Tuesday, May 24, 2011

Supreme Court to Decide Whether Tax Crimes Other Than Tax Evasion Are Aggravated Felonies Under Immigration Law (5/24/11)

On May 23, 2011, the Supreme Court granted certiorari in Kawashima v. Holder, 615 F.3d 1043 (9th Cir. 2010) about which I have previously blogged here. The question presented is:

Whether, in direct conflict with the Third Circuit, the Ninth Circuit erred in holding that Petitioners' convictions of filing, and aiding and abetting in filing, a false statement on a corporate tax return in violation of 26 U.S.C. §§ 7206(1) and (2) were aggravated felonies involving fraud and deceit under 8 U.S.C. § 1101(a)(43)(M)(i), and Petitioners were therefore removable.
The following discussion of the issue is from my Federal Tax Crimes book:

Immigration status may be affected by conviction of an “aggravated felony.” Conviction of an aggravated felony will require deportation. An aggravated felony is defined to include an offense that:
(i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or

(ii) is described in § 7201 of the Internal Revenue Code of 1986 (related to tax evasion) in which the revenue loss to the Government exceeds $10,000; . . . n1
The second subpart thus makes clear that a conviction under § 7201 (tax evasion) is an aggravated felony. n2 The question arises, however, whether other tax crimes that, in general parlance, might be viewed to include fraud or deceit are covered in the subpart (i). n3 For example, as we have noted, the Government often charges § 7206(1) (tax perjury) in a case where it could have charged tax evasion. Certainly, the crime of tax evasion facially would constitute a felony involving fraud or deceit within the meaning of subpart (i). Why then did Congress feel it necessary in subpart (ii) to name tax evasion separately, if it was already covered by “fraud or deceit” in subpart (i)? One court, the Third Circuit, pondered this question and concluded that, unless (ii) is surplusage wholly subsumed by (i), then what (ii) must mean is that other tax crimes are not to be treated in (i) even if arguably they may involve some fraud or deceit. n4 Notwithstanding, that case, the trend in the circuits, is to interpret (i) to include other tax crimes that involve fraud or deceit. n5 (These courts are unconcerned that that interpretation of (i) makes (ii) surplusage.) The most prominent such other tax crime affected by this interpretation is § 7206(1) which, as you recall, does not have fraud as an element of the offense. But, in some – indeed virtually all – § 7206(1) cases, fraud is involved because the Government will not prosecute if the taxpayer did not intend to cheat on tax so that the Government can obtain incarceration by proving a significant tax loss (the first and most important step in the Sentencing Guidelines calculation). So in § 7206(1) cases ICE and the Courts will have two objective facts – conviction of a felony and the relation to fraud or deceit – from which to initiate and even prevail in a deportation proceeding. n6

n1 8 U.S.C. § 1101(a)(43)(M).
n2 A good argument could be made that the first part subsumes the second. See Carty v. Ashcroft, 395 F.3d 1081 (9th Cir. 2005), cert den. sub nom. Carty v. Gonzalez, 546 U.S. 818 (2005) (dealing with whether a state conviction for willful failure to file a return “with intent to evade . . . tax” is a crime of moral turpitude under § 237(a)(2)(A)(ii)). The Carty court concluded that the conviction was a crime of moral turpitude using reasoning that would sweep the second part above (the § 7201 part) under the first part. In doing so, the Court distinguished the troubling case of United States v. Scharton, 285 U.S. 518 (1932), where the Supreme Court held that a statute that then provided a special six year statute of limitations for “defrauding or attempting to defraud the United States” did not apply to a conviction for willfully attempting to evade taxes (under what is now § 7201). In Scharton, the Supreme Court expressly rejected the arguments presented by the government that “fraud is implicit in the concept of evading or defeating” and that “any attempt to defeat or evade a tax is said to be tantamount to and to possess every element of an attempt to defraud the taxing body.” Id. at 520-21. Perhaps Scharton and its progeny were the reason the drafters of the Immigration Act specifically included § 7201 as an aggravated felony.
n3 See Scott A. Schumacher, Criminal Tax and Immigration: A Search for Clarity, 129 Tax Notes 235 (Oct. 11, 2010).
n4 Lee v. Ashcroft, 368 F.3d 218 (3d Cir. 2004) (majority opinion written by Judge Louis Oberdorfer, a D.C. District Judge, sitting by designation; Judge Oberdorfer was formerly AAG in charge of the Tax Division, and thus has considerable background in interpreting and applying the tax laws upon which the immigration issue turned; but the dissent in the case is by Judge, now Supreme Court Justice, Alito). See also United States v. Roselli, 366 F.3d 58 (1st Cir. 2004), where the defendant pled to a § 7206(2) charge but sparred in the sentencing phase over whether the tax loss exceeded $10,000 because of his concern that the § 7206(2) conviction might subject him to deportation under the first subpart. If Lee correctly interprets the law, that concern goes away in § 7206(2) cases, as well as other tax crimes except § 7201; the practitioner must be careful to structure the plea so as to avoid a conviction for a Title 18 related crime, such as wire fraud, or even conspiracy.
n5 Compare Kawashima v. Holder, 593 F.3d 979 (9th Cir. 2010), and Arguelles-Olivares v. Mukasey, 526 F.3d 171 (5th Cir. 2008) (each holding that other tax crimes, specifically §§ 7206(1) and 7206(2) could be aggravated felonies and rejecting the reasoning of Lee v. Ashcroft cited next); Lee v. Ashcroft, 368 F.3d 218 (3d Cir. 2004) (where a divided panel decided that a § 7206(1) crime is not an aggravated felony.
n6 See for example Kawashima v. Gonzales, 593 F.3d 979 (9th Cir. 2010). For more discussion of some of the more esoteric concepts involved in using the conviction and tax loss findings at sentencing, see my blogs (and comments to the blogs) titled “Further on Use of Sentencing Tax Loss Findings in Later Proceedings,” Federal Tax Crimes Blog (1/30/10).


