When Does a Tax Return Mistake Become a Crime? – Houston Tax Attorneys

The IRS has limited resources. This is true of its human capital and its technology resources. Even with significantly more resources, the IRS would still not be able to verify every entry on every return. There are just too many taxpayers, too many types of returns, and too many calculations and entries on the tax returns.

This is why the IRS has focused on “touching as many returns” as possible. The IRS’s whole administrative system is built around this concept. It refers to being visible by making it appear that the IRS may be checking. The thought is that a visible IRS is one that encourages voluntary compliance.

But when the IRS does actually look at a tax return, it does actually identify an error, when is that error just an error? When does the error rise to the level of being a tax crime? One usually leads to civil tax penalties and the either criminal charges.

The distinction comes down to one word: willfulness. The recent United States v. Akhenaten, No. 22-13824 (11th Cir. Feb. 2026), provides and opportunity to consider how courts draw this line.

Facts & Procedural History

This case involves tax returns filed by a business owner. He operated a retail tax preparation business.

The taxpayer had an MBA and accounting degree. He even taught federal income tax classes at the college level. This included classes for C corporation and S corporation tax, which are more advanced topics than basic income tax.

The taxpayer filed tax returns for himself and his business. For his business tax returns, he reported exactly $0 in income for 2014, exactly $100 for 2015, and exactly $0 again for 2016. The IRS pulled his tax returns for audit and ultimately referred the matter for criminal investigation.

Federal prosecutors charged the taxpayer with five counts of filing false or fraudulent tax returns under Section 7206. The case proceeded to trial. The jury heard evidence about the suspicious round numbers on his returns and learned about the taxpayer’s prior tax training and teaching experience. They also heard the taxpayer testify in his own defense, where he denied knowing anything was wrong with his returns and denied intentionally filing false returns.

The jury convicted him on all five counts. The taxpayer appealed the decision. He asserted that the evidence was insufficient to prove he willfully filed false returns. The question for the appeals court was whether the government had proven the mental state required for criminal conviction or whether the evidence merely showed negligent mistakes.

The Criminal Tax Statute for False Returns

Section 7206 of the tax code sets out the criminal tax statute for filing false tax returns. The statute applies to anyone who 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 he does not believe to be true and correct as to every material matter.

Given the language in the statute, the government has to prove three elements beyond a reasonable doubt to secure a convision. First, the defendant has to make and subscribe to a tax return that has a written declaration that it was made under penalties of perjury. This is standard language on tax forms, so this element is usually straightforward.

Second, the defendant must not have believed the return to be true and correct as to every material matter. This means the false information must be material—it must matter to the tax calculation. A typo in an address isn’t support a criminal charge. But underreporting income by substantial amounts can as it is material.

Third, and most importantly, the defendant must have acted willfully rather than negligently. This element separates criminal conduct from mere mistakes. A taxpayer who carelessly fails to report income hasn’t necessarily committed a crime. A taxpayer who knows the income should be reported but deliberately leaves it off has may cross into criminal territory.

What Does “Willfully” Mean for Tax Crimes?

Willfulness means the voluntary, intentional violation of a known legal duty. The Supreme Court has explained that this means that the defendant had to know about the legal requirement and chose to violate it anyway.

This is different than negligence, carlessness, or even recess conduct. Negligence, carelessness, or even recklessness doesn’t satisfy this standard.

This “willful” standard sets a high bar for prosecutors. They can’t simply show the taxpayer made a mistake or should have known better. They have to prove the taxpayer actually knew they were breaking the law when they filed the return. This explains why tax audits that uncover errors usually result in civil penalties rather than criminal charges. Most errors stem from misunderstanding the tax law or poor recordkeeping. They don’t involve deliberate lawbreaking.

The willfulness requirement also explains why the IRS doesn’t routinely refer audit cases for criminal prosecution. The government has to prove beyond a reasonable doubt that the taxpayer knew their return was false when they signed it. Without this level proof, the case is a civil matter subject to civil tax fraud penalties at most.

Courts have recognized that willfulness exists on a spectrum. At one end sits the taxpayer who carefully studies the law, understands their reporting obligations, and deliberately violates them. At the other end sits the taxpayer who makes careless mistakes while trying to comply. Somewhere in the middle lies the taxpayer who suspects they should be doing something differently but doesn’t investigate further. Where exactly criminal liability begins on that spectrum depends on the facts in each case.

How Can the Government Prove Willfulness?

Prosecutors face a substantial challenge proving what someone was thinking when they prepared their tax return. People rarely confess to willfully filing false returns or leave written evidence of their criminal intent. The government must rely on circumstantial evidence to prove the required mental state.

The appellate court noted that “guilty knowledge can rarely be established by direct evidence, especially in respect to fraud crimes which, by their very nature, often yield little in the way of direct proof.” Courts permit the government to use circumstantial evidence to prove willfulness.

What kind of circumstantial evidence works? The court pointed to several categories. The suspicious nature of the numbers themselves can suggest willfulness. When a business reports exactly $0 income for one year, exactly $100 for the next year, and exactly $0 again for the third year, those round numbers suggest deliberate fabrication rather than honest accounting. Real businesses rarely have income figures that land on such perfect round numbers.

The taxpayer’s education and experience also provide circumstantial evidence. Someone with substantial tax training understands tax reporting requirements better than someone with no training. When that person files returns that violate basic tax rules, a jury can infer they knew what they were doing. The government introduced evidence that the taxpayer earned his MBA and accounting degree, worked in professional tax preparation for a living, and taught federal income tax classes covering C corporation and S corporation taxation. The court noted that someone with this background couldn’t credibly claim ignorance of basic tax reporting requirements.

Prior warnings from the IRS can also demonstrate willfulness. If the IRS previously told the taxpayer about their reporting obligations and the taxpayer continued violating them, that pattern suggests willful conduct. Similarly, attempts to conceal income or create false documentation suggest the taxpayer knew their actions were improper.

The appellate court affirmed the conviction. The evidence, viewed as a whole, permitted a rational jury to find beyond a reasonable doubt that the taxpayer willfully filed false tax returns. He crossed the line from negligent errors deserving civil penalties to willful violations meriting criminal punishment.

The Takeaway

The line between civil tax penalties and criminal prosecution rests on willfulness. Taxpayers who make negligent mistakes face financial penalties. Taxpayers who knowingly violate tax laws they understand face potential imprisonment. But proving what someone knew when they signed their tax return requires prosecutors to piece together circumstantial evidence.

This case also shows that tax professionals face a higher standard. Their expertise becomes evidence against them in criminal proceedings. The government argues their training proves they knew better. The more sophisticated their tax education, the harder it becomes to claim innocent mistake. This extends beyond formal education. Someone who has been through multiple IRS audits and received repeated warnings can’t easily claim they didn’t understand what was required. Given the rules, those who make mistakes on their tax returns and have tax knowledge, however gained, are more likely to be prosecuted and convicted for tax crimes. Those with little or no tax knowledge may end up with civil penalties.