Can Misleading but True Statements Be Prosecuted as Criminally False Statements Under 18 USC 1001(a)(2)? (3/27/25; 3/29/25)

In Thompson v. United States, ___ U.S. ___, ___ S.Ct. ___ (3/21/25), SC here and GS here, the Court held that the criminal conduct described in 18 U. S. C. §1014 relating to credit applications (“knowingly mak[ing] any false statement”) does not include misleading, but not false, statements. The opinion is relatively short, so because it is not encountered often in a tax context, I will just focus on the bottom-line holding in the prior sentence and ask that readers consider the related statute, 18 U. S. C. § 1001(a)(2), often appearing in tax prosecutions, that criminalizes “materially false, fictitious, or fraudulent statement[s].”

Does Thompson’s analysis mean that misleading statements cannot be prosecuted under § 1001(a)(2), often called the false statements crime?

The specific issue is not addressed directly in the DOJ Criminal Tax Manual Section 24.00, titled False Statements (18 U.S.C. § 1001), here. I direct readers’ attention to the discussion in Section 24.04, titled False Statements or Representations, starting on p. 4 and specifically to the discussion on p. 5 of Bronston v. United States, 409 U.S. 352 (1973), a perjury case holding that literally true but misleading statements under oath could not be prosecuted under the perjury statute. So, the question is whether literally true but misleading statements not under oath can be prosecuted under the false statements statute? As the CTM notes (p. 5), Bronston acknowledged a possible exception for a “criminally fraudulent statement” at p. 358 n. 4 as follows:

   n4 Petitioner's answer is not to be measured by the same standards applicable to criminally fraudulent or extortionate statements. In that context, the law goes "rather far in punishing intentional creation of false impressions by a selection of literally true representations, because the actor himself generally selects and arranges the representations." In contrast, "under our system of adversary questioning and cross-examination the scope of disclosure is largely in the hands of counsel and presiding officer." A. L. I. Model Penal Code § 208.20, Comment (Tent. Draft No. 6, 1957, p. 124).

Sixth Circuit Holds that Forfeited Deferred Compensation Account is Not Taxable to Defendant (3/27/25)

In Hubbard v. Commissioner, ___ F.4th ___ (6th Cir. 3/19/25), CA6 here and GS here, the Court held that the Government’s judicial forfeiture in a criminal case of a deferred compensation account—here a “simplified employee pension”—followed by distribution to the Government from the account did not give rise to taxable income to the defendant. The law is settled that the distribution from such an account to the employee or to another (including the IRS) to meet an obligation of the employee generates taxable income to the employee. The Court avoided that rule because the form of the forfeiture was that the account was forfeited to the Government rather than the proceeds of the account.

JAT Comments:

1. I think the Court focuses on formalities rather than substance. I suspect that the IRS applied the distribution proceeds in payment of the employee’s tax liability, thus giving the employee the benefit of the distribution, despite the fact that the distribution was formally to the Government rather than the employee. I assume that the IRS assessed the tax liability on the distribution as a restitution-based assessment and applied the payment to Hubbard’s account accordingly.

2. It may be in a defendant’s best interest to have a deferred compensation account treated as the income of the employee. That is because the distribution, if taxed to the defendant, will still result in an amount exceeding the tax liability on the amount(s) distributed that can then be applied to tax liability on other income. (I am not sure that, if the excess amount could have otherwise generated a refund (a phenomenon where restitution exceeds the defendant’s tax liability), the IRS could refund since it is part of the restitution.)

9th Circuit Holds that Law Firm Asserting a Fisher Privilege for Client Documents it Possesses that Are Potentially Subject to Fifth Amendment Privilege in Client's Hands Need Not Produce a Privilege Log (2/1/25; 3/31/25)

In In re Grand Jury Investigation, dated July 21, 2023, 127 F.4th 139 (9th Cir. 1/28/25), CA9 here and GS here, the grand jury subpoenaed a target of a grand jury investigation who invoked his Fifth Amendment privilege. The grand jury then subpoenaed a Law Firm for the target (“Client”) to produce records Client had delivered to the Law Firm in the context of receiving legal advice. Law Firm declined to produce asserting privilege. The Government moved to require Law Firm to provide a privilege log (sometimes called a Vaughn index) to help the government determine if the privilege was properly invoked. The district court required that the Law Firm give the privilege log. The client then immediately appealed under the Perlman doctrine permitting an immediate appeal rather than awaiting a contempt holding. See Perlman v. United States, 247 U.S. 7 (1918).The Ninth Circuit panel held (per the summary (similar to a Supreme Court Syllabus), Slip Op. 2-3)

