Tuesday, November 14, 2017

Another Bullshit Tax Shelter Bites the Dust (11/14/17)

In Smith v. Commissioner, T.C. Memo. 2017-218, here, the taxpayers implemented and claimed the tax benefits of a tax shelter concocted by a Houston lawyer to shelter their income upon retirement.  Professor Bryan Camp has a nice discussion of the gambit and the result in Lesson From The Tax Court: The Power Of Fact-Finding (TaxProf Blog 11/13/17), here, who described it as a "Rube Goldberg scheme," which, he confessed, "I don’t understand how this works even as I am writing it!"

While I, like Professor Bryan Camp, don't profess to understand all the machinations, I think the core idea was for the taxpayers to create a limited partnership in which they directly or indirectly owned all the partnership interests - 98% LP interests and 2% GP interests.  They contributed significant cash and marketable securities to the partnership through an interim entity, an S Corporation.  The limited partnership was allegedly created for estate planning and preservation reasons.  Without the intervention of the S Corporation, that would not be particularly noteworthy.  The S Corporation first received the assets and then contributed them to the limited partnership.  (I haven't focused on the precise order of those steps, but it is not important.)  The S corporation then, in the same year, liquidated.

The machinations resulted in the following:
  • At the beginning of the process, the taxpayers had the cash and assets.
  • At the end of the process, the taxpayers had the LP interests and, indirectly, the GP interests.
  • Between the beginning and the end the Subchapter S corporation was created and liquidated. 
The taxpayers then claimed ordinary loss deductions based on the purported tax results of the S corporation.  I confess that I did not spend the time to fully understand exactly how those results worked.  Normally, the liquidation of an S corporation generates a capital loss to the extent that the value of the assets distributed is less than the shareholders' basis in the stock.  I think, however, that the lawyer pulled of some other sleight of hand to create the appearance of an ordinary loss in the S Corporation that flowed through to the shareholders via the K-1.  The ordinary loss was needed to shelter the ordinary income that caused the taxpayers to adopt the "Rube Goldberg scheme" in the first instance.  I may not have that right, because, in my mind, it is not critical to the result in the case.

The linchpin to the planning was that the S corporation be recognized for tax purposes.  This presented the issue that bedeviled true Bullshit tax shelters -- economic substance.  The taxpayers had to convince the court that they had some real reason to create and then liquidate the S corporation in the same year without any material activity other than routing assets from the taxpayer into the limited partnership.  The taxpayers failed in that burden.  The Tax Court Judge found that their testimony as to some legitimate nontax purpose for the S corporation was not credible.  Stated otherwise, the Tax Court found that they lied about the claimed nontax business purpose.

Monday, November 13, 2017

Fifth Circuit on Bruton Confrontation Clause Issue and Deliberate Ignorance / Willful Blindness Issue (11/13/17)

In United States v. Gibson, ___ F.3d ___, 2017 U.S. App. LEXIS 22261 (5th Cir. 2017), here, a nontax case, the Court hit some themes that I have discussed before in tax cases.  In this regard, as readers know, tax crimes are merely one subset of white collar crimes.  See e.g., Geraldine Szott Moohr, Tax Evasion as White Collar Fraud, 9 Hous. Bus. & Tax Law J. 207 (2009), here.  That is why experienced white collar crimes lawyers can try criminal tax cases, even learning a little tax law along the way.  And, it works vice-versa as well.

The opinion starts off with a good summary of the issues presented (footnote omitted, but it is not Shakespeare):
"The trouble with conspiracies is that they rot internally." According to the government's cooperating witnesses, the appellants—Earnest Gibson, III (Gibson III) and his son, Earnest Gibson, IV (Gibson IV)—participated in three: one to defraud Medicare, another to pay unlawful kickbacks, and a third to launder money. A jury convicted the Gibsons for each, plus several substantive kickback counts. On appeal, the Gibsons advance sufficiency challenges and assert that the health care fraud and money laundering conspiracies merged. For his part, Gibson III argues that the district court infringed his constitutional rights by limiting one of his cross-examinations and by admitting a co-conspirator's confession, in violation of the Bruton doctrine. He also faults the trial court for giving the jury "deliberate ignorance" instructions on charges requiring specific intent. In turn, Gibson IV posits that the district court imposed too much restitution. Both appellants also invoke the cumulative error doctrine, claiming that the trial court's alleged mistakes infected the verdict. We find no reversible error and thus affirm.
The Bruton Holding:

The Bruton holding is complete, so I just cut and paste:
The Bruton doctrine addresses the thorny Sixth Amendment problem where one defendant confesses out of court and incriminates a co-defendant without testifying at their joint trial. In its landmark opinion, the Bruton Court reversed a defendant's postal robbery conviction, see 18 U.S.C. § 2114, on Confrontation Clause grounds where his non-testifying co-defendant had made "powerfully incriminating" statements against the defendant in a pretrial confession, 391 U.S. at 135-36. At trial, a postal inspector testified that the declarant twice confessed—once to say that both the declarant and the defendant committed the robbery, and again to admit to having an "an accomplice he would not name[.]" Id. at 124. Though the trial judge instructed the jury to consider the confessions against only the declarant, the Supreme Court reversed the conviction because there was a "substantial risk that the jury, despite instructions to the contrary, looked to the incriminating extrajudicial statements in determining petitioner's guilt[.]" Id. at 126.

The Birkenfeld Prosecution, Conviction and Sentence (11/13/17)

When I read the decision in Birkenfeld v. Olenicoff, 2017 Cal. App. Unpub. LEXIS 7675 (Cal. Ct. App. 4th Dist. Div. 3 2017), which I blogged earlier today, Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (Federal Tax Crimes Blog 11/13/17), here, I decided to revisit the Birkenfeld criminal conviction and sentencing saga.  Long-term readers of this blog know that Birkenfeld broke the logjam of secrecy that let to the U.S. initiative against UBS and the Swiss Banks assisting U.S. taxpayers evade U.S. tax.  He was rewarded handsomely ($104 million in whistleblower award) for the information he provided.  He was hailed as Tax Analysts Person of the Year.  See Birkenfeld is Tax Analysts Person of the Year (Federal Tax Crimes Blog 1/1/2010), here.  He also was prosecuted, convicted by plea agreement, and sentenced to 40 months. 

I wanted to look at his prosecution, conviction and sentencing to see why the person of the year was prosecuted in the first place and then sentenced to such a significant term.

I think the story is told in the transcript of the sentencing hearing, here.  I provide the key excerpts, which are lengthy, from the transcript below, but I thought I would summarize the key points.

