Wednesday, November 27, 2013

Daugerdas Retrial Jury Instructions - Part 07 Tax Evasion Instructions Part 2 Tax Evasion and Conspiracy to Commit Tax Evasion - Derivative Liabilities (11/25/13)

As I have previously blogged, where a defendant can be directly liable through his own conduct for the substantive crime (tax evasion under Section 7201, here), the derivative liabilities in this type of case are irrelevant and confusing.  The derivative liabilities are under 18 USC Section 2, here --  aiding and abetting under Section 2(a) and causer liability under Section 2(b) -- and under the Pinkerton concept for co-conspirators' crimes.  See particularly, Even More on Principals, Accomplices, Causers and Pinkerton Conspirators - the Daugerdas Case (Federal Tax Crimes Blog 5/10/11), here; for more extensive discussion of that concept, see John A. Townsend, Theories of Criminal Liability for Tax Evasion (May 15, 2012), here.  As I note in both pieces, at the first trial, because defendants' alleged conduct, if found by the jury, made them directly liable for the substantive crime of tax evasion, Judge Pauley was skeptical as to what these derivative liability provisions added to the jury's understanding of the case and thus either did not mention them or merged them into the direct substantive liability.  I was thus curious as to what Judge Pauley would say on this round.

I start with a key general observation about the derivative liabilities.  They function solely to make a person who is otherwise not a principal guilty of the substantive crime as a deemed principal of the substantive crime. Stated otherwise, the sole function of Section 2 is to create deemed principal status for defendants who are not otherwise direct principals in the substantive crime under general principles of principal status.  See particularly my article.  Section 2 serves no other purpose than that.  Similarly, while not invoking the deemed principal construct of Section 2, Pinkerton serves the same function of making a person who does not commit the substantive crime guilty for the crime committed by a co-conspirator -- effectively a deemed principal status similar to aiding and abetting.

This is critically important because, where a defendant's conduct could make him directly liable for the substantive crime, deemed principal status under these derivative liability concepts is irrelevant and instructing the jury on it is likely to be more confusing than helpful.  In the trilogy of major tax shelter cases in SDNY, the conduct alleged would have made the defendants directly guilty of the crime of tax evasion.  That is to say that enablers other than the taxpayer can be directly guilty of the crime, regardless of whether or not the taxpayers were guilty of the crime.

Aiding and Abetting under Section 2(a).

Judge Pauley's only instruction mentioning aiding and abetting either by name or theory is the following from the very general introduction to the substantive charges (p. 28)::
Counts 2 through 11 charge the Defendants with aiding and abetting the evasion 18 of income tax obligations of various clients who engaged in tax shelter transactions.
Then, when drilling down on the specific instructions about the tax evasion charge, Judge Pauley does not mention the words aiding and abetting or the concepts those words incorporate.  I am not sure the general instruction would have given the jury the notion that it could convict by finding that the defendants were not guilty of the substantive crime but could be guilty as principals by aiding and abetting the taxpayers in the taxpayers' evasion or other defendants who were directly guilty of the substantive crime in the taxpayers' evasion.  So, as presented, except for this fleeting reference to aiding and abetting, I think the instructions as presented required the jury to find the defendants directly guilty of the crime of tax evasion (and not as deemed principals under 18 USC Section 2(a), aiding and abetting).

Causer Liability Under Section 2(b)

As in the prior trial, Judge Pauley did conflate the notions of direct substantive liability and causer liability.  He thus instructed (p. 51):\
However, you all must agree on the same affirmative act of evasion that the defendant in question committed in order to satisfy this element. In other words, it is not sufficient for you to agree that the defendant in question committed or caused to be committed some affirmative act of evasion without agreeing on the same affirmative act that he committed or caused to be committed. I have used the word “caused” when describing how a defendant may be found liable under the tax evasion statute. A defendant who willfully causes the doing of an act by another person, which if it were done by the defendant directly, would make the defendant guilty of a crime, may be punished as a principal, even if the act in question was committed by an entirely different person—here, the taxpayer client.   
Under this theory, the taxpayer’s intent is irrelevant, and it is thus does not matter whether the taxpayer himself lacked an intent to evade taxes. A defendant “causes” the relevant taxpayer to take some action if you find that the Government has proven beyond a reasonable doubt that the defendant willfully played a substantial part in bringing about or actually causing the action.
I have not gone back to compare this language to the prior instruction, but it does seem to capture the concept of causer liability.  I think the instruction is not a proper instruction.  Based on my research in the article cited and linked above, I came to the conclusion that causer liability did not apply to a situation where the defendant's conduct that could be the basis of causer liability made the defendant directly liable for the substantive crime.

Finally, I am not sure that theory is the right word to use to describe the legal concept of causer liability.  I think it would be better just to say that, under the law, the taxpayer's intent is irrelevant.  But, then, since I think causer liability is irrelevant where the facts alleged, if true, would make the defendant guilty directly as a principal of the substantive crime.  Indeed, as I argue in the article, causer liability was enacted to make a person a principal as a causer where the person could not be guilty of the substantive crime.  Thus, if only the taxpayer could be guilty of the crime of tax evasion and enablers could not, then causer liability would be relevant.  But that is not the case.

Pinkerton Liability

As in the prior case, Judge Pauley declined to instruct on Pinkerton liability.  See United States v. Pinkerton, 328 U.S. 640 (1946), here.


I could say a lot more about all of this, but I have already said it in the article cited and linked above.

The full set of Judge Pauley's instructions on retrial in Daugerdas is linked here.  I have bookmarked the instructions for easier navigation, but the bookmarks are apparently viewable only if you download the pdf file.

1 comment:

  1. My situation: we got a one fourth share of the proceeds from inherited (from grand mother and never in our name) real estate and that share was deposited into a non-compliant foreign account. Is my thinking correct that the total value of the real estate is not part of penalty base but only our bank account value is in penalty base? Thank you for your time. Regards.


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