In Fisher [Fisher v. United States, 425 U.S. 391 (1976)], the Supreme Court held that when the Fifth Amendment protects an individual from the compelled production of documents and the individual shares those documents with his attorney to obtain legal advice, the attorney-client privilege shields the attorney from compelled production of those documents to the government. But if the government can already independently determine the existence, authenticity, and client’s custody of those documents such that the act of producing them would reveal no additional incriminating information, the Fifth Amendment does not protect the individual against the documents’ production, and the Fisher privilege accordingly does not apply.

The panel held that an attorney cannot be ordered to provide the government with a privilege log of documents to which the Fisher privilege applies, and that to determine whether the requirements for Fisher protection are in fact satisfied, a district court will generally need to conduct an in camera review. Because the district court here ordered a privilege log to be provided to the Government without any such prior process, the panel reversed and remanded.

Schwarzbaum Redux – 11th Circuit Issues New Opinion to Correct Statement of FBAR Willfulness Civil Penalty Standard (1/23/25)

In United States v. Schwarzbaum, ___ F.4th ___ (11th Cir. 1/23/25), CA11 here and GS here [to come], the 11^th Circuit revisited the long-running Schwarzbaum FBAR civil penalty litigation. I discussed the immediately preceding visitation/opinion in 11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (Federal Tax Crimes Blog 9/4/24) here. In this new opinion, issued yesterday, the Court starts:

Appellee’s [United States’] petition for panel rehearing is GRANTED. We VACATE our prior opinion in this case and substitute the following in its place:

The Slip Opinion for the prior opinion was 53 pages; the Slip Opinion for this new opinion is 55 pages. For purposes of Federal Tax Crimes and Federal Tax Procedure Blogs, the material changes * only correct misstatements in the original opinion that the FBAR willfulness civil penalty standard is the same as the FBAR willfulness criminal penalty standard (the Cheek/Ratzlaf standard). (See new footnotes on p. 40 n. 7 and p. 46 n. 10.) As all readers of this blog surely know, the civil penalty standard includes recklessness but the criminal penalty standard requires the stricter specific intent requirement in Cheek and Ratzlaf. I don’t think that those corrections affect the bottom-line holdings, so I just copy and paste the succinct summary I provided in the original blog entry.

(1)  (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2)   (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (1/22/25)

I erroneously posted on the Federal Tax Crimes Blog a post that I should have posted on the Federal Tax Procedure Blog. I have deleted the content of the Federal Tax Crimes Blog post. To read the blog on the Federal Tax Procedure Blog, see Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (1/22/25), here.

New Information for Tax Conspiracy and Related Credit Suisse (through Successor UBS) Initiatives Re Violation of 2014 Plea Agreement (1/19/25)

In United States v. Rosenberg (S.D. FL No. 1:25-cr-20005, CL Dkt. Sheet here), the Government filed an Information with Trial Attorney Certificate, here, charging Gilda Beth Rosenberg (aka Gilda Rosemberg Percezek) with one count of conspiracy to defraud and commit offenses (i.e., both a defraud and an offense conspiracy in one count). Except for the large amounts involved, the allegations are not unusual for U.S. taxpayers who employed Swiss financial institutions to avoid their U.S. tax reporting and paying obligations. That the filing is an information with an attached Trial Attorney Certificate indicating that 0 days of trial is expected suggests that a plea deal has been reached, will be filed with the district court soon, and will be processed to sentencing in due course.

The Information names only one Swiss bank specifically--Union Bancaire Privee Bank. Another, unnamed Swiss bank is alleged to have held Rosenberg’s assets in an “insurance wrapper” account, described as “an investment account around which was wrapped a life insurance policy.” (I don’t know recall the precise tax gambit for such insurance wrappers with life insurance but I assume that it relates at least in part to the nontaxability of life insurance proceeds thus potentially cleansing unreported income behind the “insurance” proceeds.)

