Saturday, September 29, 2012

Schiff, a Tax Protestor, Loses 2255 Motion to Vacate Conviction (9/29/12)

Irwin Schiff, a tax protestor of some notoriety (see Wikipedia entry here) is back in the tax news.  He was previously convicted of various counts of conspiracy, tax evasion, tax perjury and aiding and assisting and sentenced to 151 months in prison.  He appealed his convictions.  He lost his appeal.  Then, as not uncommon, he filed a 2255 motion to overturn his conviction for ineffective assistance of appellate counsel.  (He could not do that for trial counsel, since represented himself.)  The Court denied the motion.  United States v. Schiff, 2012 U.S. Dist. LEXIS 135934 (D. NV 2012)

He raised more or less standard 2255 arguments, some more or less grounded in fact (that is not to say that those that were ground in fact had merit).  The Court dismissed them all handily.  Here is one related to some argument he had about foreign banks honoring levies (since foreign banks are a frequent topic of this blog):
5. Testimony Regarding Offshore Bank Accounts 
Defendant argues that his appellate counsel was ineffective for failing to appeal the Court's exclusion of the testimony of two Freedom Book customers, Robert Eiler and Robert Schulz. The Court permitted Defendant to testify about why he used offshore accounts as part of his extensive testimony about his beliefs. However, the Court properly prevented Defendant from introducing the testimony of Eiler and Schulz about their experience with offshore banks' treatment of IRS levies "as proof that they don't" honor them. (16Tr. 4350-51.) The Court determined that Defendant was attempting to improperly introduce evidence that his beliefs were correct, rather than his basis for forming his beliefs. Accordingly, Defendant's appellate counsel was not unreasonable for failing to challenge the Court's determination. Even if appellate counsel had raised the issue, there is no indication that the results of Defendant's appeal would have been different.
I guess tax protestors and even taxpayers looking for asset protection are interested in knowing that foreign banks -- at least some of them -- do not respond to U.S. compulsory process.  I don't have anything to add to the Court's rejection of that argument as a basis for vacating the convictions.  I do add the following which I just picked up in another case where the defendant apparently claimed to have been inspired by Schiff.  The quote is from a decision in United States v. Gump, 2012 U.S. Dist. LEXIS 138488 (WD PA 2012) involving a motion in limine for advance approval to introduce evidence:
Additionally, the Defendant's statements that the government seeks to admit include his interview with an IRS Criminal Investigation Agent with regard to his study of the views of Irwin Schiff. fn2   fn2 Other courts have described Schiff as "a self-styled 'tax rebel,' who has made a career and substantial profits out of his tax protest activities," Newman v. Schiff, 778 F.2d 460, 461 (8th Cir. 1985),  [*5] and as "a convicted tax evader who wrote a book while in prison . . . [that] advises readers how to not pay taxes, but informs them that they run the risk of conviction if they follow the book's advice," United States v. Heath, 525 F.3d 451, 453 (6th Cir. 2008).
I do note that Schulz, one of Schiff's proferred witnesses, is a tax protestor as well (see his Wkipedia entry, here.  Schulz, like Schiff, has had many brushes with the IRS and the courts.  Schulz established some law in one of those brushes.  It involved Section 7210 which provides cryptically but sufficiently, I think.
§ 7210 - Failure to obey summons 
Any person who, being duly summoned to appear to testify, or to appear and produce books, accounts, records, memoranda, or other papers, as required under sections 6420 (e)(2), 6421 (g)(2), 6427 (j)(2), 7602, 7603, and 7604 (b), neglects to appear or to produce such books, accounts, records, memoranda, or other papers, shall, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both, together with costs of prosecution.
Can someone be convicted of this crime for simply "neglecting" or even intentionally failing to appear and produce any documents summonsed?  I would have thought so.  Nevertheless, in a Schulz case, the Second Circuit seemed to gut Section 7210.  Here is the discussion from my Tax Crimes book (footnotes omitted):
Remedies for Failure to Comply [with IRS summons]. 
Section 7210 imposes a misdemeanor criminal penalty upon a summonsee who “neglects” to appear pursuant to summons or produce documents summonsed..  It has long been clear that the summonsed witness who appears as summonsed but asserts good faith defenses to answering questions or producing documents will not be subject to this sanction.  If the IRS desires to test the witness’ defenses, the Government may pursue judicial enforcement of the summons via a summons enforcement proceeding in which the court will pass on the witness’ defenses to compliance, will order compliance if it rejects those defenses, and then will impose a contempt penalty if the witness fails to comply with the court order.  This still left open the possibility that a witness who flouts the summons without appearing and making a colorable good faith defense to noncompliance might be subject to prosecution under § 7210 even if the Government does not seek enforcement of the summons or if the Government is unsuccessful in the enforcement proceeding.  The Government’s position is that it could prosecute that witness. 
However, in a remarkable decision, the Second Circuit rejected that position.  In Schulz v. I.R.S., 395 F.3d 463 (2d Cir. 2005), the Court held that a witness could not bring a motion to quash a summons.  The reasoning was that there was no harm to the witness from simply not complying with the summons and hence there was no case or controversy presented by a motion to quash.  The Court reasoned that, if the Government were unhappy with the witness’ noncompliance, the Government could bring a summons enforcement proceeding which would fully comply with the witness’ right to due process.  Given this procedure, there is no room for imposition of a criminal sanction under § 7210 for mere noncompliance with the summons.  The Government was unhappy with that decision and filed a motion which the Second Circuit treated as a motion for rehearing to “correct” the earlier decision.  The Second Circuit stuck to its position, holding there was nothing to correct and clarifying that it meant exactly what it said.  In a now precedential decision, the Court succinctly said (Schulz v. IRS, 413 F.3d 297, 298-299 (2d Cir. 2005) (footnotes omitted): 
Having considered the arguments of the parties, we grant the petition to rehear for only the limited purpose and to the extent necessary to clarify our prior opinion and hold that: 1) absent an effort to seek enforcement through a federal court, IRS summonses “to appear, to testify, or to produce books, papers, records, or other data,” 26 U.S.C. § 7604, issued “under the internal revenue laws,” id., apply no force to the target, and no punitive consequences can befall a summoned party who refuses, ignores, or otherwise does not comply with an IRS  summons  until that  summons  is backed by a federal court order;  2) if the IRS seeks enforcement of a  summons  through the federal courts, those subject to the proposed order must be given a reasonable opportunity to contest the government's request; 3) if a federal court grants a government request for an order of enforcement then any individual subject to that order must be given a reasonable opportunity to comply and cannot be held in contempt or subjected to indictment under 26 U.S.C. § 7210 for refusing to comply with the original, unenforced IRS  summons,  no matter the taxpayer's reasons or lack of reasons for so refusing. 
Even under the Schulz analysis, the witness does assume some risk under § 7210 if the Government is willing to seek judicial enforcement of the summons and the witness refuses to comply with a resulting court order.  But, under Schulz, the witness who gambles that the Government may not be willing to expend the resources to seek judicial enforcement of the summons can flout the summons at will and still dodge the bullet if the Government does seek judicial enforcement by then complying with any resulting court order. 
I think Schulz was incorrectly decided.  It effectively reads § 7210 out of the law and places inappropriate burdens on the system.   But, that is the law for the time being in the Second Circuit. Until the law is further clarified elsewhere, I think that proceeding with the hope of the Schulz result in other circuits is a high risk adventure.

No comments:

Post a Comment

Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.

Post a Comment