Deficiency Expert

United States v. Ellett, No. 07-3682-cr (2d Cir. May 23, 2008) (per curiam)

James Ellett was a tax protester, who stopped paying his federal income tax after reading a book called “Vultures in Eagle’s Clothing,” which purported to describe a lawful way of avoiding taxes. He claimed to have read the book more than 100 times, and spent additional hours studying the subject in a law library. Between 2000 and 2004, Ellett failed to pay more than $64,000 in federal income tax based on his belief that, as a “citizen” of New York State who worked for a private employer, he was not subject to taxation.

At trial, his defense was a lack of willfulness, which the jury rejected. On appeal, he argued that due process required that he be given an opportunity to litigate his position within the tax system before being prosecuted for tax evasion. Under this theory, the existence of a tax deficiency, one of the elements of 26 U.S.C. § 7201, could only be established if the government first adjudicated the matter civilly or administratively, which did not happen here.

The circuit disagreed. The tax deficiency element “arises by operation of law the date a tax return is due but not filed; no formal demand or assessment is required.” Thus, the government need not obtain a civil or administrative determination of the tax deficiency before bringing a criminal tax evasion case.