Credit Suisse appears to have been somewhere in the mix, perhaps with the insurance wrapper account. Credit Suisse earlier ran afoul of U.S. tax authorities and reached a deal in 2014 to plead guilty to a U.S. tax crime, pay $2 billion, and identify U.S. taxpayers it assisted evade tax.  Credit Suisse Pleads to One Count of Conspiracy to Aiding and Assisting (Federal Tax Crimes Blog 5/19/14; 5/20/14), here. Credit Suisse then apparently breached that deal by not disclosing some U.S. taxpayers (including allegedly Rosenberg). (The amount Credit Suisse paid under the 2014 deal is variously reported but according to my discussion in that blog, the documents indicate the resolution cost Credit Suisse $2 billion.)

Two Recent Tax Crimes Cases Involving Bitcoin (1/19/25; 2/9/25)

See the additional items below added on 2/9/25.

In my immediately preceding post (2 days ago) on the indictment of Tom Goldstein, I mentioned that among the allegations were allegations that Goldstein had not properly reported his cryptocurrency transactions. I said that I would post some other recent items involving cryptocurrency. These recent items involve Bitcoin, perhaps the most prominent type of cryptocurrency. Goldstein’s indictment does not specify the type of cryptocurrency he allegedly used.

Ahlgren 

In United States v. Ahlgren ((W.D. TX No. 1:24-cr-00031) [CL has two docket sheets here and here with some documents available by checking both sheets], the defendant allegedly failed to report major income from Bitcoin transactions and allegedly certain other cryptocurrency including Bitcoin Cash, Bitcoin Gold, Etherium [Ethereum], and Litecoin. Ahlgren was indicted on seven counts of filing false tax returns and structuring deposits to evade currency transaction reporting requirements. Ahlgren was detained pending trial. (See Dkt. Entry 15 dated 4/9/2024 titled Order of Detention Pending Trial, here; Dkt Entry 22 dated 4/25/24 titled Government’s Advisory to the Court Regarding Detention Remand, here; and Dkt Entry 24 dated 4/22/24 and titled Order, here) Pretrial Detention is unusual in tax crimes cases.

Ahlgren thereafter pled guilty to one count of tax perjury, § 7206(1), and sentencing judgment was accordingly entered. (See Dkt Entry 45 dated 12/13/24 titled Judgment in A Criminal Case, here.) The count of conviction under the plea was a single count with a maximum three-year sentence. The Court sentenced Ahlgren to 24 months incarceration which would permit, with good time credit, a sentence served of less than 24 months. The Court imposed restitution of $1,095,031 which presumably is the unpaid criminal tax loss. Although restitution is not normally imposed in tax cases, it can be imposed if agreed in the plea agreement. This restitution is the amount that the IRS can assess without further ado under the restitution-based assessment (“RBA”) procedures. See §§ 6201(a)(4) & 6213(b)(5). The IRS may further audit Ahlgren's tax liabilities and assert more tax but will have to proceed under the deficiency procedures.

Further, shortly after sentencing, the Court entered a restraining order (See Dkt. Entry 50 dated 1/6/25 titled Restraining Order, here) requiring Ahlgren to

Tom Goldstein--SCOTUSblog founder, Prominent Supreme Court Advocate, and High-Stakes Gambler--Indicted for Tax and Related Crimes and False Statements to Mortgage Lenders (1/17/25; 1/19/25)

Yesterday's big news in tax crimes was the indictment of Tom Goldstein, the co-founder of SCOTUSblog, a big-time Supreme Court advocate, and high-stakes gambler. The indictment lays out  major and many crimes including

• tax crimes (evasion § 7201, aiding and assisting § 7206(2), willful failure to pay tax § 7203)
• aiding and abetting 18 U.S.C. § 2) and 
• mortgage-related crimes (including false statements 18 USC § 1014) and 
• seeks forfeiture for mortgage-related crimes. 

A significant feature is Goldstein’s apparent addiction to high-stakes gambling and to other vices, which may include metaphorically wine, women, and song (with emphasis on women).

For those interested in delving deeper into the details, I provide a link to the indictment along with some of the more insightful articles on the subject. This will allow readers to pursue the matter further as they wish.

Links:

• Indictment, CL here. (The CL docket sheet is here, although it is sparsely populated with only the indictment now.)
• David Lat, SCOTUSblog Founder Tom Goldstein Hit With 22-Count Federal Indictment (Original Jurisdiction 1/17/25), here.
• Amanda Robert and Lee Rawles, SCOTUSblog founder Tom Goldstein faces tax evasion charges (ABA Journal 1/16/25), here.
• Francis Chung, Supreme Court blog publisher Tom Goldstein, a high-stakes poker player, indicted on tax charges (Politico with Associated Press 1/16/25), here.
• Added 1/19/25 1pm: Dan Morse, Supreme Court attorney who founded SCOTUSblog is charged in tax case (WAPO 1/17/25), here.

