By: L. Alexis Whitley, Esq. and Tatum Perez, Esq.
The first six months of President Trump’s term have involved numerous changes, including to America’s tariff regime. Tariffs, a tax imposed on imported goods, can be used to incentivize the purchase of domestic goods. As a result, the Department of Justice (“DOJ”) stated in a memorandum that the Criminal Division will prioritize investigating and prosecuting crimes such as tariff evasion.
With this priority on tariff evasion, the DOJ is expected to combat a variety of illegal practices utilized to avoid tariffs. These practices include underreporting the true value of imported goods to pay a smaller tariff and misclassifying items into categories with lower tariffs. Further, importers might engage in transshipment, which involves first shipping goods to a third-party country with a lower tariff rate and then making small changes to the goods before they are then shipped to America.
The DOJ frequently relies on two criminal statutes to prosecute tariff evasion, Sections 541 and 542 of the United States Criminal Code. Under Section 541, it is a crime to falsify the weight or classification of imported goods. Under Section 542, it is a crime to knowingly sell or trade in imported goods that were falsely introduced into America. A violation of these statutes can result in up to $250,000 in fines and two years’ imprisonment.
In its effort to combat tariff evasion, the DOJ has directed its Market Integrity and Major Frauds Unit to prioritize trade fraud and tariff evasion. Further, the DOJ has amended the Criminal Division’s Corporate Whistleblower Awards Pilot Program to include “trade, tariff, and customs fraud by corporations” as an area of focus. Whistleblower suits are subject to treble damages and significant penalties, adding another layer of punishment for tariff violations. As an example, a recent whistleblower case was filed seeking more than $6 million in fines and penalties against an alleged tariff evader.
While tariff evasion is most often viewed through the lens of customs law, it also carries significant tax consequences. Because tariffs are a form of federal excise tax, knowingly undervaluing imports, misclassifying goods, or engaging in transshipment can create exposure under the Internal Revenue Code in addition to the criminal statutes enforced by the DOJ. Misreported import values can distort a company’s cost of goods sold, inventory basis, and deductions, leading to inaccurate corporate income tax filings. These discrepancies open the door to IRS enforcement actions under IRC Section 7201 (tax evasion) and Section 7206 (false statements), often in parallel with DOJ prosecution. Furthermore, multinational companies must ensure that their customs valuations align with transfer pricing documentation. Any mismatch between customs and tax reporting can draw scrutiny from both U.S. Customs and Border Protection (“CBP”) and the IRS. For these reasons, compliance with customs laws is not merely a trade obligation; it is a critical tax compliance strategy that protects both the company’s legal standing and its financial position.
With the Trump Administration’s focus on tariff evasion, businesses should exercise care and maintain compliance with customs laws. This includes paying close attention to the changing tariff regime and proactively reviewing compliance practices. Greenspoon Marder attorneys are available for assistance. Contact Nick Richards at [email protected] for more information.