Saturday, October 16, 2010

Government Discretion to Charge where Criminal Statutes Overlap (10/16/10)

In United States v. Jenkins, 2010 U.S. Dist. LEXIS 106847 (ED VA 2010), the defendant was charged with tax evasion (§  7201). The evasion related the taxpayer's liability for the Trust Fund Recovery Penalty (§ 6672). The acts of evasion alleged were that, in order to evade payment, he established a business in the name of a nominee and that, in submitting two an offers-in-compromise, he omitted assets and income. The taxpayer was charged for evasion, a five year felony, although he could have been charged under § 7206(5), a three year felony. Section 7206(5) deals specifically with false information submitted in connection with offers-in-compromise.

The taxpayer argued that the Government could not charge him under § 7201 because § 7206(5) was the more specific and thus is the exclusive charge that should / could be brought for the conduct alleged. Bottom-line, the court concluded that the conduct alleged could have been charged under either provision and that the Government had the choice as to which of the two to charge. The Court reasoned:

1. The two provisions are not coterminous because many actions that could violate § 7206(5) would not violate § 7201. In the course of this discussion, the Court noted in a footnote:
During oral argument, government counsel provided an illustrative example of the type of conduct that falls within the scope of § 7206(5), but is not covered by § 7201. A drug dealer may have an outstanding tax obligation and decide to submit an offer-in-compromise. On the Form 656, the drug dealer may falsely state that the "source of funds" is legitimate business activity, but otherwise fill out the forms accurately and correctly. Under those circumstances, the drug dealer could not be prosecuted for tax evasion under § 7201 because there is no affirmative act of evasion or an intent to evade the payment of taxes. Yet, the drug dealer could be prosecuted under § 7206(5) for lying about the "source of funds" because that statute punishes any person who falsifies any document relating to the financial condition of the taxpayer submitted in connection with an offer-in-compromise. See Tr. of 9/17/10 Hr'g at 47-48.
The example is a good one. The same example is often used to describe the difference between § 7201 and § 7206(1), tax perjury. If the drug-dealing taxpayer misdescribed his or her business on Schedule C but otherwise correctly reported his or her tax liability, that person could be charged with tax perjury but not tax evasion.

2. The Court reasoned (footnotes omitted):
[T]he well-settled rule is that where two criminal statutes overlap, the government retains the discretion to prosecute under either statute, unless Congress manifests a clear intent otherwise. In other words, unless there is evidence to the contrary, the case law reflects that the default rule is that Congress intends to give the government discretion to prosecute under either of two overlapping statutes. This default rule applies even in circumstances where one statute is more narrowly tailored than the other.

Instructive in this regard is United States v. Noveck, 273 U.S. 202, 47 S. Ct. 341, 71 L. Ed. 610 (1927), where the Supreme Court addressed whether a defendant could be charged for submitting a false income tax return under either the tax evasion statute or the perjury statute. The defendant there argued that his conduct was not cognizable under the perjury statute because the tax evasion statute repealed the perjury statute with respect to false tax returns. Id. at 206. The Supreme Court disagreed. Analyzing the elements of the two statutes, the Supreme Court concluded that the defendant could be prosecuted under either statute because they were distinct offenses; each statute contained an element not found in the other. Id. Importantly, the Supreme Court noted that its conclusion was not undermined by the fact that perjury was a felony, whereas the tax evasion offense there in issue was only a misdemeanor. Id. at 207. Also significant, as the Supreme Court noted, was that there was nothing in the legislative history of the tax evasion statute that warranted a different conclusion. Id.
3. The Court could find nothing in the statute or the legislative history that suggested a Congressional intent to make § 7206(5) the exclusive crime in the cases where the two provisions overlapped.

4. The Court rejected as well the taxpayers' related arguments, which appear to be subsets or variations of the principal argument already rejected.

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