In the pattern of conduct for tax evasion, the indictment alleges cryptocurrency tax violations. (See ¶ 21, 24.n., 70-72, 81, & 83; there have been some other relatively recent cryptocurrency tax crimes items that I have been meaning to blog, but I will do that later, perhaps this weekend.)

My editorial comment is that the pattern of conduct alleged shows amazing hubris or chutzpah or some type of pervasive psychological or antisocial disorder.

Added 1/17/25 3:55pm: One comment I read on one blog write-up was that this case is ripe for a good storyteller such as Michael Lewis to write a book that should be a  bestseller.

Updates on Developments in IRS Penalty Administration and Voluntary Disclosure (1/11/25)

I post here links to earlier posts on my Federal Tax Procedure Blog about the IRS’s Voluntary Disclosure Practice (“VDP”). ABA Tax Section Comments on VDP Disclosure Form 14457, Voluntary Disclosure Practice Preclearance and Application (1/5/25), here; and IRS Voluntary Disclosure Practice (VDP) Requires Taxpayer Admit Criminal Willfulness (11/29/24; 1/5/25), here.

Also, I have just recently learned that, in the National Taxpayer Advocate’s Annual Report to Congress 2024, here, the NTA discusses two of 10 Most Serious Problems Encountered by Taxpayers that relate to tax administration of the type addressed in this blog (Federal Tax Crimes) and the companion blog (Federal Tax Procedure). Items 9 and 10 are, respectively:

9. Civil Penalty Administration (pdf 16 pages), here; and

10. Criminal Voluntary Disclosure (pdf 17 pages), here.

The most relevant to the initial item in this blog is the Criminal Voluntary Disclosure which I generally refer to as the IRS Voluntary Disclosure Practice (“VDP”). From the discussion of both items, I gather that the practitioner community has major concerns with IRS administration, that the NTA has listened to those concerns (calling the community “external stakeholders”), and that, in large part, the NTA has adopted those concerns.

Although it probably does not matter what I believe, I will state my belief anyway:

Paul Daugerdas' 15 Year Sentence is Commuted with Only Around 9 Years' Incarceration Served (12/20/24)

I learned today that, on December 12, 2024, President Biden commuted the sentence of Paul Daugerdas who, as described in the DOJ press release for his sentencing “was sentenced today in Manhattan federal court to serve 15 years in prison for orchestrating a massive fraudulent tax shelter scheme in which he and his co-conspirators designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the Internal Revenue Service (IRS).” I have written often on the Daugerdas saga here (in relevance order, but can be sorted by reverse chronological). The documents indicating the commutation are here (White House) and here (DOJ).

Some key points:

1. A commutation merely lessens the sentence and does not alter the finding of guilt or any other attribute of the sentence (e.g., restitution or disqualifications). (See LII Wex here.) The commutation does not suggest that there was a wrongful conviction or wrongful sentence because commutation can be based on other factors (such as health or perhaps even political sway (although I have no indication that politics entered this pardon)). Daugerdas’ commutation was among 1,499 commutations at the same time without explanation for Daugerdas’ and most other commutations.

District Court Revokes Bail and Orders Pretrial Incarceration in Tax Crimes Case Because of Violations of No Contact Requirement (12/19/24)

Added at 12/21/24 9:00pm: I enclose below a ChatGPT summary of this blog. I encourage readers to take a look. Pretty good summary.

We don’t usually see revocation of bail in tax crimes cases, but the case today is not the normal tax crimes case. In United States v. Edelman, ___ (D. D.C. No. No. 24-239-1 Dkt 53 Memo Opinion 12/11/24), CL here and GS here, the Court opens the opinion (Slip Op. 1, footnote omitted):

            Defendant Douglas Edelman is alleged to have orchestrated one of the largest tax-evasion schemes in American history. Following his arrest in Spain, Edelman was transferred to the United States and released to the supervision of the Pretrial Services Agency. Later, the Government moved for revocation of Edelman’s release on the basis of pretrial violations. After a hearing, and upon consideration of the parties’ submissions, the relevant legal authority, and the entire record before it, 1 the Court orally ordered that Edelman’s release be revoked and that Edelman be detained pending trial. See Min. Order (Dec. 11, 2024). The Court summarized on the record the factual findings and legal conclusions underlying that order. This Memorandum Opinion relates those findings and conclusions in further detail.

