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United States v. Conley - 942 F.2d 1125 (7th Cir. 1991)


A taxpayer is required to make a return only if the money that she received from another was income to her rather than a gift. Assuming that the money was income, she acts "willfully," and so is subject to criminal prosecution, only if she knows of her duty to pay taxes and voluntarily and intentionally violates that duty. The government has met its burden of proof if the jury can find these elements beyond a reasonable doubt, viewing the evidence in the light most favorable to the government.


David Kritzik was a wealthy widower who, directly or indirectly, gave sisters Leigh Ann Conley and Lynnette Harris $500,000 each over the course of several years. The United States alleged that Conley and Harris should have paid income tax for the amount of money they received from Kritzik. For their failure to pay such income tax, the two sisters were convicted of willfully evading their income tax obligations. The sisters appealed, arguing that the amount they received from Kritzik was a gift.


Should Conley and Harris pay income tax for the amount of money they received from Kritzik?




As to Conley, the Court noted that the transferor’s intention was the critical consideration in distinguishing between gifts and income, and as the government failed to present sufficient evidence of Kritzik’s intent regarding the money he gave Conley, the conviction must be reversed. Moreover, the Court noted that Conley could only be subject to criminal prosecution under 26 U.S.C.S. § 7203 if she intentionally violated her duty to pay taxes on the money. The Court held that the government did not meet its burden in showing that she acted in knowing disregard of her obligations. The Court also reversed Harris’ conviction because she believed the money was a gift, and therefore, lacked the intent to willfully fail to file her returns.

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