Tax Evasion Can Be Proven Absent an Affirmative Act of Fraud, Court of Appeal Rules

A prosecutor does not have to show that a person engaged in an affirmative act of fraud to prove intent to evade taxes, the Fourth District Court of Appeal ruled January 26 in a 2-1 decision.

The majority's published decision in Blake A. Hudson v. Superior Court of Orange County allows trial court proceedings to continue in a case involving three felony charges of willfully failing to file tax returns with the intent to evade paying a tax.

The court wrote: "Here, the prosecution introduced evidence at a preliminary hearing showing that Blake A. Hudson failed to timely file tax returns for three consecutive years in which he owed: $21,974; $27, 205; and $6,505, respectively. Hudson had filed returns in other years and the Franchise Tax Board (FTB) had repeatedly notified Hudson of his duty to file his tax returns. … Hudson argues that there was insufficient evidence to show his intent to evade paying taxes. We disagree. In addition to evidence of Hudson's failure to timely file tax returns …, the evidence of Hudson's intent to evade paying taxes … includes: 1) the considerable amount of taxes Hudson actually owed in multiple years; 2) the FTB's repeated notifications; and 3) Hudson's prior filing history."

Prior to the three years in question, Mr. Hudson had filed tax returns on time. This demonstrated knowledge of his obligation to file, the court stated.

The language of Revenue and Taxation Code Section 19706 "is plain and its meaning is unambiguous," the court opined. "Under our state Constitution, this court cannot rewrite the statute to require the prosecution to show an additional affirmative act of fraud when the Legislature has not required such an act in order to establish a crime under section 19706."

Mr. Hudson argued that the 1943 U.S. Supreme Court decision in Spies v. United States supported his case. The Court of Appeal disagreed, arguing that the Spies case "has no bearing on our analysis" because it relates to an ambiguous federal law that is distinctly different from the specific California law in question.

In a dissenting opinion, Justice Richard Fybel wrote that California's tax evasion statutes "were modeled after the federal tax evasion statutes" and "are substantially the same, the only real difference being that section 19706 makes explicit what federal courts, including the United States Supreme Court, have interpreted the federal tax evasion statute to mean."

February 3, 2017

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