 The Court recounts the following relevant facts under Outline Level II:

A. Edelman’s Alleged Conduct (Slip Op. 2-3);

B. Edelman’s Arrest and Release (Slip Op. 3); and 

C. Alleged Violations and Procedural History (Slip Op. 4-6)

            Pretrial Services first alleged that Edelman had contacted an individual, identified as Co-Conspirator 3, in violation of the conditions of release and requested that the court issue a judicial directive to comply with the conditions of release. The Government thereafter alleged another violation of that condition with another individual, identified as Co-Conspirator 4. In each case, screenshots of the communications by apps (first WhatsApp as to Co-Conspirator 3 and then Signal as to Co-Conspirator 4 set to make the message disappear after 1 day) were submitted. Pretrial Services took no position after the Government’s submission. The Government then submitted a motion for revocation of release.

The Court then outlines the legal standard (Outline Level III Slip Op. 6-8) under 28 USC § 3148(b), here. The Court starts with the general rule that ““In our society[,] liberty is the norm, and detention prior to trial or without trial is the carefully limited exception,” citing United States v. Salerno, 481 U.S. 739, 755 (1987). The Court then discusses the requirements of § 3148(b). The Court then applied, as § 3148(b) requires, a clear and convincing standard under § 3148(b)(1)(B)that the defendant has violated the condition of release and then applied a preponderance of the evidence standard as to whether it is “unlikely” that Edelman will abide by the conditions under § 3148(b)(2)(B).

The Court recounts (Slip Op. 9-14) the substance of the communications, particularly with Co-Conspirator 4 identified as Robert Dooner who has had a long relationship with Edelman but who had entered a “public cooperation” agreement with the Government in 2023. The latter communication involved an offer to help secure a financial windfall for Dooner and thus “curried favor with that witness in the process.”  (I do not recount here the precise nature of the “financial windfall” but just point instead to the discussion at Slip Op.9-14.)

DOJ December 2023 Publication on Tax Enforcement (12/13/24)

This blog entry will alert readers of the following publication: Misc. Authors, Tax Enforcement, 71 DOJ J. Fed. Law & Prac., No. 4 (December 2023), here.

The following is a copy and paste of the Table of Contents (presented in table format). 

Tax Enforcement

Introduction	David A. Hubbert	1
Restitution in Criminal Tax Cases: Common Pitfalls and Practical Strategies	Elissa Hart-Mahan & Hannah Cook	5
Investigating Legal Source Income Tax Cases	Todd Ellinwood & Caryn Finley	23
Follow That Lead! Obtaining and Using Tax Information in a Non-Tax Case	Andrew H. Kahl	47
Tax Fraud Involving COVID-Relief Provisions	David Zisserson	63
Attorney–Client Privilege in the Context of Tax Preparation and Tax Planning	Larry Wszalek & Stuart Wexler	79
Prosecuting Tax Obstruction Under 26 U.S.C. § 7212(a)	Gregory S. Knapp & Joseph B. Syverson	97
Sentencing Advocacy in Criminal Tax Cases—Making the Government’s Case for the Appropriate Sentence	Stanley J. Okula, Jr. & Matthew Hicks	109
A Fool for a Client: Legal and Practical Considerations When Facing Pro Se Defendants	Katie Bagley & Melissa Siskind	129
A Taxing Dilemma: Navigating the Crime–Fraud Exception in  Criminal Tax Cases	Sean Beaty & Wilson Stamm	155
Prosecuting Fraudulent Tax Return Preparers	Sarah Kiewlicz & Thomas F. Koelbl	175
Gathering and Using Foreign Evidence in Tax Cases	Kimberle E. Dodd & Nanette L. Davis	199
Monetary Claims Against the Government: When Are They Tax Refund Cases	Jason Bergmann & Richard J. Markel	223
They Don’t Make ‘Em Like They Used To: Statutory Jurisdictional Requirements in the Age of the Clear-Statement Rule	Marie E. Wicks & Michael W. May	241
Note from the Editor-in-Chief	Christian A. Fisanick	265

Although, as of today, the presentations are about a year old and there have been developments in many of the areas, still there are some real gems in the various discussions. Highly recommended for students and practitioners. As I go through the various presentations, I may post subsequent blog entries on some of the items that I think might be particularly useful for readers of this blog.