1.  The Government -- through Kevin Downing (yes, that one) -- acknowledged that Birkenfeld was the key that gave the Government the opportunity and means to bring the Swiss banks to justice and to identify many U.S. taxpayers playing the offshore account game with Swiss banks.

2.  The Government says, however, that Birkenfeld was not truthful or forthcoming about his role with Olenicoff.  That was the reason that he was prosecuted in the first place and that the Government requested a 5K1 downward departure to 30 months.

3.  Based on that Birkenfeld's role in the Swiss bank initiative, Birkenfeld's lawyer requested a downward 5K1 departure to a probation range and sentencing to probation.

4.  The judge sentenced Birkenfeld to 40 months.  (JAT Note: I think it is somewhat unusual that the judge sentenced above the months recommended by the Government.)

5.  Booker, variance and vary are not mentioned, so the sentencing was based on the Guidelines and an appropriate 5K1 departure.

The following excerpts are the ones I think are important, although the whole transcript is available).

Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (11/13/17)

In my periodic sweep for new cases for my blogs and publications, I came across Birkenfeld v. Olenicoff, 2017 Cal. App. Unpub. LEXIS 7675 (Cal. Ct. App. 4th Dist. Div. 3 2017), here.  The names are probably familiar with many, perhaps most, readers of this blog.  Birkenfeld was the guy who spilled the beans on UBS and broke the information logjam that permitted the U.S. juggernaut against UBS and other Swiss banks.  Olenicoff was a very wealthy U.S. taxpayer who was convicted for his unreported offshore bank activities.  As I understand it, Olenicoff put Birkenfeld on the U.S. radar screen and Birkenfeld extrapolated a form of success ($104 million in whistleblower award) as well as the punishment for some of his tax crimes with a prosecution, conviction and 40 month sentence.

At any case, when people suffer misfortunes of public disgrace and punishment, they often look for scapegoats.  Olenicoff started the ball rolling.  Olenicoff sued UBS AG, Birkenfeld and an assorted cast of characters related to the offshore account activity for which Olenicoff was convicted.  Olenicoff lost that gambit.  Olenicoff v. UBS AG, 2012 U.S. Dist. LEXIS 57360 (CD Cal. 2012), here.  Basically, in that case Olenicoff sued his co-conspirators in crime alleging all sorts of skullduggery on their parts and seeking to whitewash his own conduct.  The flavor of the court's reaction in dismissing the case can be appreciated from this single comment:  "Like a bad foundation undermining a building's structure, Olenicoff's Plea Agreement places nearly every room of his legal house of cards into jeopardy."  Of course, any time there is a legal proceeding, the prevailing parties incur fees which are often substantial in defending a case that should not have been brought in the first instance.

That leads us to the next and, hopefully, final steps in this drama.

UBS and Birkenfeld then, in separate actions, sued Olenicoff for malicious prosecution and related claims from Olenicoff's earlier failed suit against them.  UBS and Birkenfeld's suits failed for variations on the theme of unclean hands. As to UBS, see Janet Novack, UBS Too Dirty To Sue Billionaire Offshore Tax Cheat, Judge Rules (Forbes Personal Finance 7/28/15), here.  The case cited at the beginning of the blog relates to Birkenfeld's case.  Birkenfeld claimed to have spent $350,000 to $400,000 defending the case Olenicoff brought.  The court of appeals sustained the trial court's holding that Birkenfeld's suit was barred by the unclean hands defense.  At the start of its analysis, the court of appeals projects it holding:
The conduct engaged in by Birkenfeld is, without question, bad and satisfies the unconscionable, bad faith, or inequitable conduct requirement of the unclean hands doctrine. Birkenfeld does not contend otherwise and candidly acknowledges that he and Olenicoff were "partners in crime."

Monday, November 6, 2017

ICIJ Offers a New Trove of Offshore Activity Documents -- the Paradise Papers (11/6/17)

The International Consortium of Investigative Journalists (ICIJ) has struck again, disclosing a cache is new documents disclosing offshore activity of the rich and famous.  ICIJ calls the new cache of documents the Paradise Papers (which distinguishes it from the old cache, the Panama Papers, and from future caches).  The ICIJ web page for the Paradise Papers, here.

A helpful ICIJ introductory video is here.

The Wikipedia page is here.

BBC has a good piece "Paradise Papers: Tax haven secrets of ultra-rich exposed," here.

Offshore activity of the type disclosed in the Paradise Papers is not necessarily illegal.

My guess is that somewhere somehow related to these disclosures will be whistleblower claims.  Readers of this blog already have been introduced to the U.S. tax whistleblower regime in § 7623(b) that can be quite lucrative for whistleblowers -- 15-30% of collected proceeds.

A sensitive issue for whistleblowers is whether, in blowing the whistle, they violate U.S. law or non-U.S. laws (such as bank secrecy laws, etc.).  A related issue for whistleblowers affiliated with professional firms (such as law firms and accounting firms) whether they violate professional standards.  In either event U.S. Government agencies receiving such disclosures will be very concerned that the agencies not be viewed as affirmative actors in the violation of non-U.S. laws or professional standards.  And, if the whistleblower is violating legal or ethical standards, the U.S. Government agencies may not act, unless there is some affirmative support (such as the attorney-client crime-fraud exception).  For example, if the whistleblower is a lawyer, the IRS will be keenly interested in whether the attorney-client privilege is implicated with respect to the information and documents disclosed and may not use the disclosed information until they are assured the there is no taint that would prevent the use.  Those of us who have worked through the traps and landmines in this area know that anticipating and addressing these concerns are key to successfully getting to the goal of a whistleblower award.

Seventh Circuit Reverses Conviction in Tax Case Presided Over by Judge Posner (11/6/17)

United States v. El-Bey, 2017 U.S. App. LEXIS 20897 (7th Cir. 2017), here, is interesting because (i) it is a tax case, (ii) the Seventh Circuit reverses the conviction for improper remarks of the trial judge, and (iii) the trial judge was Richard Posner, then a Seventh Circuit judge designated as trial judge for the case.

Many -- but I hope, not too many -- readers of this blog might ask, so who is Judge Posner? His Wikipedia page is here.  He is generally considered a giant in the law because of his many judicial and extrajudicial contributions over a long period of time -- from his appointment to the Seventh Circuit in 1981 through his retirement in 2017.  In the law courses I formerly taught on Federal Tax Procedure and Federal Tax Crimes, I routinely required students to read some Judge Posner opinions because he is so articulate, moves quickly to the point and presents his reasoning so well.  He is not uncontroversial, though.  And this case shows him not at his best, but I believe it is an outlier over a very long and distinguished career.  (By the way, Judge Posner is a rare appellate judge who actually tried cases from time to time and for that, in my estimation, he is to be greatly commended; appellate judging is a lot different than trial judging; I am not sure that appellate judges always appreciate the dynamics of trying a case where there are so many opportunities for mistakes by the judges and the lawyers; trial judges make dozens, sometimes hundreds, of decisions, large and small, every day in a trial and often cannot slow down the course of trial to craft the best decision.)