  1. Jack,

    How about naturalized citizen ?

    The offence took place while as an immigrant, and later became a US citizen before he/she was arrested/accused/convicted.

    I think the court has to prove he knew it was a crime when he committed, and he lied in the process of naturalization.

    I was bragging during my naturalization "I have never in violatin any US law, even not a traffic violation and parking ticket". Of course, I did not know I was a tax cheater myself, and if I did, I would not have applied for citizenship, or at least I would have to tell I have been in OVDI and let INS to decide if I am good enough to be a citizen.

  2. Anonymous,

    The issue surfaces principally (I won't say only) where the taxpayer has been convicted of a tax crime. This may be one of the most compelling reasons for an immigrant to join the OVDI program. OVDI assures no conviction and, morever, all of the information is within the IRS and subject to section 6103 strict secrecry rules.

    Without a conviction to collaterally estop the taxpayer in the immigration proceeding, I suppose that the ICE could try to prove up a tax fraud case. The immigration statute does not require a conviction -- simply that the taxpayer have committed the fraud or deceit. However, I have never heard of ICE attempting to do that in the absence of a conviction. That does not mean that it can't; just that with limited resources, I would think that it is not likely to do so.

    Jack Townsend

  3. Jack,

    In the process of Naturaliztion, the application form has such a question

    Part 10A (General Questions) Question 4: “Since becoming a lawful permanent resident have you ever failed to file a required federal, state or local tax"

    What does it mean "fail to file required Fed/Local tax" ?

    Will "under report on offshore bank income" be considered "fail to file" ?

    Maybe it should be viewed as "fail to report?"

    Fail to file means no filing while fail to report means "under report"

    The citizenship will be taken away if one is found lying on the application form. However, it is hard to prove lying because he thought he had never failed to file return during the application.

  4. tj,

    I can't speak specifically to ICE's interpretation of the question on the form, but in the tax law a return is still a return even though it omits income or even is otherwise incorrect or incomplete. Notice that the question is just whether you have filed a return and not whether you have ever failed to file a return that was incorrect or incomplete.

    So, without further explanation as to the question being asked (the instructions would be the first look), I would think an applicant could take the question on its face.

    Jack Townsend

  5. Jack

    Also, the FBAR form is technically not a tax form.

  6. Jack,
    In the HSBC Vaibhav Dahake case, the ICE interpreted this question as lying by the taxpayer. If that is the case then can that questions still be taken at face value?

  7. Anonymous,

    As I read the Dahake plea, it was to one count of conspiracy to defraud (Klein conspiracy). Although I have not researched the issue, the combination of a crime with the word defraud as an element (which normally connotes fraud in its traditional legal sense when coupled with a sentencing tax loss and certainly deceit in the Hammerschmidt expanded defraud sense if coupled with a sentencing tax loss) seems to invoke the aggravated felony statute. But again, a definitive statement would require research.

    Jack Townsend

  8. Two years after naturalization (Mr. Dahake's case) citizenship cannot be revoked in administrative proceeding. The government would need to charge Mr. Dahake either with criminal or civil violation of naturalization statute. And unless/until Mr. Dahake is convinced of unlawfully obtaining citizenship, ICE (USCIS or any other government agency) interpretation is completely irrelevant

  9. Back to the naturalization application.
    In Part 10D (Good Moral Character) Question 15:

    “Have you ever committed a crime or offense for which you were not arrested?”

    Mr. Dahake has been convicted a crime that was committed while he was an immigrant.

    The key point is to prove he lied on above question (that he knew he commited the crime but he had never been arrested). Certainly, he did the cover up (he tried to hide the money and his action speaks itself that he knew he was trying to evade tax. However, he could say "I knew it was wrong but I did not know it was a crime"

    So to prove he was lying is to prove he knew that he had commited a crime.

    Did we (in OVDI) all know we had commited crime by not reporting offshore income ? Of course NOT.. evne though we in fact did -- in the matter of law (evade tax)

  10. It is important to note that a person is not "convicted" of a crime until all appeals have been exhausted. Even if the defendant does not make an appeal, the conviction is not final until the time to file the appeal expires.

    In one of my cases, the conviction had not become final until after the naturalization application was signed and the interview occurred. However, the defenant was still found guilty of unlawfully obtaining naturalization under 18 U.S.C. 1425 because he had been charged with the crime and he was briefly on probation (which ground is not entirely clear because there were no special jury instructions).


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