Thoughts on IRS Web Page titled "How criminal investigations are initiated" (11/13/24)

The IRS has a web page titled “How criminal investigations are initiated, here” (last reviewed or updated 8/20/24 and visited 11/13/24). It is a “lite” introduction to the topic. I found the concluding “claim” interesting: 

Conviction

The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction - either by a guilty verdict or plea. Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.

Notice how the subject shifts from the first sentence to the second. The first sentence talks about conviction (as does the heading). The second sentence talks about prosecutions which is not the same as convictions unless the implication is that there is a 100% conviction rate. (The conviction rate is not 100% which I address later in this blog post.)

The IRS offers these statistics in its annual Data Book, Table 26 currently titled “SOI Tax Stats - Criminal Investigation Program, by Status or Disposition - IRS Data Book Table 26,” here (last reviewed or updated 8/20/24; viewed 11/13/24). Here is a screenshot of the 2023 Table 26:

Note that the indictments and informations were 1,676, the total for legal source and illegal source financial crimes. The 2022 numbers were 1,670 for legal and illegal source prosecutions. So, the claim of 3,000 prosecutions is incorrect based on the IRS numbers. However, the above statistics are for prosecutions from investigations by IRS CI. Tax prosecutions may come from other sources (e.g., government investigations other than from IRS CI in which tax crimes may be added to nontax crimes for prosecution reasons). So, such nontax prosecutions may account for the difference of about 1,300.

Third Circuit Denies Post-Loper Bright Petition for Rehearing in Case Applying Auer/Kisor Deference (11/6/24)

In United States v. Chandler, 104 F.4th 445 (3rd Cir. 6/11/24), CA3 here and GS here, the Court sustained a sentence based in part on the application of Auer/Kisor deference to the Guidelines Commentary. (See Slip Op. 7, 17-19.) I refer to his panel decision as Chandler I. Chandler I preceded Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244 (2024), which rejected Chevron deference (as well as, any similar deference that preceded Chevron). But Loper Bright did not address a deference subclass for agency subregulatory interpretations of legislative regulations (such as Guidelines Commentary on Guidelines). See Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Crimes Blog 8/24/24), here; and More on United States v. Boler (Federal Tax Crimes Blog 8/25/24), here.

On petition for rehearing in Chandler, the Court entered a document titled “Sur Petition for Rehearing,” denying the panel rehearing and en banc rehearing but with dissents by Judges Bibas and Matey. United States v. Chandler, 114 F.4th 240 (3rd Cir. 9/22/24), CA3 here and GS here. I refer to this denial of rehearing as Chandler II. Judge Bibas argued that, even if Auer/Kisor deference were otherwise applicable to Guidelines Commentary, deference only applied when the interpretive toolkit was otherwise empty, but that lenity was in the toolkit and applied to preempt ambiguity for Auer/Kisor deference. Judge Bibas said that applying Auer/Kisor deference without first applying lenity, “put us on the wrong side of a circuit split. At least three circuits hold that lenity trumps deference.” (Slip Op. 2-3; note the page numbers are for the pdf because the pages are not numbered.) Judge Matey dissented because he felt that the ordinary meaning of the statutory term was discernible without deference (sort of a Chevron Footnote 9 approach). Neither dissenting Judge reasoned that the Auer/Kisor deference applied in Chandler I (the pre-Loper Bright panel opinion) did not survive Loper Bright.

So, as of now, at least so far as I am aware, we still do not have a definitive ruling on whether Auer/Kisor deference survives Loper Bright, but the courts seem to be deciding cases as if it does survive Loper Bright. Most immediately, that means that the Sentencing Guidelines Commentary interpreting the Guidelines may qualify for deference at least when lenity doesn’t apply. (That sets aside the issue of whether lenity might apply to avoid getting to Auer/Kisor deference for Guidelines Commentary; and conceptually the ambiguity invoking lenity is the same as the ambiguity required for Auer/Kisor deference, lenity might always apply.)

