Monday, January 17, 2011

Corruptly in Obstruction Crimes (Including Tax Obstruction) Really Means Something

In United States v. Doss, 630 F.3d 1181 (9th Cir. 2011), a nontax case, the Ninth Circuit addressed the circuit split over the term "corruptly persuades" in 18 USC 1512(b)(1). Section 1512 is captioned "Tampering with an witness, victim or informant." The crime defined in Section 1512 is not a tax crime, nor is it a crime normally encountered in criminal tax trials. Still, as I have developed in an article, the crime's corruptly element may help define the similar element in the tax obstruction statute, 26 USC Section 7212(a). Both crimes are derived from the concepts in 18 USC Section 1503, the traditional obstruction of justice crime. See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 334-335 (2009)).

For context, I first quote the relevant portion of Section 7212.
§ 7212. Attempts to interfere with administration of internal revenue laws
(a) Corrupt or forcible interference Whoever * * * in any other way corruptly * * * obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both * * * *.
Section 1512(b), as quoted by in the panel decision, provides in relevant part (emphasis supplied by court):

§ 1512. Tampering with a witness, victim, or an informant
* * * *
(b) Whoever knowingly uses intimidation, threatens, or corruptly persuades another person, or attempts to do so, or engages in misleading conduct toward another person, with intent to—
(1) influence, delay, or prevent the testimony of any person in an official proceeding;
(2) cause or induce any person to—
(A) withhold testimony, or withhold a record, document, or other object, from an official proceeding;
The panel starts its analysis as follows:

The principal debate is over the meaning of the term "corruptly persuades." All courts considering the issue have found this phrase to be ambiguous. United States v. Baldridge, 559 F.3d 1126, 1142 (10th Cir. 2009). There is currently a circuit split over the type of conduct that falls within the ambit of this phrase. Two of our sister circuits conclude that persuasion with an "improper purpose" qualifies (such as self-interest in impeding an investigation), while another concludes there must be something more inherently wrongful about the persuasion (such as bribery or encouraging someone to testify falsely). Compare United States v. Thompson, 76 F.3d 442, 452 (2d Cir. 1996), and United States v. Shotts, 145 F.3d 1289, 1300-01 (11th Cir. 1998), with United States v. Farrell, 126 F.3d 484, 488 (3d Cir. 1997).
The panel then reviewed the conflicting circuit decisions and the light that Arthur Andersen LLP v. United States, 544 U.S. 696 (2005), perhaps in dicta, sheds on the interpretation of corruptly. The court reasoned as follows (footnote omitted):

Further, the Third Circuit recognized that construing "corruptly" to mean "for an improper purpose"—especially if that improper purpose is to hinder an investigation or prosecution (which is already required by the statute) — is circular, essentially rendering the term "corruptly" surplusage. Id. at 489. The Supreme Court echos this concern in Arthur Andersen, pointing out that persuading someone with intent to cause them to withhold testimony is not "inherently malign," and, significant here, the Court specifically referred to the marital privilege as an example. 544 U.S. at 703-04 (citing Trammel v. United States, 445 U.S. 40 (1980)).

In addition, as the Third Circuit points out, the examples of non-coercive "corrupt" persuasion cited by the House Report were bribery and attempting to persuade a witness to lie, both actions easy to characterize as inherently wrong or immoral, and not actions which could be considered otherwise innocent persuasion. See Farrell, 126 F.3d at 488. The Supreme Court similarly noted that the term "corrupt" and "corruptly" are normally associated with "wrongful, immoral, depraved, or evil," and, when coupled with "knowingly" in § 1512, the government must show the defendant acted with "consciousness of wrongdoing." Arthur Andersen, 544 U.S. at 705-06. If it is not, as the Supreme Court indicates, "inherently malign" for a spouse to ask her husband to exercise the marital privilege (even though made with the intent to cause that person to withhold testimony), id. at 703-04, then a defendant could not be shown to act with "consciousness of wrongdoing" merely by asking a spouse to withhold testimony (that may properly be withheld under the marital privilege) absent some other wrongful conduct, such as coercion, intimidation, bribery, suborning perjury, etc. Id. at 706.

