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One of the important procedures involved in Federal taxation is the apprehension of those persons and firms and trusts and others who evade tax payment and thereby break the law. This means that these entities may either conceal facts and/or misrepresent them so that the result would be beneficial to them. Such individuals may under declare their income levels and the earnings and profits that they may have earned during the course of their jobs. They may even over declare the deductions so that any losses would be made up this way. These are all the methods of tax evasions generally used by dishonest individuals who wish to avoid paying taxes to the federal government. However, tax avoidance is another issue wherein individuals and firms exploit the entire tax regime so that they will gain the ultimate advantage.
This way, they break the legal laws that govern taxation and they do not pay up the taxes that they are supposed to pay within the limits of the taxation policies of the government. Tax avoidance can be described as sometimes even legitimate means of avoiding one's duty towards the society and the people by discovering all the legal and legitimate means of avoiding paying taxes in contrast to the tax evaders who break laws by hiding evidence and misrepresenting facts. Sometimes, these tax evaders openly defy authorities by posing as if there were actual legal laws supporting the evasion of tax, and such people are referred to as 'tax protestors'. (Tax Evasion)
The government, faced with the problem of tax evasion and avoidance and other forms of tax crimes, has designed the 'Federal Tax Enforcement Program' that will serve to protect public interest in the tax system of the country by the strict and purposeful enforcement of the government's laws on the 'Internal Revenue' systems, with the idea of achieving the highest amount of deterrent value from the prosecuted cases. This enforcement must be balanced and uniform at all times so that there will be more compliance and conformity to those laws. When a case of tax evasion or avoidance is brought into court, a federal grand jury can, with the permission of the Tax Division, except in a few exceptional cases, investigate the case in court.
The CID can also involve itself in the investigation of federal tax cases, and can, whenever necessary, request the investigation of a 'grand jury' to help them to solve any unfinished case. The United States Attorney who has the authority to conduct a grand jury investigation generally handles internal Revenue laws and cases involving the IRS. The Assistant Attorney General of the Tax Division has the sole authority to issue arrest warrants in cases of federal tax crimes, especially when the subject of the investigation is a lawyer or an accountant or a physician or a political candidate, or a labor union official or a member of the clergy, or a person from the media, or an official of any organization that has been exempted from tax payments. The Assistant Attorney General, in fact, has the authority and the responsibility to take care of all the criminal proceedings that come under the IRS laws. (Criminal Tax Case Procedures)
The 'Principles of Federal Prosecution' outline the standards on which the review of tax evasion and other cases can be investigated for presentation to the court. The 'Federal Tax Enforcement Program' is also responsible for laying down the rules and the dictates upon which tax investigations must be based. The Tax Division, in order to speed up proceedings, designates criminal tax cases that come under the IRS division into either 'complex' or 'non-complex', so that a certain uniform standard of prosecution can be easily maintained. 'Complex cases' generally are those cases that are either legally or even factually complicated, and show only indirect methods of proof. 'Non-complex' cases are usually those cases that do not need any sort of in-depth reviews, and are generally screened before presentation by a team of senior Criminal Enforcement Section Attorneys.
The case of United States vs. Baggot, 463 U.S. 476 (1983) can be quoted as an example for a case involving Federal Tax Procedure. The facts of the case are as follows: In the year 1976, a special grand jury started its investigations into the matter of commodity figure transactions made by James E. Baggot on the Chicago Board of Trade. IRS agents were sent to interview him, without, in fact indicting him, and he pleaded to being guilty of two misdemeanors against the Board of Trade, and also of having violated the Commodity Exchange Act. Baggot revealed his scheme, which was to utilize false or 'sham' commodity transactions so that false losses would be shown on paper, after which he was able to deduct such losses on his tax returns. The cash 'kickbacks' that resulted from such falsified transactions served to make up a certain part of these so-called losses, and Baggot did not report these as 'income'. (U.S. Supreme Court UNITED STATES v. BAGGOT, 463 U.S. 476 (1983) 463 U.S. 476.)
After about eight months after this incident, Baggot's civil income tax liability was investigated, and to this extent, a (C) (i) motion was filed by the government and Baggot was ordered to disclose all the grand jury transcripts and documents to the IRS. When Baggot flatly refused to comply, two more renewed motions were passed, and the Court was able to permit disclosure by stating that since some of the documents requested by the government did not come under Rule 6 (e) requirement for maintaining secrecy. There was denial on the part of Baggot that the material did not have to appear before a special grand jury, and the government in turn sought out 'certiorari' stating the general supervisory powers of the grand jury as being sufficient enough for the disclosure of the material.
The Court of Appeals, however, reversed; by stating that such disclosures were not permitted under Rule 6 (e) (3) (C) (i) and also declaring that the District Court had in fact committed a mistake by allowing such disclosures by quoting 'general supervisory powers' as being of sufficient authority to order Baggot to disclose his sensitive documents. Therefore it was held that the civil tax Audit of the IRS did not have the authority under the Rule 6 (e) (3) (C) (i) to ask for the disclosure of documents as needed for their investigations against the tax criminal, in this particular case. It is a fact that the IRS is responsible for determining the tax liability of the taxpayer. Therefore the IRS finds that it is authorized to conduct investigations if any into the returns and affairs of the taxpayer's accounts and audits. If, after due investigations, it is discovered that there has indeed been an attempt at defrauding and cheating by the taxpayer, then the IRS considers itself to be sure that the taxpayer owes them a certain amount as deficiency. (U.S. Supreme Court UNITED STATES v. BAGGOT, 463 U.S. 476 (1983) 463 U.S. 476.)
It can therefore issue a formal notice quoting this deficiency under 26 USC 6212, after which the taxpayer who has received the notice may either acknowledge his mistake and pay up the deficiency as ordered by the IRS, or he can request or petition the Tax Court for the re-examination or re-consideration of the said deficiency, or he can pay up the amount quoted as deficiency and later file an appeal for refund in the Claims or in the District Courts, or he can sit back and let the law take its course by waiting for the government to take the necessary measures to collect the deficiency. However, the appeal by the IRS is not recognized by the government as being a part of the judicial proceedings of a Tax court, and also that such disclosures are not suitable enough for being used in an audit by the IRS on civil tax liability of a taxpayer since it is only meant to assess the amounts of tax liabilities through various administrative sources.
In the case of Baggot, the audit that inevitably led to the unearthing of a deficiency did not necessarily mean that it would be utilized in the filing of any sort of litigation. The IRS is an independent body that operates on its own rules; it is not answerable to the Court in its findings, and it can conduct investigations without the prior permission of the court involved. When it does find a deficiency in the amounts being paid by the taxpayer, it has the right to collect this amount independently, without having to go to a court of law or file litigation. It can collect the amount by non-judicial methods such as imposing levies on the property or the salary of the offender, without having to prove to the court the amounts being stated in its investigative reports. Therefore, the Court adjudged that the IRS was in fact trying to use the requested…[continue]
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