K. Collateral Consequences of Plea Agreements and Allocutions.
Defense attorneys should always keep in mind that the criminal trial and particularly convictions can have collateral consequences to defendants. Most immediately in a tax setting, a conviction can be proof or, at least, evidence of fraud so as to open up tax years otherwise closed by the statute of limitations and support the 75% civil fraud penalty. I discuss elsewhere the collateral estoppel consequences of convictions for tax evasion. Other tax crimes – most prominently tax perjury, § 7206(1) – do not per se have such preclusive collateral estoppel effects. However, particularly in the plea agreement and in allocutions, there is some context for the bare, general count(s) of conviction. That context may offer specific admissions of fraud or conduct from which a fair inference of fraud can be made. If defense counsel wants to hold open the defendant’s opportunity to avoid civil fraud, the defense attorney must be careful to shape the admissions and other evidence to mitigate the risk of it being conclusive or persuasive as to fraud.In this blog, I discussed the damaging effect of allocutions in an earlier case, the now infamous Williams case holding the hapless J. Bryan Williams liable for the willful FBAR penalty. United States v. Williams, 489 Fed. Appx. 655 (4th Cir. 2012), here. As I said in my blog on Williams (Fourth Circuit Reverses Williams on Willfulness (Federal Tax Crimes Blog 7/20/12; revised 7/24/12), here).
13. The second aspect, which I think is inseparable from the first, is the particular plea allocution Williams made at his sentencing for the crime. Essentially, the majority reads the plea allocution as an admission of willfulness in failing to file the 2000 FBAR in question. The dissent reads the allocution differently, so we have a Clintonian situation as to the conclusion depending upon what the definition of is is. Then, of course, as noted by the dissent, questions of collateral and judicial estoppel may apply. I won't go into this further because, if indeed (as the majority read the tea leaves), the defendant admitted willfulness, then, of course, the district court was wrong in finding that the Government had not proved willfulness.The majority opinion in Williams said this about the allocution (two footnotes omitted):
In June 2003, Williams pled guilty to a two-count superseding criminal information, which charged him with conspiracy to defraud the IRS, in violation of 18 U.S.C. § 371, and criminal tax evasion, in violation of 26 U.S.C. § 7201, in connection with the funds held in the ALQI accounts from 1993 through 2000. As part of the plea, Williams agreed to allocute to all of the essential elements of the charged crimes, including that he unlawfully, willfully, and knowingly evaded taxes by filing false and fraudulent tax returns on which he failed to disclose his interest in the ALQI accounts. In exchange for his allocution, Williams received a three-level reduction under the Sentencing Guidelines for acceptance of responsibility.
In his allocution, Williams admitted the following:
I knew that most of the funds deposited into the Alqi accounts and all the interest income were taxable income to me. However, the calendar year tax returns for '93 through 2000, I chose not to report the income to my — to the Internal Revenue Service in order to evade the substantial taxes owed thereon, until I filed my 2001 tax return.I also knew that I had the obligation to report to the IRS and/or the Department of the Treasury the existence of the Swiss accounts, but for the calendar year tax returns 1993 through 2000, I chose not to in order to assist in hiding my true income from the IRS and evade taxes thereon, until I filed my 2001 tax return.
. . . .
I knew what I was doing was wrong and unlawful. I, therefore, believe that I am guilty of evading the payment of taxes for the tax years 1993 through 2000. I also believe that I acted in concert with others to create a mechanism, the Alqi accounts, [**7] which I intended to allow me to escape detection by the IRS. Therefore, I am — I believe that I'm guilty of conspiring with the people would (sic) whom I dealt regarding the Alqi accounts to defraud the United States of taxes which I owed.
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fn 5 * * * As Williams admitted in his allocution, his decision not to report the accounts was part of his tax evasion scheme that continued until he filed his 2001 tax return. Thus, his failure to disclose information about the ALQI accounts on his 2000 tax return in May 2001 was motivated by his desire not to admit his interest in the accounts, even after authorities had been aware of them for over six months. Rarely does a person who knows he is under investigation by the Government immediately disclose his wrongdoing because he is not sure how much the Government knows about his role in that wrongdoing. Thus, without question, when Williams filed in May of 2001, he was clearly motivated not to admit his interest in the ALQI accounts.
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Williams's guilty plea allocution further confirms that his violation of § 5314 was willful. During that allocution, Williams acknowledged that he willfully failed to report the existence of the ALQI accounts to the IRS or Department of the Treasury as part of his larger scheme of tax evasion. This failure to report the ALQI accounts is an admission of violating § 5314, because a taxpayer complies with § 5314 by filing an FBAR with the Department of the Treasury. In light of his allocution, Williams cannot now claim that he was unaware of, inadvertently ignored, or otherwise lacked the motivation to willfully disregard the FBAR reporting requirement.So, the guilty plea allocution was a key part of the Fourth Circuit's holding in Williams. (This aspect of Williams has perhaps not received as much attention as it should have.)