In El-Bay, the defendant was charged with mail fraud and failse claims arising from false tax returns claiming $1.8 million in refunds, of which he received $600,000.  Defendant represented himself at trial and was a difficult litigant.  Defendant apparently pushed Judge Posner past his snapping point, causing Judge Posner to say some inappropriate things that suggested to the jury that defendant was dishonest and lacked credibility, thus denying defendant a fair trial.  Hence, the Seventh Circuit panel (Judges Wood, Manion and Williams) reversed in a per curiam opinion (meaning the author is not named).  The key discussion in the opinion is (footnote omitted):
It is clear from the transcript of the trial court proceedings that El-Bey was a difficult litigant. He filed numerous irrelevant motions, disregarded court instructions, and often inappropriately interrupted the district court to express disagreement and dissatisfaction. Nonetheless, we agree with El-Bey that the district court's remarks during cross-examination of the government's first witness conveyed bias regarding his dishonesty or guilt. The district court interrupted El-Bey at the beginning of his cross-examination, stating, "Look, paying taxes is not voluntary." When El-Bey noted that he was only reading what the document stated, the district court remarked "Come on"—a statement "laced with skepticism." United States v. Martin, 189 F.3d 547, 554 (7th Cir. 1999). The district court continued with further remarks in the presence of the jury reflecting upon El-Bey's dishonesty or guilt, stating, "You don't pay your tax, you go to jail," and "I'm going to kick you out if you keep on with this nonsense." While the government contends that the district court's statements were merely meant to remind El-Bey that his sovereign citizen views were not permitted at trial, the purpose of the comments cannot eliminate the bias conveyed to the jury by the remarks here. The court's statements that one who does not pay taxes goes to jail and that El-Bey was acting in a nonsensical manner indicated bias about El-Bey's guilt or honesty to the jury. Contra id. (no bias in district court's questioning of witness where "district judge was firm, but not harsh or abusive in any way [and] [t]he questions were not laced with skepticism and they gave no indication as to the judge's thoughts about [the defendant's] honesty or dishonesty"). 
We also find that these comments seriously impaired El-Bey's credibility as a pro se defendant in the eyes of the jury. "Federal district judges are busy people and they get irritated when lawyers waste their time and that of jurors, witnesses, and other lawyers. It is unfortunate, but it is inherent in an adversary system, that the cost of this irritation is likely to be borne primarily by the [defendant]." Cooper v. Casey, 97 F.3d 914, 919 (7th Cir. 1996). Reversible error occurs "when the judge so impairs the lawyer's credibility in the eyes of the jury as to deprive the client of a fair trial." Id. While a district court "must often confront courtroom behavior by attorneys which is deserving of censure, ... the judge's role in the exchange [here] went far beyond the correction of an alleged misstatement." United States v. Spears, 558 F.2d 1296, 1298 (7th Cir. 1977). The district court's admonishments of El-Bey and threat to eject him from court occurred in the presence of the jury and "so discredited him in the eyes of the jury that he could not have remained an effective spokesman for hi[mself.]" Id. (finding reversible error where district court admonished defense counsel by stating counsel's statements during closing were "absurd and bordering upon a lie" and threatening to fine counsel for contempt in the presence of the jury). This harm was exacerbated by the fact that the admonishment was not directed toward defense counsel and indirectly imparted upon the defendant, but, instead, was aimed directly at the defendant while he was exercising his constitutional right to defend himself.

Ninth Circuit NonTax Case on Good Faith Defense and Objective Reasonableness (11/6/17)

Federal tax crimes usually require that the defendant have acted willfully, with intent to violate a known legal duty.  Cheek v. United States, 498 U.S. 192 (1991).  A good faith subjective belief that there is no legal duty is a defense, because, by definition, such a belief, if found to exist, means the Government has not establish that the defendant intended to violate a known legal duty.  The good faith belief need not be objectively reasonable, but the objective reasonableness of the belief can be considered by the factfinder in determining whether the defendant had the subjective belief.  This is all well-known law in the tax context.

I recently read United States v. Wallen, 2017 U.S. App. LEXIS 21173 (9th Cir. 2017), here, an appeal from a conviction for "killing three grizzly bears in violation of the Endangered Species Act."  The elements of the crime, as recounted by the Court, are:
(1) the defendant knowingly killed a bear; (2) the bear was a grizzly; (3) the defendant did not have permission to kill the bear; and (4) the defendant did not act in self-defense or in the defense of others.
With respect to the fourth element, the statute, 16 U.S.C. § 1540(b)(3), says:
Notwithstanding any other provision of this chapter, it shall be a defense to prosecution under this subsection if the defendant committed the offense based on a good faith belief that he was acting to protect himself or herself, a member of his or her family, or any other individual, from bodily harm from any endangered or threatened species.
On appeal, as in Cheek, the parties "dispute whether the 'good faith belief' standard requires an objectively reasonable belief, as the government argues, or requires only a subjective belief in the need to protect oneself or others, as Wallen maintains."  The Court further explains:
Congress added the good faith belief defense in 1978, after an elderly couple was prosecuted for killing a grizzly bear that had threatened them. See 124 Cong. Rec. 21,584 (1978). But neither the statute nor the regulations say whether the requisite "good faith belief" must be objectively reasonable, see 16 U.S.C. § 1540(b)(3); 50 C.F.R. § 17.40(b)(1)(i)(B), and we are unaware of any binding case law addressing that question. We now hold that a subjective good faith belief suffices to establish self-defense under this statute.
In explaining its conclusion, the Court of course relied upon the text of the statute and cited prominently to Cheek and to Cheek's holding that, although objective reasonableness will not preclude a good faith belief, objective reasonableness or unreasonableness of the belief can be considered in determining whether the defendant in fact had a subjective good faith belief.  I  found the following a pretty good discussion of the concept:
We emphasize that, although the ultimate question is whether a defendant held a subjective good faith belief, the objective reasonableness (or unreasonableness) of a claimed belief bears directly on whether that belief was held in good faith. We and the Supreme Court have already said as much. In Cheek, 498 U.S. at 203-04, when assessing the petitioner's claimed belief that he was in compliance with the tax code, the Supreme Court explained that "the more unreasonable the asserted beliefs or misunderstandings are, the more likely the jury will consider them to be nothing more than simple disagreement with known legal duties imposed by the tax laws." Similarly, in Powell, 955 F.2d at 1212, we held the jury was "not precluded from considering the reasonableness of the interpretation of the law in weighing the credibility of the claim that the [defendants] subjectively believed that the law did not require that they file income tax returns." We have also recognized this principle in maritime cases that turn on "whether the seaman[] in good faith believed himself fit for duty when he signed aboard for duty." Burkert v. Weyerhaeuser S.S. Co., 350 F.2d 826, 831 (9th Cir. 1965). In Burkert, the "crucial fact issue before the court was whether or not there existed reasonable grounds to support [a seaman's] belief that he was fit for duty. The absence of such reasonable grounds would support a finding that [he] did not believe, in good faith, that he was fit for duty." Id. 
Under the Endangered Species Act, the reasonableness of a belief that an endangered animal posed a threat is likewise strong evidence of whether the defendant actually held that belief in good faith. Consider the example of a person who goes to the zoo, shoots all the endangered animals and then claims he believed the animals otherwise would have escaped and attacked him. The unreasonableness of the asserted belief should matter in a subsequent prosecution under the Endangered Species Act, as that unreasonableness casts significant doubt on the sincerity of the claimed belief. 
In sum, we hold the "good faith belief" defense under § 1540(b)(3) is available to defendants who, in good faith, subjectively believe they or others are in danger. A factfinder "is not precluded from considering the reasonableness" of this belief "in weighing the credibility of the claim," but that factfinder "may not substitute its own determination of objective reasonableness . . . [for] what the defendant subjectively believed." Powell, 955 F.2d at 1212. This means that traditional aspects of a self-defense claim — such as the immediacy of the threat, whether the defendant provoked the conflict or the amount of force used, see LaFave, supra, § 10:4(b), (d), (e) — may be considered for the purpose of determining whether a claimed belief was held in good faith. The standard is subjective, but the objective reasonableness of the defendant's claimed belief is relevant to the factfinder's assessment of the sincerity of that claim. 

