Legal Definitions - leads doctrine

The leads doctrine is a legal principle that applies specifically to tax evasion cases. It mandates that when a taxpayer accused of evasion provides the government with information, or "leads," that could potentially prove their innocence, the government has a duty to investigate these leads thoroughly. For this doctrine to apply, the information must be reasonably accessible to the government, and if found to be true, it must genuinely support the taxpayer's claim of innocence. If the government fails to investigate such credible and accessible leads, a judge may presume that the uninvestigated information is true and would have exonerated the taxpayer.

• Example 1: Unreported Business Expenses

  A small business owner is charged with tax evasion for underreporting their income. The owner claims that a significant portion of the alleged unreported income was actually used to pay for legitimate business supplies from a specific vendor, but these cash transactions were not properly recorded in their official accounting books. The owner provides the name and contact information for the vendor, along with dates of the alleged payments, suggesting the vendor's own records would corroborate these expenses.

  How this illustrates the leads doctrine: The vendor's information constitutes a "lead." It is reasonably accessible (the government can contact the vendor), and if the vendor's records confirm the payments, it would reduce the owner's taxable income, potentially proving their innocence of tax evasion. Under the leads doctrine, the government is obligated to investigate this vendor's records. If they fail to do so, a judge might assume the payments were indeed made and would have reduced the owner's tax liability, weakening the prosecution's case.

• Example 2: Disputed Source of Funds

  An individual is accused of failing to report a large sum of money deposited into their bank account, which the government suspects is undeclared income. The individual asserts that the money was a legitimate inheritance from a deceased relative in another country and provides the name of the foreign estate lawyer, the bank where the inheritance was held, and copies of the will and death certificate. They explain that the funds were transferred legally and are not taxable income.

  How this illustrates the leads doctrine: The details about the estate lawyer, foreign bank, will, and death certificate are "leads." While investigating international claims can be complex, this information is generally considered reasonably accessible. If verified, it would establish that the funds were an inheritance, not undeclared income, thereby proving the individual's innocence of tax evasion. The leads doctrine requires the government to make a good-faith effort to investigate these claims. If they neglect to do so, a judge could presume the inheritance claim is true, which would undermine the tax evasion charge.