After special counsel David Weiss won indictments against Hunter Biden for tax crimes, Biden’s lawyer, Abbe Lowell, blasted the process as entirely political: “Based on the facts and the law, if Hunter’s last name was anything other than Biden, the charges in Delaware, and now California, would not have been brought.”
Is Lowell right? Based on the public record and interviews with former federal prosecutors, IRS officials, and defense attorneys, criminal changes, much less felonies, for behavior such as Hunter Biden’s are rare. But they are not unprecedented.
The Charges
The indictment charges Biden with six misdemeanors and three felonies. It alleges he failed to file returns on time for the years 2016 through 2019, a period when he owed at least $1.4 million in federal income tax. It also alleges he filed a false or fraudulent tax return for 2018, when he claimed improper business expense deductions and failed to report some income.
Biden and the Weiss reached a tentative deal last spring where Biden agreed to plead guilty to two tax misdemeanors, but that agreement fell apart.
There is no doubt that Biden failed to file his returns in a timely way. And the government seems to have strong evidence that he took improper deductions and failed to report some income.
But the question is: Did all this rise to the level of tax crimes, rather than civil violations? How does the government respond when an individual dodges his tax liability for several years?
The Process
First, a quick bit about the typical legal process. Tax crimes are investigated by the IRS’s Criminal Investigations Division (CID). But it is the job of the Justice Department’ Tax Division to decide whether to pursue a criminal case. That often creates tension between IRS investigators, who often push for aggressive prosecution, and the Justice Department, which needs to decide how best to use its limited resources. “Prosecutors bring cases they think they can win,” one former government attorney told me.
The Hunter Biden case is different because the decision to file criminal complaints was made by special counsel Weiss, not the Tax Division.
There also is, as one former IRS official put it, an opportunity cost of pursuing cases such as Biden’s, which the IRS has been investigating for five years. “How many cases,” he asked, “has CID had to let slide.” Due to limited funding, CID staffing has declined by about one-quarter since 2010.
Rare Prosecutions
According to the most recent IRS data book, in fiscal 2022 the agency assessed nearly 40 million civil penalties, including 16 million for failure to pay and another 3.4 million for delinquencies, or late payments (see Table 26). Some penalties were later reduced, including after taxpayers partially paid them.
In contrast, that same year the federal government brought (see table 24) just 1,670 criminal tax indictments. Of those, only about 30%, or 487, were for evading taxes on legal income. The tax indictments did not allege that any of Biden’s income was earned illegally.
Seventy percent of tax prosecutions are related to other crimes such as drug dealing, money laundering, or fraud. Others are brought against tax preparers who defraud clients or employers who don’t remit the payroll taxes they collect from their workers. In recent years, multiple tax cases have been brought against identity thieves, cybercriminals, and those who fraudulently collected pandemic-related government payments.
For example, I randomly looked at CID press releases describing about 90 criminal cases resolved in October, 2023. All but three involving underreporting of business income or claiming improper deductions were related to other illegal activities.
Do the specific facts in Hunter Biden’s case make it more or less typical of a prosecution? For example, does it matter that Biden voluntarily paid his back taxes well before his indictment?
It makes no legal difference. Any crimes were committed when taxes were due and paying late doesn’t remove the violations. Yet, attorneys say payment often matters in trial. Says one ex-prosecutor, “A jury may ask, “why are we even hearing this if he already paid his taxes?””
Similarly, the government often will forgo bringing criminal charges if, as in Biden’s case, a taxpayer was in the throes of drug or alcohol addiction. “This case is all about whether [his behavior] was willfull,” one lawyer says. “The government needs to prove that he made a choice to not pay his taxes.” And citing addiction may help a defense claim there was no intent to evade taxes.
Many other factors play into a decision to prosecute. Did the taxpayer have accountants or tax lawyers and what advice did they give? Did the taxpayer have the money to pay what he owed? But the bottom line is that it is highly unusual for the government to prosecute a tax case like Hunter Biden’s, though it is not unheard of.