We therefore conclude that the district court erred by failing to grant Doss's motion for acquittal of Count 8. In reviewing claims of sufficiency of the evidence, we review the evidence in the light most favorable to the government to determine "whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." Khatami, 280 F.3d at 910 (emphasis in original) (quotation omitted). The evidence at trial established only that Doss appealed to his wife to exercise her marital privilege not to testify against him. 6 As Doss's wife, Ford had the legal option not to testify, and thus Doss's request, without more, was insufficient to establish "corrupt" as opposed to innocent persuasion. Cf. Arthur Andersen, 544 U.S. at 703-04; id. at 706-07. Accordingly, we reverse Doss's conviction as to Count 8.
In bottom line result, this tells us what the term corruptly does not mean, at least in the context of Section 1512(b). But, as I argue in my article, the reasoning and concerns addressed by the Supreme Court in Arthur Andersen and by the Third and now the Ninth Circuits in the context of Section 1512(b), suggest the more restrictive interpretation of the corruptly element should also apply to Section 7212(a). Thus, a mere attempt to "obstruct or impede" the administration of Title 26 is not enough. That attempt must also be corrupt -- captured by the concepts of wrongful, immoral, depraved or evil. Those are hardly self-defining notions, but do serve to emphasize that a mere attempt to do an otherwise legal act that has the effect -- even the known and even intended effect-- is not enough to satisfy the corruptly element.

I present two hypotheticals for readers to consider the possible application of this argument in a tax context. Assume a taxpayer takes an aggressive position on a nontax shelter item that has substantial authority and, because that means that the taxpayer believes the position more likely than not will not prevail if audited and litigated, the taxpayer effects the transaction through a grantor trust which, the taxpayer thinks, will decrease the chances of detection by the IRS. The underlying position is not illegal, and Congress has said that the taxpayer can even report that position without even a civil penalty. The interjection of a grantor trust to exploit the perceived IRS inefficiencies in the administration of the tax laws should not be corrupt and not subject to prosecution under Section 7212.

Assume instead that the position is frivolous and the taxpayer knows that claiming the benefit of the position would violate a known legal duty. The taxpayer nevertheless reports the position and uses a grantor trust to lower the audit profile.  In that context, it would seem to me that using the grantor trust would be subject to prosecution under Section 7212, as well under Sections 7201 or 7206(1) for the underlying substantive offense .

The difference between the two examples is that the Government would have to prove for the substantive offense of evasion or tax perjury that taxpayer acted willfully and for the tax obstruction offense the same thing -- the criminal conduct establishing the corruptness and the intent to obstruct with respect to criminal conduct (as opposed to noncriminal conduct).

As I note in my article, the concerns raised here in an obstruction context are equally present in the Klein conspiracy.

I would appreciate readers comments.

Addendum on 1/19/11 8:15am:

Just to nail this down focusing on the statute text. The Ninth Circuit in Doss picks sides in the circuit split and, the spirit of Andersen on what "corruptly persuades" means. Doss holds that there can be persuasion to do the acts (e.g., "cause or induce any person to withhold testimony") that is not corrupt and therefore not illegal. Corrupt adds a stronger element other than just an intennt to persuade. Section 7212 criminalizes conduct which "corruptly * * * obstructs of impedes or endeavors to obstruct of impede, the due administration of this title." By the same logic, there can be conduct and endeavors which in fact impede and may be even intended to impede but that are criminalized only if the conduct or endeavor is corrupt.

Addendum on 3/26/11:  The Doss opinion was amended on 3/15/11.  The link above is to the amended opinion.  I have not parsed the whole opinion to see what the changes were, but I did parse the language I quote and it does not look any material changes were made.


  1. How about if an employer, under a civil audit with high potential of going criminal, in response to an IRS summons of a key employee, hires a lawyer for key employee while its own lawyers also 'prep' key employee for the interview. Assume low to no possibility of key employee being implicated criminally.

  2. To Anonymous @ January 7, 2012 4:07 PM:

    You used the wrong word -- hires. In this type of arrangement, if done right, the key employee hires the lawyer. The employer may pay the employee's lawyer, but the employee's lawyer is not hired by the employer. With the employee's lawyer having his sole duty to the employee, the employee's lawyer is the one who does the prepping of the employee. The employer's lawyer can do what they like to inform the employee's lawyer of what the employer's lawyer prefers, but the employee's lawyer should control access to and participation by the employee.


    Jack Townsend


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