Excellent Article on IRS CI Special Agent and Cryptocurrency (10/2/24)

I post today on an excellent article—Geraldine Brooks, The Cyber Sleuth (WAPO 10/1/24), here. This is one article in a WAPO series on “Who is Government?” where seven writers are said to “go in search of the essential public servant.” The articles in the series with author of each article are:

•  The Canary: Michael Lewis on the Department of Labor
• The Sentinel: Casey Cep on the Department of Veterans Affairs
• The Searchers: Dave Eggers on NASA’s Jet Propulsion Lab
• The Number: John Lanchester on the Bureau of Labor Statistics
• The Cyber Sleuth: Geraldine Brooks on the Internal Revenue Service
• The Equalizer: Sarah Vowell on the National Archives
• The Rookie: W. Kamau Bell on the Department of Justice

Each article in the series (so far) is outstanding. It is appropriate that Michael Lewis starts with the first installment because of his book, The Fifth Risk, which has been described as “a love letter to federal workers -- and a dig at Trump’s ‘willful ignorance’.” See WAPO book review here. Lewis tells a great story of the bureaucracy—the deep state, if you will—and how much the bureaucrats do for the country, keeping the country on an even keel in turbulent times (particularly the first (and hopefully the only) Trump administration where chaos reigned as Trump haphazardly filled the ranks of political appointees to the agencies).

The Cyber Sleuth installment deals with Jarod Koopman, an IRS “Cyber Sleuth.” Koopman is an example of IRS employees and government employees generally who bring dedication and unique skill to the mission of the IRS, an agency that Congress chronically underfunds seemingly to hamper the IRS’s ability to do the tasks Congress assigned it to do. The article says:

Until last year, the staff who work inside had watched their budget get cut for a decade. Their staffing numbers had reached lows not seen since the 1970s, even as the U.S. population swelled and the quantity of tax returns soared. There was no money to update failing technology, or even the software that ran it. The result was a pileup of paper returns that colonized corridors and cafeterias, and an American public vexed by poor service.

That, of course, was the goal: anti-tax activist Grover Norquist’s famous shrink-it-till-you-can-sink-it strategy. So the civil servants who had been valiantly struggling to serve more people with fewer resources found themselves unappreciated — even despised.

And perhaps most despised are the 3 percent of IRS personnel involved in criminal investigation, who have become piñatas for the agency’s critics. Fox News’s Brian Kilmeade characterized agents such as Koopman as dangerous threats who could “hunt down and kill middle-class taxpayers,” while Rep. Lauren Boebert (R-Colo.) accused them of “committing armed robbery on Americans.” Republicans even attached a rider to a spending bill limiting the number of bullets the IRS can buy. “A weapon is rarely discharged by one of our agents,” says a frustrated Werfel. “But you can’t send an agent into a criminal enterprise unarmed, so they have to train, and there’s a minimum inventory required for that.” 

Comments Please (9/26/24)

I have eliminated the past comment tool (Disqus) which proved to be so daunting to readers of the blog who tried to make comments. I have returned to the comment tool provided by Blogger/Blogspot which is the blog tool that I have used since the inception of the blog. The Blogger/Blogspot comment tool seems to be better than it formerly was when I moved to Disqus. In any event, it is much easier to post comments, so I urge those wanting to comment and engage in discussions of the issues presented in the blogs to do so. Comments can provide a useful learning experience for those commenting and those reading the comments and discussion.

I urge readers to review the page to the right titled Guides to Use and Posting of Comments (9/26/24), here. As noted on that page, I moderate the comments, meaning that I read the comments prior to approving them to appear publicly on the particular blog entry. I plan to approve comments liberally, weeding out only comments that are not appropriate under the Guides to Use.

Thank you,

Jack Townsend 

11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (9/4/24)

The opinion discussed in this blog was vacated by United States v. Schwarzbaum, ___ F.4th ___ (11th Cir.1/23/25), CA11 here and GS here [to come], with a new opinion substituted. I discuss the new opinion in the following blog: [to come]

In United States v. Schwarzbaum, 114 F.4th 1319 (11th Cir. 2024), 11Cir here and GS here, the Court:

(1)  (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2)   (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

The unanimous opinion is quite long (53 pages) and offers a lot of interesting discussion of the history of the FBAR penalties. Those relatively new to the subject, can learn from reading the opinion closely. Those who are veterans to the subject can probably skim through the opinion and understand the holdings.

