2. Whether for ten of the twelve counts of conviction petitioners’ conduct was too remote from the taxpayers’ returns to be charged under 26 U.S.C. §7201.The charges in this case were (from the superseding indictment with the names of the dismissed and pleading defendants' names omitted):
79. [Incorporates by reference the litany of conspiracy allegations in paragraphs 1-78.]
80. From on or about January 1 of each of the calendar years set forth below, through at least on or about the filing dates set forth below for each said calendar year, in the Southern District of New York and elsewhere, JOHN LARSON, ROBERT PFAFF, RAYMOND J. RUBLE, also known as "R.J. Ruble," and DAVID GREENBERG, the defendants, along with their co-conspirators, unlawfully, wilfully and knowingly did attempt to evade and defeat a substantial part of the income tax due and owing by the tax shelter clients and by certain defendants and entities controlled by defendants set forth below to the United States of America for the calendar years set forth below, by committing and causing to be committed the following acts, among others:
a. preparing and executing false and fraudulent documents to deceive the IRS, including but not limited to, engagement letters, transactional documents, representation letters, and opinion letters;[Table of Counts 2 - 40 (39 total) relating to specific taxpayers and specific years' returns.]
b. creating entities to be used in executing tax shelter transactions;
c. executing financial transactions to implement the fraudulent tax shelters;
d. preparing and filing false and fraudulent tax returns; and
e. taking various steps to conceal from the IRS the existence of the shelters, their true facts, and certain conspirators' role in designing, marketing, and implementing the shelters, including, but not limited to, failing to register the shelters, using sham attorney-client privilege claims, and concealing documents and providing false and misleading information in response to IRS and Senate investigations.
(Title 26, United States Code, Section 7201, Title 18, United States Code, Section 2.)Note the statutory references for the crimes thus charged: § 7201 and 18 USC § 2 which I have bold faced for emphasis.
26 USC § 7201 is, of course, tax evasion which requires three key elements: tax due and owing, willfulness and an affirmative attempt.
18 USC 2 provides.
2. PrincipalsFocus on subsection (a). It treats two classes of actors as principals: First, persons committing offenses are principals. They would be principals anyway, directly subject to the underlying criminal offense, so subsection (a) is redundant and does nothing practical as to them. All it says, essentially, is that a principal is a principal. Second, more importantly, it treats persons aiding or abetting the commission of a crime as principals as well, even though they might not be under normally applied criminal concepts. That is the stuff of practical significance; § 2(a) actually does something. That is why 18 USC § 2(a) is often referred to as an accomplice liability provision. In a tax evasion context, this would require that some other person or persons -- here the taxpayers -- have committed evasion that the defendants aided and abetted.
(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.
(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.
Now, focus on subsection (b). This section on its face covers an actor who has the required mens rea to commit the crime even when the actual person committing the last step that constitutes the crime does not have the required mens rea himself to commit the crime and thus is not guilty of the crime. See United States v. Armstrong, 550 F.3d 382, 393 (5th Cir. 2008) (so holding and citing United States v. Levy, 969 F.2d 136, 141 (5th Cir. 1992) (which also rejected the notion that the defendant be the "sole and proximate cause" of the crime)). Subsection (b) liability does not require that the defendant act as an accomplice for another person who commits the crime. This would seem to cover the Larson and Pfaff if Larson and Pfaff had the required "willfulness" for tax evasion (whether the taxpayers were themselves guilty or innocent of evasion) and the other elements of evasion were proved.
In their petition, Messrs. Larson and Pfaff ignore aiding and abetting liability altogether, not citing 18 USC §2 even though it was charged for the counts of conviction. They nevertheless accept that nontaxpayers can be directly guilty under § 7201 of evasion of the taxpayers' liability (even nonguilty taxpayers) but argue for nuance as to the remoteness of the conduct of nontaxpayers. They assert, in essence, that the degree of removal from the defendants to the taxpayers and their tax returns can make an evasion charge sufficiently tenuous that it should not be permitted. As the petitioners note in the petition, § 7206(2) (aiding and assisting) includes remote actors. (See p. 28 of the petition: "When Congress intends to impose principal liability upon persons further removed from the actus reus, it uses words that clearly reflect that intent—as it did, for example, in §7206(2)." They assert, however, that evasion requires a more proximate actor. They urge that including remote actors as they claim they were, makes § 7201 evasion "limitless" and boundless" and subject to constitutional infirmities. The argument concludes (p. 30):
To avoid these serious constitutional problems, the statute must be limited to “core” conduct—acts of evasion committed by people actually involved in the filing and/or payment of the tax. See Skilling, 130 S. Ct. at 2928.JAT Comment: I certainly can't make the Government's case for why this issue presented by the petitioners is not cert-worthy, but it does appear to me to be weak on the merits and on cert-worthiness. I empathize for these petitioners (I was involved in the case as attorney for one of the dismissed defendants). I want them to be able to mitigate the damage and this appears their last shot. But this argument just does not strike me as one that the Court would want to wade into or, in the final analysis is winnable). The defendants can hope that the Court will take cert any way (plenty of precedent for the Supreme Court picking up stones best left unturned (see e.g., Frank Lyon)) and perhaps if the Court does take cert, it will grant relief anyway (see also Frank Lyon). But that is a long shot. And I do think this particular argument, because of my perception of its weakness, takes away from the stronger argument the petitioners assert regarding uncertainty in the law in the context of the economic substance doctrine.