Monday, February 11, 2013

Tax Protestor Convictions Affirmed (2/11/13)

In United States v. Hopkins, 2013 U.S. App. LEXIS 2488 (10 Cir. 2013), here, the defendants, husband and wife, were convicted of tax evasion and Klein conspiracy.  The Court offers a good summary of the facts leading to the indictments (footnote omitted):
After becoming increasingly involved in tax-protester groups, Defendants decided to stop "volunteering" to pay federal and state taxes. From 1996 to 2009, they paid no income tax. Instead, Defendants created several trust accounts, which they believed were tax proof, and designated family members and friends as trust beneficiaries and themselves as trust managers. The trusts were "sovereign trusts" sold to them by tax-protester seminar leaders who touted the trusts as tax exempt. Mark Hopkins, an emergency-room doctor, had his employers (medical institutions) pay his earnings to a trust, Shalom Enterprises, an entity incorporated under Oregon nonprofit law. According to Defendants Shalom Enterprises was a nonprofit ministry corporation, but in fact its funds were used to finance their living expenses. Defendants transferred funds and property among their numerous trusts to evade detection by the Internal Revenue Service (IRS). Predictably, Defendants faced mounting difficulties with the IRS, and on April 9, 2009, they were indicted on seven counts of tax evasion under 26 U.S.C. § 7201 and one count of conspiracy to defraud the United States under 18 U.S.C. § 371.
Most tax protestors are not charged criminally; the IRS deals with their cases on the civil side (if not always, perhaps, civilly).  But some are charged, and when charged they usually go down (are convicted).  For example, Cheek went down, ultimately.  The Hopkinses went down in this case.

On appeal, they complained about an IRS levy preventing them from obtaining certain proceeds that they had paid into the court registry in connection with their pretrial release.  Prior to trial, upon motion by them, the district court ordered that the funds be released to them.  Whereupon, having previous tax assessments against the defendants, the IRS levied on the clerk of court to deliver the funds to the IRS rather than the defendants.  The defendants did not appreciate that and complained.  Their complaints at the trial and appellate levels were for naught.

One facet of their complaints was the the levy interfered with their Sixth Amendment right to counsel.  When the district court sustained the levy, their first counsel moved to withdraw for nonpayment of fees.  The district court granted the motion.  The district court then granted Mrs. Hopkins ("Wife") appointed counsel, but she somehow quickly retained Tommy Cryer, a well know tax-protestor type lawyer (even has a Wikipedia entry describing his adventures, here).

Before Wife engaged Mr. Hopkins, however, Husband and Wife filed a motion claiming that the levy had violated their Sixth Amendment right to counsel because it denied them the resources to engage counsel.  The district court rejected the claim.

Rather than deliver the funds to the IRS, the funds were interpled to permit the competing claimants -- the IRS and the defendants -- to duke out their rights to the funds.  While the interpleader was pending, the defendants filed for bankruptcy and were convicted of tax evasion and conspiracy.

On appeal, they renewed their Sixth Amendment claim.  The leading authority for this genre of claim is Caplin & Drysdale, Chartered v. United States, 491 U.S. 617 (1989), here, where the defendant asserted that the forfeiture of funds denied him his Sixth Amendment rights.  In that case, the forfeiture statute had a relation back construct that gave the Government title as of the date of the criminal act.  The Supreme Court held that the forfeiture did not violate his Sixth Amendment rights.

In Hopkins, the Tenth Circuit reasoned that the pre-existing tax lien gave the IRS an interest superior to the Hopkins and, as in Caplin, did not violate their Sixth Amendment rights.  The Court reasoned (footnote omitted):
Moreover, the Caplin Court reasoned that "there is a strong governmental interest in obtaining full recovery of all forfeitable assets, an interest that overrides any Sixth Amendment interest in permitting criminals to use assets adjudged forfeitable to pay for their defense." 491 U.S. at 631. As in Caplin, the government has a longstanding, strong interest in collecting delinquent taxes and securing its interests in delinquent taxpayer's property through liens and levies. See G.M. Leasing Corp. v. United States, 429 U.S. 338, 350, 97 S. Ct. 619, 50 L. Ed. 2d 530 (1977) ("[T]he existence of the levy power is an essential part of our self-assessment tax system . . . that . . . enhances voluntary compliance in the collection of taxes."); Glass City Bank, 326 U.S. at 267 ("Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes."). And, its extensive lien and levy powers exemplify this strong interest. See, e.g., Kane, 145 F.3d at 1221 ("The reach of a federal tax lien is broad," reaching "'every interest in property that a taxpayer may have.'" (quoting Nat'l Bank of Commerce, 472 U.S. at 719-20)). 
Caplin specifically referenced jeopardy assessments, which allow for immediate tax assessment, notice, and demand—without adherence to the requirements of § 6213—because "the assessment or collection of a deficiency . . . will be jeopardized by delay." I.R.C. § 6861(a). While the assessments used here were not jeopardy assessments, we do not find this distinction sufficient to overcome Caplin. Here, the IRS filed a tax lien in 2004 for previously assessed tax liabilities for 1996, 1997, 1999, 2000, and 2001 tax years. See Aplee. Addendum Vol. 1, exs. 102, 103 (assessments for 1996 and 1997 tax years). Accordingly, the procedure here afforded Defendants greater rights than a jeopardy assessment, and they could have contested, but chose not to contest, the 1996 and 1997 tax assessments in tax court. See id. 
When it filed a levy on the court registry funds, "the IRS stepp[ed] into the shoes of [Defendants] and acquire[d] whatever rights to the [funds] . . . [they] possessed." Kane, 145 F.3d at 1221 (quotation omitted). While the government's levy may have impacted whether Sharon Hopkins could pay Mr. Altman, this alone does not amount to a Sixth Amendment violation. See Caplin, 491 U.S. at 626 ("A robbery suspect, for example, has no Sixth Amendment right to use funds he has stolen from a bank to retain an attorney to defend him if he is apprehended. The money, though in his possession, is not rightfully his . . . ."); see United States v. Thomas, 577 F. Supp. 2d 469, 476 (D. Me. 2008) (holding no Sixth Amendment violation when defendant unable to retain counsel of choice due to IRS levy on funds intended to pay for defense). The government was within its rights to file the levy, which limited Sharon Hopkins's right to the same funds. Her argument that this case is not controlled by Caplin simply because the funds at issue were subject to a levy under the Internal Revenue Code, rather than a criminal forfeiture statute, is not compelling.6 See Stein, 541 F.3d at 155 ("The holding of Caplin [] is narrow: the Sixth Amendment does not prevent the government from reclaiming its property from a defendant even though the defendant had planned to fund his legal defense with it.").
The Court then rejected the Hopkins' arguments that the levy constituted arbitrary interference with their rights because the did not comply with certain IRM provisions.  One of the IRM provisions -- 5.1.5.11 -- suggests but does not compel restraint where the "the passive-type collection activity would tie up the taxpayer's assets to the extent that the taxpayer would be unable to finance a defense of the potential criminal prosecution."  Essentially, the Court of Appeals held that she had failed to show that the levy rendered her unable to engage counsel; indeed, it noted that  "she was able to retain, and ostensibly pay for, private counsel through trial and sentencing."  On this basis the levy was not arbitrary.

