Friday, August 30, 2013

The Willfulness Element of Most Tax Crimes Not Present in All Tax Crimes (8/30/13)

Practitioners and students of tax crimes know that most of the commonly charged tax crimes have an element of willfulness which the Supreme Court interpreted in Cheek to mean a voluntary intentional violation of a known legal duty.  In other words, conviction requires that the Government prove that the defendant knew the law and intended to violate the law.  In Cheek, the Court said that proof that the defendant acted in good faith would perforce negate willfulness.  Some tax crimes do not have an explicit requirement of willfulness but have an equivalent element that substantially overlaps willfulness.  E.g., Section 7212(a)'s requirement that the defendant act corruptly and even the defraud conspiracy in 18 USC 371.  See  John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 277-314 (2009), here.

But not all tax crimes will have such a heightened mens rea requirement as in Cheek.

In United States v. Jirak, 2013 U.S. App. 17937 (8th Cir. 2013), here, the defendant was convicted inter alia of violating 18 USC 287, which provides:
18 USC § 287 - False, fictitious or fraudulent claims
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.
Jirak had filed a false income tax return claiming a refund to which he knew he was not entitled.  He nevertheless sought to make a defense that he had acted in good faith by relying on advice he allegedly received from a tax service.  The Court rejected the claim on the following reasoning:
Unlike the crimes charged in Cheek, 18 U.S.C. § 287 does not require "willfulness." As the Court in Cheek noted, "[t]he general rule that ignorance of the law or a mistake of law is no defense to criminal prosecution is deeply rooted in the American legal system," and Congress can soften the impact of this common law presumption by making "specific intent to violate the law an element" of the crime. 498 U.S. at 199-200. Congress has not done so here. Thus Cheek does not persuade us to conclude that evidence of a good faith belief defense is relevant. See United States v. Hildebrandt, 961 F.2d 116, 118-19 (8th Cir. 1992) (concluding Cheek did not mandate a good faith defense instruction because its holding was premised on the complexity of the tax laws, and the defendant in Hildebrandt was convicted under a statute similar to § 287-18 U.S.C. § 1001).
Moreover, Jirak asserts that he should have been allowed to present the evidence that he relied on Liberty Tree because "[g]ood faith reliance on an expert tax preparer may be a defense to a tax evasion charge, but only if the taxpayer makes complete disclosure of all the relevant facts." United States v. Meyer, 808 F.2d 1304, 1306 (8th Cir. 1987) (citation omitted). Jirak, however, was not charged with tax evasion nor even charged under the Internal Revenue Code. But even assuming, without holding, that reliance on an expert tax preparer is a valid defense to the § 287 claims here, the district court did not abuse its discretion in excluding the evidence as unreasonable, because the advice received was not from an expert tax preparer, as it was not from an attorney or an accountant. McGraw v. C.I.R., 384 F.3d 965, 973 (8th Cir. 2004) ("Good faith reliance on expert advice of a tax preparer (i.e., an attorney or accountant) may be a defense . . . ."). Nor did Jirak offer evidence indicating he gave the purported expert complete disclosure, as required. Meyer, 808 F.2d at 1306 (noting the defense is only available if the taxpayer made complete disclosure of all of the relevant facts). The evidence offered did not establish the elements of the defense, and thus the district court did not abuse its discretion here. See United States v. Luker, 395 F.3d 830, 833 (8th Cir. 2005) (upholding the grant of a motion in limine to exclude evidence intended by the defendant to establish a defense, where the defendant's proffered evidence failed to satisfy the necessary prerequisites of the defense).
The key difference between the mens rea element in Section 287 and willfulness in the tax crimes is that the former merely requires that the defendant make a claim that is knowingly false, not that he know that doing so is a crime.  Willfulness would require that he know that he is violating a known legal duty -- i.e., committing a crime.  See Ratzlaf v. United States, 510 U.S. 135, 137 (1994) for a good discussion of this distinction.

Addendum 9/2/13 10:15 am:

I just recalled that I had posted a blog on another case addressing this issue.  Good Faith as a Defense to Tax Crimes (Federal Tax Crimes Blog 2/9/13), here.  In that blog, I discuss United States v. Nash, 175 F.3d 429 (6th Cir. 1999) where the court recognized that, despite the fact that willfulness is not a textual requirement of Section 287, good faith may be a defense to Section 287.  The Naxh court  affirmed anyway because the instructions were otherwise adequate.


  1. This is splitting hairs. The mens rea required under 18 U.S.C. § 287 is "'knowing' such claim to be false, fictitious, or fraudulent . . . " I'd argue the standard is within a zit on a gnat's butt of Title 26 willfulness, certainly as a practical matter. While hardly a fan of "ignorance of the law is no excuse", especially when everything is criminalized these days, I do think its more than reasonable to expect anyone who lies to a government to expect a potential prosecution. And I just checked with my 9 year old. She agrees: If you lie to Mommy or Daddy, you get grounded.

  2. ChiTownTaxAttorney,

    First, thanks for your pungent analysis. I do like it. But the game involves hair splitting, particularly if the result of a remand to give a Cheek instruction almost certainly would not affect the ultimate outcome.

    I think that the trial judge could have given a Cheek instruction originally. He chose not to and now the court of appeals is forced to deal with it and chose the practical way out. As other courts have noted, so long as the other instructions are good instructions on the crime, conviction will necessarily subsume that good faith will avoid conviction. The only question is whether the defendant is entitled to an additional Cheek-type instruction to drive that point home. If the trial record has some reasonable quality evidence of good faith, I think most trial judges will give a Cheek instruction event though the other instructions really cover the ground. But that is a choice that is best made by the judge in the context of the trial at hand.

    Now, on the hair splitting, Section 287 requires that the defendant knew he was doing something wrong (submitting false, fictitious or fraudulent documents), but the Cheek / Ratzlaf point is that not only must he know that he is doing something wrong, willfulness requires that he know that he is violating the law. That is the hair split that the court made in Ratzlaf and applies to the Cheek analysis.

    Still, in a Section 287 prosecution, I as a defense attorney would try to make sure there is record indicators of good faith (often that will require a defendant to testify) and then press for a Cheek-type instruction. I think that, despite the language of this case, I would have a shot at getting some instruction on that point.

    Again, I like your comment and look forward to future comments.

    Jack Townsend


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