## Facts

- Jack Greenberg, an accountant and participant in a joint venture known as P.R.P. Industries, Inc. (PRP), helped prepare and file PRP’s 1978 corporate tax return and his own personal returns.
- Witnesses testified Greenberg directed that certain payments be recorded on PRP’s return as business expenses though they were for a co-venturer’s personal benefit, and that other payments be characterized as loans though they were investments or compensation.
- Although PRP’s return contained these classifications, PRP’s reported net taxable income for the year was stated in the correct amount, and PRP reported more income than it should have.
- On Greenberg’s joint personal returns for 1976 and 1977, he allegedly overstated his wife’s income and understated his own; for 1976, his wife was reported as earning about $32,000 when she earned none, and Greenberg was reported as earning about $4,400 when he earned about $25,000.
- Evidence indicated the inaccurate reporting on the joint returns was intended to help Mrs. Greenberg obtain credit, and the net tax effect was minimal.
- Greenberg also willfully failed to file a personal federal income tax return for 1978.
- A jury in the Eastern District of New York convicted Greenberg of three counts of filing materially false tax returns under 26 U.S.C. § 7206(1) (one corporate, two personal) and one count of willful failure to file under 26 U.S.C. § 7203; he received a sentence of one year and one day.

## Issues

1. Whether “materiality” under 26 U.S.C. § 7206(1) is a question of law for the court or a question of fact for the jury.
2. Whether the charged misstatements were material under § 7206(1) when PRP’s net taxable income was correct and the personal-return tax difference was small.

## Decision

- The Second Circuit affirmed the judgment of conviction.
- The court held that materiality under § 7206(1) is a question of law for the court, and the trial court did not err by instructing the jury that the statements were material.
- The court held the misstatements were material as a matter of law because they were capable of influencing the IRS’s verification and enforcement functions, regardless of bottom-line tax effect.

## Legal Principles

- Under 26 U.S.C. § 7206(1), materiality is determined by the court as a matter of law, not submitted to the jury as a factual element.
- A false statement on a tax return is material if it has a natural tendency to influence, or is capable of influencing, the IRS in carrying out its functions, including verifying return accuracy and determining tax liability.
- Materiality does not require proof that the IRS was actually misled, relied on the statement, or that the misstatement changed the amount of tax due.
- Misclassifications and false allocations on returns may be material even when the reported net taxable income is correct, because they can impede IRS review of transactions and related-party tax treatment.

## Conclusion

The Second Circuit upheld Greenberg’s convictions, ruling that materiality for § 7206(1) is a legal question and that misstatements affecting the IRS’s ability to verify returns are material even when the tax consequences are minimal or the net taxable income is correctly reported.


United States v. Greenberg, 735 F.2d 29 (2d Cir. 1984)