The other IRM provision, 5.11.1.3.3, mitigates against levy on funds in a court registry as these were until the court ordered the funds released to the defendants.  The levy was then served on the clerk after the funds were, in effect, the defendants' free of the clerk's superior right of possession -- the IRS just got there first.  The Court found that the levy was consistent with the IRM.

But, of course, IRM provisions do not confer any rights, as the Supreme Court famously held in Caceres.  United States v. Caceres, 440 U.S. 741 (1979).  The Tenth Circuit does not cite Caceres perhaps because an exception to Caceres might be implicated where the manual provision implicates constitutional rights rather than just being procedures IRS agents are to follow.  In any event, the Court held that there was no Sixth Amendment violation.

The defendants then complained about certain sentencing issues.   One of the interesting enhancements imposed by the district court and sustained on appeal was the leader or organizer enhancement in § 3B1.1(c).  Keep in mind that this was husband and wife engaged in a tax evasion scheme.  I suspect that, in  most cases, husband  and wife so engaged are not charged with the conspiracy, otherwise conspiracy charges would be ubiquitous in husband-wife indictments.  And I doubt that this enhancement appears in most husband wife sentencings.  But, the district court imposed the leader or organizer enhancement for Wife's activities because they were so extensive.  Husband may have been the lead perpetrator, but she was more than a relatively passive participant.  So the Tenth Circuit sustained this enhancement.

Husband complained on appeal about an obstruction of justice enhancement.  The Tenth Circuit summarizes the bases for the enhancement :
The district court enhanced Mark Hopkins's sentence for obstruction of justice based on the following conduct: he submitted a post-trial financial assessment for the PSR that misrepresented to the probation office his financial information by stating that no accounts were associated with the Maranatha Trust despite trial evidence that $23,400 was transferred to that trust; during the investigation, he sent threatening letters to IRS Special Agent Jennifer Hand; he filed two frivolous tax suits n14 and frivolous tax returns; and he failed to follow the district court's order to pay quarterly tax payments for estimated taxes citing the automatic stay imposed after Defendants filed for Chapter 13 bankruptcy to avoid tax liabilities. R. Vol. 2, at 22-23. The frivolous tax returns and threats to "IRS Revenue Officer P.F." and the IRS Regional Director were listed as overt acts in the indictment, but the frivolous civil suits and threats against IRS Special Agent Jennifer Hand were not. R. Vol. 1 pt. 1, at 5-6; R. Vol. 3 pt. 9, at 1006-11; Aplee. Addendum Vol. 2, ex. 340. Moreover, the post-trial financial misrepresentation to the probation office regarding the Maranatha Trust was material because the probation office was investigating Mark Hopkins's finances for PSR purposes, which could affect restitution orders at sentencing. See United States v. Shetty, 130 F.3d 1324, 1335 (9th Cir. 1997) ("[I]n a tax case, money is material evidence." (alteration in original) (quotation omitted)). Mark Hopkins also filed pro se suits after the investigation began asserting legal theories that he had previously been informed were frivolous, one of which delayed the government's efforts to summons financial records for an eighteen-month period during the IRS's investigation. R. Vol. 3 pt. 9, at 1017; Aplee. Addendum Vol. 2, ex. 342. The district court found this non-offense conduct supported enhancement and did not impermissibly double count offense conduct as the basis for enhancement.
That should be enough to do it.  Here, Husband may have given perjured testimony at trial which will permit the enhancement if the district court makes special findings.  But the district court did not rely upon the possible perjury to make the enhancement.  Instead,

These being tax protestors, I am surprised that they did not attempt a biblical argument -- that husband and wife become one  flesh.  Genesis 2:24,  here; Matthew 19:5, here.  It takes two co-conspirators, which is hardly compatible with one flesh.  Or am I mixing metaphors?

Also, there was a dissent which would have eliminated the enhancement for use of minors -- the children with respect to the trusts used in the shenanigans.

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