JAT Comments:

Fifth Circuit Holds Criminal Statute of Limitations is Not Suspended for Equitable Tolling on Government's Alleged Excuses (8/20/24)

In United States v. Plezia, 115 F.4th 379 (5th Cir. 2024), CA5 here and GS here, the Court states the facts relevant to this blog as follows (Slip Op. 1-4, bold face supplied by JAT):

          Richard Plezia (“Plezia”) challenges his convictions of conspiracy to defraud the United States, making false statements, and falsification of records in a federal investigation following a fifteen-day jury trial. He challenges the sufficiency of the evidence for some of the convictions, the district court’s determination that the statute of limitations for one count of making false statements was equitably tolled, and the district court’s decision to allow two witnesses to testify with the aid of prior recorded recollections.

          Because we agree with Plezia that equitable tolling of the statute of limitations in 18 U.S.C. § 3282 is not available, we VACATE Plezia’s conviction under [*2] Count Five and remand with instructions to dismiss Count Five with prejudice. However, the panel’s agreement with Plezia ends there. With respect to every other assignment of error, we AFFIRM.

I. Factual Background

          Plezia was a Houston-based personal injury attorney charged with conspiracy to defraud the United States through falsified reporting on tax returns to the Internal Revenue Service (“IRS”). The alleged falsified gains arise from barratry, the impermissible practice of attorneys soliciting clients that have not invited any contact with prospective counsel. The Government averred that Plezia conspired with a group of personal-injury attorneys and non-attorney case runners (“case runners”) in Houston, Texas to unlawfully reduce the federal income taxes owed by Jeffrey Stern (“Stern”). The case runners were alleged to solicit clients for Stern—in violation of the Texas Penal Code and the Texas Disciplinary Rules of Professional Conduct (“TDRPC”). The charging instrument set out that Plezia worked with case runner Marcus Esquivel (“Esquivel”) to aid Stern in reducing the income taxes he owed from 2011 through 2013. It alleged that Stern “funneled” illegal payments for soliciting and “running” cases to Esquivel by writing checks to Plezia—who subsequently wrote corresponding checks out to Esquivel’s business entities. Stern would then deduct the amounts paid to Plezia as attorney “referral fees.”

A. The Indictments and Pretrial Proceedings

          In August 2019, Stern was arrested and charged with conspiracy to commit fraud against the United States, willfully filing a false tax return, and obstruction of justice. Stern pleaded guilty to the first two counts and agreed to pay over $4.35 million in restitution to the IRS and cooperate with the prosecution and investigation of other attorneys involved in the scheme. On August 6, 2019, the grand jury indicted Plezia on one count of conspiracy to [*3] defraud the United States in violation of 18 U.S.C. § 371 (“Count One”). On January 18, 2022, the grand jury returned a Third Superseding Indictment adding two counts of making false statements to IRS agents in violation of 18 U.S.C. § 1001(a)(2) (“Counts Five and Six”) and one count of falsifying records in violation of 18 U.S.C. § 1519 (“Count Seven”).

          Count One’s allegations against Plezia are limited to his participation in redirecting checks to Esquivel. Count Five sets out that Plezia falsely told an IRS agent in Houston in December 2016 that he had never paid Esquivel any referral fees for clients in violation of the Texas bar rules. Count Six avers that Plezia made another materially false statement to IRS agents in September 2018 when he averred that any payments between him, Esquivel, and Stern were provided solely for the purpose of financing his ongoing benzene exposure toxic tort litigation against BP. Lastly, in Count Seven, the Government alleged that Plezia created a false document supporting or tracking the false statement he made in Count Six with the intent to impede a federal investigation under the jurisdiction of the IRS.

          Plezia pleaded not guilty to all charges and proceeded to a jury trial on January 9, 2023. He moved to dismiss the entirety of the Third Superseding Indictment for constitutional violations. Plezia argued that the Government’s delay in prosecuting all charges violated his Fifth and Sixth Amendment rights. He also filed a separate motion to dismiss Count Five as barred by the five-year statute of limitations in 18 U.S.C. § 3282 because it was filed over five years after the alleged false statement was made. He asserted that Count Five was filed five years and forty-two days after the alleged false statement was made even though the Government had all relevant information to charge him with that offense for at least three years before the Third Superseding Indictment. The Government opposed both motions and argued that the statute of limitations had been tolled due to the delays arising from its compliance with the district court’s COVID orders [*4] and from delays in processing Justice Department approvals during the pandemic. It further argued that the discovery of evidence of Plezia’s involvement in Stern’s scheme was hindered by COVID delays related to several steps of the investigation which prompted the addition of Count Five.