Monday, February 23, 2009

The Confrontation Clause and Tax Shelter Promoters Tax Evasion

In trials of tax shelter promoters, the Government may charge tax evasion with respect to unindicted taxpayers who bought into the allegedly abusive tax shelters and claimed their benefits on their tax returns. The Government so charged in the mass KPMG criminal trial that came in like a lion and recently concluded with a whimper after 13 of the original 19 defendants were dismissed for prosecutorial abuse.

An essential element of tax evasion is, in traditional formulation, a "tax due and owing." I refer to this element as tax due. A tax due is not proved in the criminal case in chief simply by showing some fraudulent item. The taxpayer's complete tax picture (nonfraudulent income, deductions and credits) must be shown in order to derive the tax due for that taxpayer. When the taxpayer is not a defendant (as in the KPMG case), the Government should encounter hearsay and Confrontation Clause problems in trying to meet the tax due element simply from the missing taxpayer's return and documents derivative from the returns return (such as RARs and Closing Agreements where, for civil tax purposes, the taxpayers settle the civil case as to the shelter). I discuss the issues in a memorandum that my readers interested in the subject may download here.

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