Sunday, November 5, 2017

Court Rejects Braswell Claim That Government Questions Violated Braswell (11/5/17)

In  Braswell v. United States, 487 U.S. 99 (1988), here, the Court dealt with the tensions between the Fifth Amendment act of production doctrine, which gives Fifth Amendment protection to the testimonial aspects of the act of production, and the investigative need to obtain corporate records which are per se not subject to the privilege (both because the corporation has no Fifth Amendment privilege and documents generally are not subject to the Fifth Amendment privilege).  Outside the corporate document setting, the tensions are resolved by denying the Fifth Amendment privilege for existing voluntarily produced documents but recognizing the right of the person in possession of the documents to assert the Fifth Amendment privilege as to any testimony inherent in the act of producing the documents.  That is called the act of production doctrine.  If the custodian of corporate documents could assert the Fifth Amendment privilege via the act of production doctrine, investigative agents and courts might be stymied is determining truths.  Braswell resolved the tension by holding that the custodian may not assert the act of production to prevent having to produce the documents, but the Government could not use the testimony inherent in the act of production against the custodian.  (In effect, this is a form of use and derivative use immunity for the testimonial aspects of the act of production.)

In United States v. Stegman, 2017 U.S. App. LEXIS 20598 (10th Cir. 2017), here, the Tenth Circuit denied a Braswell claim of improper use by the prosecutor questioning the agent about the corporate records.  The records had been summonsed in the investigation.  The defendant, the custodian and owner of the corporation, produced the records pursuant to the summons.  In questioning the agent, the Government asked whether the documents were the defendant's ledgers that she controlled.  The defendant argued on appeal that this question violated the Fifth Amendment act of production privilege with respect to her production  of the records.  I quote the Court's opening discussion of Braswell and then the resolution of defendant's claim on appeal:
1. The holding in Braswell 
The Supreme Court granted certiorari in Braswell to address "the question whether the custodian of corporate records may resist a subpoena for such records on the ground that the act of production would incriminate him in violation of the Fifth Amendment." 487 U.S. at 100. The Supreme Court "conclude[d] that he may not." Id. In reaching this conclusion, the Court began by noting that corporations "are not protected by the Fifth Amendment." Id. at 102. More specifically, the Court noted that it "ha[d] long recognized that, for purposes of the Fifth Amendment, corporations and other collective entities are treated differently from individuals." Id. at 104. This collective entity rule, the Court noted, mandated "that without regard to whether [a] subpoena is addressed to the corporation" or "to the individual in his capacity as a custodian, a corporate custodian . . . may not resist a subpoena for corporate records on Fifth Amendment grounds." Id. at 108-09 (citations omitted). The Court then contrasted this with sole proprietorships and noted that sole proprietors are entitled to "show that [an] act of production [of proprietorship documents] would entail testimonial self-incrimination." Id. at 104. 
In a passage relevant to the case at hand, the Court explained the proper and improper uses of corporate records produced pursuant to a subpoena: 
Although a corporate custodian is not entitled to resist a subpoena on the ground that his act of production will be personally incriminating, we do think certain consequences flow from the fact that the custodian's act of production is one in his representative rather than personal capacity. Because the custodian acts as a representative, the act is deemed one of the corporation and not the individual. Therefore, the Government concedes, as it must, that it may make no evidentiary use of the "individual act" against the individual. For example, in a criminal prosecution against the custodian, the Government may not introduce into evidence before the jury the fact that the subpoena was served upon and the corporation's documents were delivered by one particular individual, the custodian. The Government has the right, however, to use the corporation's act of production against the custodian. The Government may offer testimony—for example, from the process server who delivered the subpoena and from the individual who received the records—establishing that the corporation produced the records subpoenaed. The jury may draw from the corporation's act of production the conclusion that the records in question are authentic corporate records, which the corporation possessed, and which it produced in response to the subpoena. And if the defendant held a prominent position within the corporation that produced the records, the jury may, just as it would had someone else produced the documents, reasonably infer that he had possession of the documents or knowledge of their contents. Because the jury is not told that the defendant produced the records, any nexus between the defendant and the documents results solely from the corporation's act of production and other evidence in the case. 
Id. at 117-18 (footnote omitted). 
* * * * 
3. Analysis 
Stegman argues on appeal that "[t]he prosecutor . . . violated Braswell by asking [the] witness to agree 'that those are Ms. Stegman's ledgers that she controlled.'" Aplt. Br. at 14 (quoting Aplt. App. at 3062-64). In other words, Stegman argues, "[t]he prosecutor blatantly attributed the records to [her], not the corporation." Id. at 33 (emphasis in original). Stegman in turn argues that "[b]ecause inter alia the Government used these ledgers to advance its allegation that [she] used whiteout before disclosing documents to the IRS, the Government cannot prove that this was harmless beyond a reasonable doubt." Id. at 14. 
Contrary to Stegman's assertions, however, we conclude that the prosecutor's questions did not violate Braswell. Specifically, the prosecutor did not ask the witness whether Stegman was the one who the compulsory summons was served upon or the one who delivered the requested ledgers to the government. Rather, the prosecutor asked the witness only who owned or controlled the ledgers and the witness testified simply that he assumed the ledgers belonged to Stegman. Thus, the questions did not violate the prohibition outlined in Braswell. It is also worth noting, as the district court did in overruling Stegman's contemporaneous objection, that nothing about the questions or the response was particularly significant, given the other evidence that was presented at trial establishing that Stegman was in complete control of Midwest and had prepared the ledgers at issue. 
In sum, then, we conclude that the prosecutor's questions and the witness's response did not violate Stegman's Fifth Amendment privilege against self-incrimination.