The Sixth Circuit recently spoke on the preclusive effects of guilty pleas. In Mirando v. United States Dept. of Treasury, ___ F.3d ___, 2014 FED App. 0227P (6th Cir. 2014), here. (For my blog entry on the trial level decision, see Taxpayer Judicially Estopped from Refund For Taxes Admitted in Plea Agreement (Federal Tax Crimes Blog 9/25/13), here.) In that case, the Sixth Circuit affirmed a dismissal of a refund suit based upon the taxpayer's prior guilty plea and allocution. The dismissal was based on judicial estoppel. The defendant pled guilty of tax evasion and a defraud / Klein conspiracy. The plea of guilty to evasion is, of course, preclusive of the issue of the taxpayer's fraud. But, in the refund suit, the taxpayer was contesting the amount of the restitution for tax and resulting payment of the tax.
In the guilty plea agreement, the taxpayer agreed:
As of June 29, 2007, the total tax liability, including interest and penalties, amounted to $448,776.13.
 From the time MIRANDO realized that he was under investigation for the matters leading to his 2001 conviction and continuing until the present, MIRANDO took measures to evade the payment of his outstanding tax liability and to hide assets. His many measures included, but are not limited to, arranging a sham divorce from his wife, submitting false statements to the IRS Collection Department and the United States Probation Office regarding his income, assets and living arrangements, among other things, and assisting his college-age children in submitting false financial information in order to receive need-based financial aid.
 At all times relevant, MIRANDO made all decisions regarding the Mirando family finances and contemporaneously took affirmative steps to understate his income and assets to the IRS in order to evade the payment of his tax liability when he indeed has access to the resources to pay the assessed tax debt that is due and owing.The taxpayer paid the restitution / tax, filed claim for refund and sued for refund. The Court's discussion of the legal landscape for applying the doctrine of judicial estoppel is:
The doctrine of judicial estoppel prevents a party who successfully assumed one position in a prior legal proceeding from assuming a contrary position in a later proceeding. New Hampshire, 532 U.S. at 749. "Judicial estoppel is an equitable doctrine that preserves the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship, achieving success on one position, then arguing the opposite to suit an exigency of the moment." Lorillard Tobacco, 546 F.3d at 757 (internal quotation marks and citation omitted).
Although the Supreme Court has noted that the "circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle," three factors may typically be used to help a court decide whether it applies:
First, a party's later position must be clearly inconsistent with its earlier position. Second, [we] regularly inquire whether the party has succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled . . . . A third consideration is whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.
New Hampshire, 532 U.S. at 750-51 (internal quotation marks and citations omitted). "[B]ecause the doctrine precludes a contradictory position without examining the truth of either statement," we must apply it "with caution to avoid impinging on the truth-seeking function of the court." Lorillard Tobacco, 546 F.3d at 757.The Court then found that these elements were present to prevent the defendant from contesting the amount agreed in the plea agreement.
As I have noted, it is critical that, early on (as early as the inception of the criminal investigation), a forensic accountant be engaged to work to develop the real tax loss (actually, there are 3 different numbers -- the criminal figure which the is evaded tax required to prove guilt of evasion, the tax loss which is the tax loss for Sentencing purposes, and the ultimate civil tax deficiency). I have found that the prosecution will work with the defendant's team to get the right tax number (usually, for plea purposes, either the criminal tax loss number or the Sentencing Guideline tax loss number, although in some cases the real civil tax deficiency). If the defense has a good argument to reduce the agreed tax loss, the prosecutor usually will easily agree to get the plea. Apparently, in Mirando, the prosecutor and the defense were not aware at the time of sentencing that there might be some lower number and agreed to the higher number that defendant now seeks to attack in a refund suit. But, once memorialized in a plea agreement, it is too late. (I set aside from this analysis of whether the refund suit could be granted at all without relief from the restitution award, and note that the changes in later years; Readers should also note that, in view of subsequent statutory amendments allowing immediate assessment of restitution for tax, the taxpayer is precluded from contesting the amount of restitution).
- More on the Relationship Between Tax Liability and Tax Restitution Assessed as a Tax (Federal Tax Crimes Blog 10/25/13), here.
- What Can Be Done If Tax Restitution Exceeds the Tax Due (Federal Tax Crimes Blog 9/2/13), here.
- Tax Restitution and Doubt As to Amount (Federal Tax Crimes Blog 7/10/13), here.
- New Statute for Civil Effect of Restitution in Tax Cases (Federal Tax Crimes Blog 2/11/11), here.