Tax Evasion Conviction Requires an Affirmative Act - U.S. Second Circuit
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Tax Evasion Conviction Requires an Affirmative Act

Evelyn Litwok is a happy woman this week.

Monday, the Second Circuit Court of Appeals reversed Litwok's tax evasion convictions for the 1996 and 1997 tax years due to lack of sufficient evidence, and vacated and remanded her convictions for mail fraud and tax evasion for 1995 because the counts were improperly joined, reports The Wall Street Journal.

Litwok was charged with mail fraud in connection with a false insurance claim relating to her East Hampton, N.Y., house. In addition to the evidence of mail fraud, prosecutors claimed that, from 1994 to 1997, Litwok operated a number of private equity companies from her house, including Kohn Investment I LP, which she managed through Kohn Investment Management, Inc.

According to the government, Litwok routinely commingled her corporate and personal funds and used funds she received from her corporate investors to pay for personal expenses and gifts. Although they claimed that she owed nearly $1.5 million in taxes from 1995 through 1997 based on her personal income, Litwok failed to file a single personal tax return for those years.

A jury convicted Litwok on all the counts in 2010. She was sentenced to two years in prison and ordered to pay $23,551 in restitution. She served approximately one year of her sentence before the Second Circuit released her on bail pending the disposition of her appeal. (At the time, the Second Circuit noted that the parties had "agreed that the appeal presents 'a close question or one that very well could be decided the other way.'")

Clearly, the question did go the other way.

There are three required elements to prove tax evasion:

  • Existence of a substantial tax debt
  • Willfulness of the nonpayment
  • Affirmative act by the defendant, performed with intent to evade or defeat the calculation or payment of the tax.

Litwok argued that, at most, the evidence indicated that she failed to file her returns, which did not satisfy the third element requiring some affirmative act.

Though the Second Circuit Court of Appeals agreed that failing to file a tax return does not by itself constitute an affirmative act, it concluded that there was sufficient proof that Litwok engaged in an affirmative act to evade taxes in 1995. By contrast, the court concluded that there was insufficient evidence of any such act beyond failure to file a return for the 1996 and 1997 tax year convictions.

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