Wednesday, November 1, 2017

Tax Aspects of the Manafort and Gates Indictment Obtained by Special Counsel Mueller's Office (11/1/17)

Readers of this blog will almost certainly have been exposed to news about the indictment that Special Counsel Mueller's office obtained against Paul Manafort and Rick Gates.  See e.g., Richard Gordon, Manafort is the Tip of the Iceberg (NYT Op-Ed 10/20/17), here, (Gordon, by the way is a law professor who, according to the article, is a "tax professor who specializes in anti-money laundering.")  Many of the articles said that tax fraud was a core claim in the indictment.  But, this is not a typical tax crimes indictment.

I thought it might be helpful to readers, particularly students, to focus on the tax allegations on the indictment.  A copy of the indictment is here.

COUNTS IN THE INDICTMENT
  • COUNT ONE (Conspiracy Against The United States - 18 U.S.C. § 371)
  • COUNT TWO (Conspiracy To Launder Money - 18 U.S.C. § 1956(h))
  • COUNTS THREE THROUGH SIX (For Manafort - Failure To File Reports Of Foreign Bank And Financial Accounts For Calendar Years 2011-2014 - 31 U.S.C. §§ 5314 and 5322(b); 18 U.S.C. § 2)
  • COUNTS SEVEN THROUGH NINE (For Gates - Failure To File Reports Of Foreign Bank And Financial Accounts For Calendar Years 2011-2013)(31 U.S.C. §§ 5314 and 5322(b ); 18 U.S.C. § 2)
  • COUNT TEN (Unregistered Agent Of A Foreign Principal - (22 U.S.C. §§ 612 and 618(a)(l); 18 U.S.C. § 2))
  • COUNT ELEVEN (False and Misleading FARA [Foreign Agents Registration Act] Statements - 22 U.S. C.§§ 612, 618(a)(2); 18 u.s.c. § 2))
  • COUNT TWELVE (False Statements - 18 U.S.C. §§ 2, 1001(a)

What is not in the indictment is a Court for a Title 26 tax crime.  There is some nuance here related to the conspiracy counts, both the general conspiracy count (Count 1) and the money laundering conspiracy count (Count 2) which are Title 18 counts, that can in some cases relate to conduct where the gravamen of the crime is a tax crime.  I will get into a discussion of that nuance later.

INDICTMENT ALLEGATIONS RELATING TO TAX

Tuesday, October 31, 2017

Sentencing Guidelines Analysis for FBAR Convictions (10/31/17)

A couple of days ago, I posted a blog entry about an FBAR plea where, in the plea agreement, the Government stated that it had changed its position on Sentencing Guidelines calculations for FBAR convictions related to tax crimes.  Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (10/27/17), here.  The plea agreement states as follows:
The Government contends that the applicable Guideline in this matter should be U.S.S.G. § 2S1.3(a)(2), § 2S1.1 , and § 2S1.3(b)(2) because the defendant filed two false FBARs and a false U.S. Individual Income Tax Return, Form 1040, within a 12-month period. However, at the time that the defendant agreed to plead guilty, the Government consistently took the position with similarly situated defendants that the applicable Guideline was U.S.S.G. § 2Tl.1 and § 2TI.4 due to the cross reference in 2Sl.3(c)(1).
I thought it would be good for me and perhaps the readers of this blog to step through the Guidelines on for FBAR convictions in the context of tax crimes to follow the detail behind the Government's change in position.  I will be dealing with the Sentencing Guidelines which, as of today, are the 2016 Guidelines.  New versions of the Guidelines are issued every year to incorporate changes.  Usually, most of the Guidelines are carried forward, with changes only to some of them.  The changes can be important.  I expected that there would be new Guidelines effective November 1, 2017, but could not find any posted on the United States Sentencing Commission web site and some indications that the 2017 Guidelines may not be adopted until later than November 1, 2017.  So, I decided to post this entry referring to the 2016 Guidelines.  Based on the changes that are being considered, I do not think there will be any change in the 2017 Guidelines from the provisions I refer to in the 2016 Guidelines.  When the 2017 Guidelines come out, I will review them and make any corrections that may be appropriate to this blog entry.

Before offering my analysis, I caveat that I limit the scope of the analysis to FBAR violations where the only other potential criminal conduct relates to tax crimes -- i.e., the use by U.S. taxpayers of offshore accounts to evade U.S. tax and the FBAR violations (usually failure to file the FBAR) were committed to hide the tax violations.  (Thus, for example, the recent Manafort and Gates indictments being prosecuted by Special Counsel Mueller, here, alleged counts for FBAR violations and a defraud / Klein tax conspiracy along with other contextual counts (such as money laundering) that would preclude the application of this analysis to the FBAR counts.)

Sunday, October 29, 2017

Sentencing Commission Quick Facts on Sentencing for Tax Crimes (10/29/17)

I am working up a more detailed analysis of the Government's recently disclosed Eureka moment for the proper Sentencing Guidelines calculations for FBAR crimes of conviction.  See Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (Federal Tax Crimes Blog 10/27/17), here.  I won't have that done until the 2017 version of the Guidelines are posted on the web so that I can link them. (Having given my excuse for waiting on the 2017 Guidelines, I have to say that I am pretty sure that the new Guidelines will not differ in any material respect from the prior versions of the Guidelines; still since the 2017 Guidelines should be posted in the next few days, I will just wait and provide links to the new Guidelines,)

In the meantime, while poking around the Sentencing Commissioner web site, here, I came across a recent Sentencing Commission posting on Quick Facts for Tax Fraud Offenses, here.  The posting is short (two pages), so I encourage readers to review the entire posting.  Here are some facts stats that I found interesting:

  • 584 cases reported in fye 2016 involved tax fraud.  Tax fraud offenses include cases with complete guideline application information in which the offender was sentenced under §2T1.1 (Tax Evasion; Willful Failure to File Return, Supply Information, or Pay Tax; Fraudulent or False Returns, Statements, or Other Documents) or §2T1.4 Aiding, Assisting, Procuring, Counseling, or Advising Tax Fraud) using a Guidelines Manual in effect on November 1, 2001 or later.  (JAT Note:  I think that the defraud / Klein conspiracy (18 USC 371) cases are sentenced under §2T1.9 but,  since §2T1.9 refers to §2T1.1, I suspect that the defraud / Klein conspiracy are included in the §2T1.1 number.)
  • The majority of tax fraud offenders had little or no prior criminal history (80.0% of these offenders were assigned to Criminal History Category I).  
  • The median tax loss for these offenses was $218,035.
  • 90.7% of tax offenses involved tax losses of $1.5 million or less.
  • 25.9% of tax offenses involved tax losses of $100,000 or less.
  • The majority of tax fraud offenders had little or no prior criminal history (80.0% of these offenders were assigned to Criminal History Category I).
  • 90.7% of tax offenses involved tax losses of $1.5 million or less.
  • Sentences for tax fraud offenders were increased for 11.0% of offenders for using sophisticated means to execute or conceal the offense. [I think the myth among practitioners is that the sophisticated means adjustment is routine, so this number is not consistent with the myth.]
  • Nearly two-thirds of tax fraud offenders were sentenced to imprisonment (63.9%).
  • The average sentence length for tax fraud offenders was 15 months.  [As I have observed before, the average length for offshore related convictions is less, but I don't have the statistics for that; message, if you want to cheat on tax, use offshore accounts.]
Sentences Relative to the Guideline Range - I encourage readers to look at the reported statistics on within Guidelines ranges, below Guidelines sentences because of substantial assistance, other Government sponsored departures, and non-Government sponsored departures. 

The following are interesting for the past 5 years:

  • The average guideline minimum ranged between 24 months and 26 months during that time period;
  • The average sentence imposed decreased from 18 months to 15 months during that time period. 

Saturday, October 28, 2017

New Cumulative Supplement to Federal Tax Procedure Book (10/28/17)

I have posted a Cumulative Supplement, dated 10/28/17 to my Federal Tax Procedure Book.  The book and the supplement can be downloaded from the page titled Federal Tax Procedure Book & Supplements, here, on my Federal Tax Procedure Blog.

Probably the significant item for Tax Crimes enthusiasts is the discussion p. 19 in revised footnote 2023 about restitution based assessment under §§ 6201(a)(4) & 6213(b)(5).

As always with my publications, I encourage readers to advise me of any matters that need corrections, additions, deletions, etc.

Article on the Fourth Amendment in a Digital World (10/28/17)

I recently alerted readers to the Supreme Court's acceptance of certiorari in Microsoft Corp. v. United States, 829 F.3d 197 (2d Cir. 2016), reh. denied, 855 F.3d 53 (2d Cir. 2017).  The progress of the case in the Supreme Court can be tracked at the SCOTUSblog, here. My blog entry is Supreme Court Accepts Cert in Microsoft Involving Search Warrants for Emails on Foreign Servers (10/17/17), here

Since the application of the Fourth Amendment in the current environment where much of our private information, previously physically stored in our homes or other private places and thus subject to robust Fourth Amendment protection, is now on servers on the web and in the possession of third parties, there is a disconnect with historic Fourth Amendment analysis.

I recently read a helpful article on this subject and alert readers as to the article if they want to read more on this issue pending whatever learning the Supreme Court offers in Microsoft.  The article is Laura K. Donohue, The Fourth Amendment in a Digital World, 71 N.Y.U. Ann. Surv. Am. L. 553 (2017), here.  I excerpt some of the introduction  (footnotes omitted) for readers to see whether they might be interested in reading the article:
Fourth Amendment doctrine no longer reflects how the world works. Technology has propelled us into a new era. Traits unique to a digital world are breaking down the distinctions on which the Court has traditionally relied to protect individual privacy. 
What are these characteristics? Digital information is ubiquitous. Individuals cannot go about their daily lives without generating a footprint of nearly everything they do. The resulting data is accessible, recordable, and analyzable. And because it is digital, it can be combined with myriad sources, yielding deeper insight into our lives. Data is also non-terrestrial and borderless. Bits and bytes populate an alternative world. They may be held on a server, but their generation, transfer, and availability are not tied to territory, undermining doctrines that rely on three-dimensional space. Technology, moreover, embodies an efficiency drive. Innovation makes it possible to do more, and to do it better, faster, and cheaper than before. So more information is being captured, even as the resource expenditures required steadily decline. Simultaneously digital interfaces are rapidly proliferating, replacing traditional modes of interaction. This means that new types of information are available, even as our ability to conduct our daily lives has become heavily dependent on technology. It has become a non-option to eschew the digital world, if one wants to live in the modern age. 
These characteristics undermine the distinctions that mark Fourth Amendment doctrine. Consider, for instance, the diremption between private and public space. The Court has long relied upon this dichotomy to determine what constitutes a reasonable expectation of privacy. It draws a line at the walls of the home, citing the risk assumed by individuals when they go out into public and expressing a reluctance to disadvantage law enforcement by forcing them to turn off their natural senses or to ignore what any ordinary person could ascertain. 
The amount and types of information available in the public sphere, however, have exponentially increased. WiFi and Bluetooth signals can be collected, global positioning systems and vessel monitoring systems operated, and radio frequency identification chips tracked. Automated license plate readers record the time, date, and location of cars, while network data reveals where mobile devices travel day and night. International mobile-subscriber identity-catchers pinpoint the devices located in a given area. Internet protocol databases, in turn, register users' locations. Financial transactions and credit card records place people in certain places at certain times, while cameras, enhanced with remote biometric identification, may be mounted on vehicles, poles, buildings, or unmanned aerial systems, creating the potential for 24-hour monitoring, seven days a week, ad infinitum.  

Friday, October 27, 2017

Ninth Circuit Summarily Rejects Arguments Against FBAR Willful Penalty (10/27/17)

In United States v. Bussell,  (9th Cir. No. 16-55272 10/25/17), unpublished opinion, here, the background was
In June 2013, the IRS assessed an approximately $1.2 million penalty against Bussell for failing to disclose her financial interests in an overseas account on her 2006 tax return, which she was required to report in 2007. Bussell did not pay the penalty, and the government filed suit. Bussell previously had been criminally charged for concealing financial assets in 2002. On appeal, Bussell admits that she willfully failed to disclose her financial interests in her overseas account on her 2006 tax return, but she raises several arguments seeking reversal of the district court’s summary judgment ruling.
That's quite a succinct statement pointing to the outcome.  Note that the admission Bussell made, as described by the Court, was that she willfully failed to disclose her financial interests on her 2006 tax return.  The court just leaves it at that without saying anything about willfulness with respect to the FBAR obligation that was the basis of the penalty in issue on the appeal.  (Perhaps that type of lack of focus is why the opinion is designated as not for publication.)

