year imprisonment. This is set out in 18 U.S.C.S. § 641.

To convict a defendant of violating 18 U.S.C.S. § 641, the government must prove the following elements beyond a reasonable doubt:

  • the defendant knowingly stole money with the intention of depriving the U.S. government of the use or benefit of the money;
  • the money belonged to the U.S. government; and
  • the value of the money was more than $1,000.

The government has to prove each element to secure a conviction.

Knowledge & Theft Money

The first element, the knowledge and theft requirement, is the one that protects the innocent from the guilty. This element requires knowledge and some bad intent.

With IRS refund checks, it is knowledge that the refund is not owed. It also requires some type of false tax reporting. For example, one reported court case involved a defendant who knowingly prepared and filed false tax returns using unauthorized Social Security numbers and other identifying information, in an effort to trigger tax refunds. In another reported tax case the tax return preparer kept tax refunds and used the funds personally rather than remitting the refunds to his clients. This type of conduct satisfies the knowledge and theft requirement.

This knowledge and theft requirement was met in the present case, as the defendant filed a false income tax return. Apparently the gambling winnings, loss, and tax withholding that triggered the tax refund check were all false. The defendant reported these false items and then cashed the refund check.

Theft of Government Money v. Tax Evasion

The government indicted the defendant for theft of government money. It did not charge him with tax evasion.

Tax evasion is set out in 26 U.S.C. 7201. The penalty for tax evasion is up to 5 years imprisonment.

Tax evasion is different than theft of government money. Tax evasion typically involves attempts to conceal a tax that is due. This often involves filing a false tax return that understates income or overstates a tax deduction or tax credit thereby minimizing the tax due as reported on the tax return.

As noted above, theft of government money applies where there is a false refund. It applies where money was not owed. Tax evasion applies where there was money that was owed.

Excessive Refund Suit and/or Excessive Refund Penalty

It is somewhat rare for the government to indict for theft of government money for tax refunds. This is usually because there is some legitimate basis for the tax refund.

In these instances, the IRS is more likely to simply bring suit to recoup the refund or impose an excessive refund penalty.

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