Section 7206(1): The Perjury Statute of the Tax Code

Every tax return ends with the same sentence above the signature line: under penalties of perjury, you declare that you have examined the return and that, to the best of your knowledge and belief, it is true, correct, and complete. Most people sign without reading it.

Section 7206(1) of the Internal Revenue Code is what gives that sentence teeth. It makes it a felony to willfully sign a return or other document under penalties of perjury that you do not believe is true and correct as to every material matter. It is often called the tax perjury statute.

This guide explains the statute in general terms. It is not advice for any particular return or person.

The statute

IRC 7206 punishes any person who, under paragraph (1), "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."

The penalty: the person "shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution."

The elements

The IRS summary in Exhibit 25.1.1-1 lists four elements for section 7206(1):

1. Making and subscribing a return, statement, or other document under penalties of perjury.
2. The document was false as to a material matter.
3. Belief that it is not true and correct as to every material matter.
4. Willfulness.

What is missing: a tax deficiency

Compare that list to evasion under section 7201, which requires a tax deficiency and an attempt to evade. Section 7206(1) requires neither. The crime is the false declaration.

The IRS manual makes the point directly in its discussion of collateral estoppel. IRM 25.1.6.5 explains that a conviction under section 7206(1) does not collaterally estop a taxpayer from contesting the civil fraud penalty, "since conviction under IRC 7206(1) does not require proof of fraudulent intent to evade federal income taxes."

That has two practical consequences. A false return can be charged even when the government's tax computation is disputed or small. And a section 7206(1) conviction leaves the civil fraud issue open, where the IRS must still develop and prove intent to evade. See the civil fraud penalty.

"Material matter"

The falsity has to be about a material matter. The statute does not define the term, and its application is a legal question in each case. What is clear from the text is that the declaration covers "every material matter." Whether a particular misstatement is material is exactly the kind of question a lawyer will test against the facts.

"Return, statement, or other document"

The statute is not limited to Form 1040. It reaches "any return, statement, or other document" made under penalties of perjury. Many IRS forms carry that declaration. Two places where it matters in criminal tax cases:

Offers and closing agreements. Section 7206(5) makes it a felony to willfully conceal property or falsify records in connection with an offer in compromise or closing agreement.

Voluntary disclosure narratives. Under the IRS Criminal Investigation Voluntary Disclosure Practice, IRM 9.5.11.9.1 requires Part II of Form 14457 to include a narrative "signed under the penalties of perjury by the taxpayer." IRM 9.5.11.9.4 says a false statement as to any material matter on any part of Form 14457 can make the taxpayer ineligible or lead to revocation. A disclosure meant to resolve exposure can create new exposure if it is not complete and truthful. See Form 14457.

Related false statement offenses

Section 7206(1) has neighbors.

• Section 7207 is a misdemeanor for willfully delivering or disclosing to the IRS any list, return, account, statement, or other document known to be fraudulent or false as to a material matter. The IRS summary in Exhibit 25.1.1-1 lists the elements.
• Section 7206(2) punishes willfully aiding or assisting in the preparation or presentation of a false or fraudulent return or document. See aiding or assisting false returns.
• 18 U.S.C. 1001 makes it a crime to knowingly and willfully make a materially false statement in a matter within the jurisdiction of the executive branch, with up to 5 years of imprisonment.

Penalties beyond the statute

The 7206(1) fine limit is $100,000 for individuals. Under 18 U.S.C. 3571, an individual convicted of a felony may be fined up to the greatest of the amount in the offense statute, $250,000, or an alternative fine based on gain or loss.

On the civil side, IRM 25.1.6.3 says the civil fraud penalty or fraudulent failure to file penalty must be asserted if a taxpayer is successfully prosecuted under Title 26, including section 7206(1), when the prosecution involved additional tax assessments, with exceptions requiring Area Counsel approval. Because the conviction does not estop the taxpayer on fraud, the IRS still has to develop the penalty.

How false return cases get built

The evidence in a false return case usually starts with the return itself and the people around it. The IRS fraud manual tells examiners in fraud development to secure the original returns, under IRM 25.1.2.2. IRM 25.1.2.4 requires examination workpapers on potential fraud cases to document who prepared the information used to complete the return, who approved and classified expense items, who deposited business receipts, and how gross receipts on the return were determined.

When a referral reaches Criminal Investigation, IRM 25.1.3.4 lists among the topics for the initial conference the explanations offered by the taxpayer, the representative, or the preparer. The person who prepared the return is often a central witness. What the signer told the preparer, and what the signer withheld, can decide whether a false return was willful. The IRS indicators of fraud in IRM 25.1.2.3 include failure to make full disclosure of relevant facts to the return preparer.

Statute of limitations

IRC 6531(5) applies a 6-year limitations period to offenses described in sections 7206(1) and 7207. See the criminal tax statute of limitations.

Why prosecutors use it

The Justice Manual ranks evasion under section 7201 as the priority substantive tax count, under JM 6-4.310. But a false return charge does not require proving a tax deficiency or an affirmative attempt to evade beyond the false signature itself. When the evidence of falsity is strong and the tax computation is complicated, the false return statute is a natural alternative. See tax evasion under section 7201 for how the two compare.

Willfulness is the battleground

As with every criminal tax statute, the government must prove willfulness: a voluntary, intentional violation of a known legal duty. In Cheek v. United States, 498 U.S. 192 (1991), the Supreme Court explained that the government must prove the law imposed a duty, the defendant knew of it, and the defendant voluntarily and intentionally violated it. Honest mistakes, carelessness, and good-faith misunderstanding of the law are not willful. Signing a return prepared by someone else is not automatically a defense, but neither is it automatically a crime. The question is what the signer knew and believed. See willfulness in criminal tax cases.

What to take from this

The signature line matters. If you signed returns you knew were false, you are dealing with potential felony exposure regardless of how much tax is involved, and the decisions in front of you, including whether to amend and how, carry criminal consequences. Make them with a lawyer, under privilege, before anything else is signed and sent.

Prosecutors also use section 7206(1) in plea negotiations. Under JM 6-4.310, the Department designates a major count for plea purposes, ranking felonies over misdemeanors and evasion over other substantive tax counts. Where evasion is not charged, a 7206(1) felony count can be the major count.

The fine and imprisonment limits are in the statute itself, together with the costs of prosecution.

General information only, not legal advice. Reading this page does not create an attorney-client relationship. Laws and IRS procedures change; the sources cited were reviewed on the date shown above.