Saturday, August 1, 2015

DOJ and Court of Appeals Confuse Causer Liability under 18 USC § 287 (8/1/15)

In United States v. Johnson, 795 F.3d 840 (8th Cir. 2015), here, fourteen persons were indicted for tax refund fraud related to the Original Issue Discount fraudulent scheme promoted around the country (by those persons and others).  Basically, there were promoters, franchise-type sub-level promoters (called branch managers or affiliates, but serving as return preparers for purposes of this discussion) and taxpayers.  Each in their respective roles would would claim that the taxpayer had OID income (a type of cash-less income) but further claimed that a very high percentage of the cash-less income had been withheld and paid to the IRS.  Although, the taxpayers had phony tax to pay on the phony OID income, the phony over withholding would indicate that the IRS owed the taxpayers a substantial refund.  In many cases, the IRS paid the phony refund claim.

The fourteen persons were indicted for their respective roles in the scheme.  This trial in this case involved only two -- a preparer and a taxpayer.  (The case does not say what happened to the other 12, but I suspect they pled or, perhaps, one or more died which would moot their cases.)  I focus here on the preparer -- Johnson -- who prepared OID returns for taxpayers to sign. "The jury convicted Johnson on one count of making a false claim, and acquitted her on four other substantive counts and on conspiracy to commit tax fraud."

So, her sole count of conviction was making a false claim under 18 USC § 287, here. The crime is
18 U.S. Code § 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.
Johnson, the preparer, first claimed that the taxpayer in the single count of conviction signed the return / claim and therefore was the only culpable person.  The argument was a "but for" argument -- but for the taxpayer's fraud, the crime would not have been committed and therefore the preparer is not guilty.  The Government had apparently charged Johnson under "causer" liability in 18 USC § 2(b), here.  The Court agreed as follows:
The government prosecuted Johnson on a theory that she caused Fine-Kennedy to take an act that would have been an offense if performed by Johnson herself. See 18 U.S.C. § 2(b). The offense of making a false claim upon the United States required proof that a person made or presented a claim to the Internal Revenue Service, knowing that the claim was false, fictitious, or fraudulent. 18 U.S.C. § 287; see United States v. Miller, 728 F.3d 768, 774 (8th Cir. 2013). In this case, the jury was instructed that the government must prove that "Johnson caused to be made to the Internal Revenue Service a claim for a tax refund." The instructions explained that "[a] person makes a claim against the Internal Revenue Service when she files or submits, or causes to be filed or submitted, a tax return requesting a refund of withheld income tax, either for herself or for other persons." 
That Fine-Kennedy physically mailed the return and also knew about the fraudulent scheme does not preclude a finding that Johnson caused the filing. Johnson admitted that Fine-Kennedy was her client and that she prepared Fine-Kennedy's fraudulent tax return. Johnson accepted payment from Fine-Kennedy for the completion of her fraudulent tax return. Johnson knew that Fine-Kennedy would submit the return to the government for a refund. Even though Fine-Kennedy ultimately submitted the false return to the IRS, the jury could still find that Johnson caused the submission of a false statement through an intermediary. United States v. Hebeka, 89 F.3d 279, 283-84 (6th Cir. 1996); United States v. Blecker, 657 F.2d 629, 631-34 (4th Cir. 1981). Fine-Kennedy's act of submitting the return to the government "was clearly understood and foreseen" by Johnson when she prepared the false return, and a reasonable jury thus could find that Johnson "caused" the return to be presented within the meaning of § 2(b). See United States v. Murph, 707 F.2d 895, 896 (6th Cir. 1983) (per curiam).
I think the Court got that wrong as presented.  In the context of a false return making a false claim prosecutable under § 287, the taxpayer can be either guilty of the crime or innocent of the crime (because lacking the requisite mens rea).  This is a critical distinction because it determines the criminal statutes under which a preparer may be charged.  If the taxpayer has the requisite mens rea and commits the actus reus (signing and filing the false return), then the preparer assisting in that crime is an aider and abettor under 18 USC § 2(a).  The preparer is not a causer of the crime.  The taxpayer caused the crime and the preparer aided and abetted the taxpayer in committing the crime.

If, however, the taxpayer did not commit the crime (i.e., signed and submitted the false return but without the mens rea to commit the crime), the preparer preparing the false return is then not an aider and abettor under § 2(a) but is instead a causer under § 2(b).  In other words, for guilt under § 2(b) the "causer" must cause an innocent party to commit the physical acts (actus reus) of the crime.  I have developed these arguments in an article:  Townsend, John A., Theories of Criminal Liability for Tax Evasion (May 15, 2012). Available at SSRN: or I also addressed the issue in some blogs, the principal ones are:  Even More on Principals, Accomplices, Causers and Pinkerton Conspirators - the Daugerdas Case (Federal Tax Crimes Blog 5/10/11), here; and Daugerdas Retrial Jury Instructions - Part 07 Tax Evasion Instructions Part 2 Tax Evasion and Conspiracy to Commit Tax Evasion - Derivative Liabilities (Federal Tax Crimes Blog 11/25/13), here.

Just for completeness, as noted in the materials I link above, there are some crimes that the Government attempts to bootstrap with causer liability.  For example, tax evasion under § 7201 is not limited to the taxpayer (as is 18 USC § 287).  An enabler such as a preparer can be directly liable for tax evasion without any derivative liability through either part of 18 USC § 2.  The derivative liability provisions are designed to convict someone -- treat them as a principal -- when the person is not otherwise directly guilty of the crime.

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