Most of the arguments Bussell presented on appeal, as presented in the opinion, seem to have been light on reasoning and the Court in the nonpublished opinion treated them that way.  Probably the only holding worthy of specific comment here is the Excessive Fines holding.  The Court succinctly dismissed this claim:
Bussell relies on Bajakajian, for her position that the government’s assessment against her is “grossly disproportional” to the gravity of her defense, and therefore violates the Excessive Fines Clause. However, the assessment against her is not grossly disproportional to the harm she caused because Bussell  defrauded the government and reduced public revenues. See United States v. Mackby, 339 F.3d 1013, 1017–18 (9th Cir. 2003). Therefore, Bussell has failed to carry her burden to establish that the penalty is grossly disproportional to her offense.
Because the opinion is not published and the arguments, as described by the Court, seem insubstantial, I have not bothered to dig into the briefs.  If anyone sees something in the case or briefs worthy of comment, please either email me or post a comment.

A News article on the opinion (with some discussion of the oral argument, the prior criminal case involving bankruptcy fraud, and even a photo Letantia Bussell, identified as a Medical Doctor) Ninth Circuit Affirms $1.1 Million Civil Tax Penalty (Metropolitan News-Enterprise 10/27/17), here.

Another FBAR Plea And Notice of Government Change of Position on Applicable Guidelines (10/27/17)

DOJ Tax announced here another FBAR plea.  The defendant is Hyung Kwon Kim, identified as a "Greenwich, Connecticut man" (which I presume means a Greenwich Connecticut resident), and the plea was entered in the ED VA.  I link also the following:

  • The criminal information, here, to which the plea was entered
  • The Plea Agreement, here.
  • The Statement of Facts, here.
  • The Docket Entries as of about 1:30 pm 10/27/17, here.
The key excerpts from the press release are:
According to court documents and information provided in court, Hyung Kwon Kim, a citizen of South Korea and, since 1998, a legal permanent resident of the United States, resided in Massachusetts and later in Connecticut.  Around 1998, Kim traveled to Switzerland to identify financial institutions at which to open accounts for the purpose of receiving transfers of funds from another individual in Hong Kong.  Over the next few years, Kim opened accounts at several banks, including Credit Suisse, UBS, Bank Leu, Clariden Leu, and Bank Hofmann.  In 2004, the value of the funds in Kim’s accounts exceeded $28 million. 
* * * * 
Kim conspired with several bankers, including Dr. Edgar H. Paltzer, to conceal the funds from U.S. authorities.  Paltzer, who was convicted in 2013 in the Southern District of New York for conspiring to defraud the United States, and the other bankers assisted Kim in opening accounts in the names of sham entities organized in Lichtenstein, Panama and the British Virgin Islands.  Paltzer and the other bankers facilitated financial transactions for Kim, so that Kim could use the funds in the United States.  For example, between 2003 and 2004, Kim directed Paltzer and another banker to issue nearly $3 million in checks payable to third parties in the United States for the purchase of a residence in Greenwich, Connecticut.  In 2005, Kim created a nominee entity to hold title for the purchase of another home on Stage Harbor in Chatham, Massachusetts, for nearly $5 million.  Kim and Paltzer communicated about the purchase in a manner that created the appearance that Kim was renting the property from a fictitious owner. 
Between 2000 and 2008, Kim took multiple trips to Zurich, Switzerland and withdrew more than $600,000 in cash during these visits.  He also brought his offshore assets back to the United States by purchasing millions of dollars’ worth of jewelry and loose gems.  For example, in 2008, Kim purchased an 8.6 carat ruby ring from a jeweler in Greenwich, Connecticut, which he financed by causing Bank Leu to issue three checks totaling $2.2 million to the jeweler. 
In 2008, during a trip to Zurich, Kim’s banker at Clariden Leu informed Kim that due to ongoing investigations in the United States, Kim could either disclose the accounts to the U.S. government, spend the funds, or move the funds to another institution.  Kim moved the funds into nominee accounts at another bank. In 2011, Kim liquidated the accounts by, among other things, withdrawing tens of thousands of dollars in cash and purchasing three loose diamonds for about $1.7 million from the Greenwich jeweler. 
Kim also admitted that from 2000 through 2011, he filed false income tax returns for 1999 through 2010, on which he failed to report income from the assets held in the foreign financial accounts that he owned and controlled in Switzerland.
As part of his plea agreement, Kim will pay a civil penalty of over $14 million dollars to the United States Treasury for failing to file, and filing false, FBARs, which is separate from any restitution the Court may order.
Now, just a few comments on the documents linked above.

Tuesday, October 17, 2017

TIGTA Report on CI (10/17/17)

TIGTA recently issued a report titled Declining Resources Have Contributed to Unfavorable Trends in Several Key Criminal Investigation Business Results (Ref. #  2017-30-073 9/13/17), here.

Here is the excerpt of the summary of the findings:
WHAT TIGTA FOUND 
Since FY 2011, reductions in staffing and available funding for CI activities contributed to a decrease in the number and size of CI field offices throughout the United States. While managing its core mission tax work with declining resources, the IRS continued to work general fraud, international, and Bank Secrecy Act (BSA) cases as well. 
For FY 2016, CI was budgeted approximately $576 million to fund programs that investigate potential criminal violations of the Internal Revenue tax laws and certain other laws, and recommend prosecution as warranted. Since FY 2012, the attrition of field special agents resulted in a decline in the number of cases initiated and completed. In FY 2016, CI initiated 3,395 cases, an overall decrease of 34 percent compared to the 5,125 cases initiated in FY 2012. 
Overall, special agents have consistently maintained inventory levels over an average of 5.30 cases per field special agent. Special agent inventories included a focus on international cases. In FY 2016, international cases resulting in sentencing improved approximately 33 percent from FY 2012.  
CI relies on a variety of internal and external sources to initiate cases. The percentage of cases initiated from functions within the IRS has decreased 5 percent from FY 2012 to FY 2016. The percentage of cases initiated from the United States Attorney’s Offices and other Government agency sources increased, representing 64 percent of the 3,395 initiations. 
Between FY 2012 and FY 2016, CI implemented policy changes that affected the BSA and identity theft cases. CI will no longer pursue seizure and forfeiture of funds related to legal source structuring cases under the BSA unless justified by exceptional circumstances. In September 2012, the Department of Justice implemented an expedited and parallel review of proposed indictments arising from stolen identity refund fraud cases resulting in a spike of initiations and completions for FY 2012 through FY 2013 of identity theft cases. 
TIGTA identified a trend of special agent inventory taking longer to turnover because of the increased time it takes for special agents to determine a case did not contain prosecution potential. In FY 2016, it took an average of 540 days (1.5 years) to determine that there was no prosecution potential, while it took an average of 422 days in FY 2012.
TIGTA made no recommendations, but did include IRS's response.  The following are key excerpts from the response:

Supreme Court Accepts Cert in Microsoft Involving Search Warrants for Emails on Foreign Servers (10/17/17)

Guest bloggers previously wrote about the Microsoft case and the Stored Communications Act.  Peter D. Hardy and Carolyn H. Kendall, Guest Blog on Stored Communications Act Reach to Cloud Storage Outside the U.S. (4/25/15), here.  The panel decision in Microsoft is here, and the order denying rehearing en banc (with concurring and dissenting opinions) is here.

The Supreme Court has granted certiorari in the Microsoft case.  Orin Kerr, Supreme Court agrees to review Microsoft Ireland warrant case (Volokh Conspiracy 10/16/17), here; and Robert Barnes, Supreme Court to consider major digital privacy case on Microsoft email storage (WAPO 10/16/17), here.

The question presented in the petition, here, filed by the United States is:
QUESTION PRESENTED 
Whether a United States provider of email services must comply with a probable-cause-based warrant issued under 18 U.S.C. 2703 by making disclosure in the United States of electronic communications within that provider’s control, even if the provider has decided to store that material abroad.
Readers wanting to track the case in the Supreme Court may do so on the SCOTUSblog, here.

In a somewhat related development, a district court has granted search warrants, as modified, issued in a tax fraud and identity theft investigation to obtain emails stored by email service providers.  United States v. In the Matter of the Search of Information Associated with Fifteen Email Addresses, 2017 U.S. Dist. LEXIS 159535 (M.D. Ala. 2017), here.    The district court's conclusion is:
V. CONCLUSION 
The Magistrate Judge's denial of the search warrant applications was not clearly erroneous. Because the constitutional infirmities can be corrected with moderate alterations, however, the Government's search warrants will be issued with the specific modifications described in the accompanying Order. Those limitations impose (1) a date restriction on the data to be turned over by the provider based on an individualized assessment of the accompanying probable cause evidence for each email account, and (2) an instruction applicable to all the accounts that the searches be conducted through keyword searches and other appropriate protocols so as to limit the universe of data to be reviewed to that which is more likely to be pertinent. The Government is free to return and seek additional search warrants based on the new evidence it discovers.
This case apparently does not involve the issue of emails stored on servers outside the U.S., and the opinion does not even mention the Microsoft case.  Still, practitioners should be alert to the possibility of Government investigators obtaining search warrants requiring email service providers providers to produce emails.  Even though Microsoft involves the issue of foreign servers, the Supreme Court's opinion will likely address a number of issues in this increasingly important context.

Monday, October 16, 2017

Tax Attorney Sentenced to Two Years for Evasion and Obstruction (10/16/17)

USAO SDNY announced here the sentencing of a tax attorney, Harold Levine, to two years imprisonment for counts of tax evasion and tax obstruction to which he pled.  I previously wrote on denial of his earlier motion to dismiss.  Court Denies Motion to Dismiss Counts Against Tax Shelter Lawyer (Federal Tax Crimes Blog 4/14/17), here.  The following are the key excerpts from the USAO SDNY press release for the sentencing:
Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that HAROLD LEVINE, a Manhattan tax attorney, was sentenced today by U.S. District Judge Jed S. Rakoff to 24 months in prison for tax evasion and obstruction of the Internal Revenue Service (“IRS”), stemming from his scheme to siphon millions of dollars of tax shelter fee income from the law firm at which he worked and failing to report the diverted fees as income.  LEVINE’s scheme also involved making false statements to IRS auditors, and urging a witness to provide false testimony to the same IRS auditors who were investigating LEVINE’s receipt of the fees.  
* * * * 
Between 2004 and 2012, LEVINE, a tax attorney and former head of the tax department at a major Manhattan Law Firm (the “Law Firm”), schemed with co-defendant Ronald Katz, a certified public accountant, to obstruct and impede the due administration of the Internal Revenue laws by evading income taxes on millions of dollars of fee income generated from tax shelter and related transactions that LEVINE worked on while a partner of the Law Firm.  Specifically, LEVINE failed to report approximately $3 million in income to the IRS on his personal tax returns during the period 2005-2011.  Most of the fee income LEVINE failed to report was routed by him through a limited liability company LEVINE controlled, which was nominally owned by a family member. 
 As part of the scheme, for example, LEVINE caused tax shelter fees paid by a Law Firm client to be routed from the Law Firm’s escrow account to a partnership entity he co-owned with Katz and thereafter used those fees – totaling approximately $500,000 – to purchase a home in Levittown, on Long Island.  LEVINE caused the home to be purchased as a residence for a Law Firm employee (the “Law Firm Employee”) with whom he then enjoyed a close personal relationship.  Although LEVINE allowed the Law Firm Employee to reside in the Levittown house for over five years without paying rent, LEVINE and Katz prepared tax returns for the entity through which the home was purchased that claimed false deductions as a rental property. 
 In February 2013, LEVINE was questioned by IRS agents concerning his involvement in certain tax shelter transactions and the fees received by LEVINE from those transactions.  During that questioning, LEVINE falsely told the IRS that the Law Firm Employee paid him $1,000 per month in rent while living in the Levittown home.  In addition, when the Law Firm Employee was contacted by the IRS and summoned to appear for testimony, LEVINE urged the employee to falsely tell the IRS that she had paid $1,000 per month in rent to LEVINE.
I do not have the transcript of the sentencing hearing and will post it if and when I get it.  The USAO SDNY press release linked about quotes the sentencing judge as follows:  “There was no one in the world who knew better that he was committing a crime than Harold Levine.”

I do have the following documents that readers interested in the process from acceptance of the plea to the sentencing hearing:
  • Levine Plea Hearing Transcript, here.
  • Defendant's Sentencing Memo, here.
  • U.S. Sentencing Memo, here.
  • U.S. Sentencing Memo, Exhibit C, Sentencing Data Chart, here.
  • Defendant's Reply Sentencing Memo, here.
  • U.S. Letter Response to Defendant's Reply Sentencing Memo, here.
  • Docket Entries as of today, here.

I have just a few comments on the linked documents: