Tuesday, April 5, 2016

Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (4/5/16; 4/6/16)

Note:  I ran out of time and so could not complete the blog.  I will probably add some more discussion later, but the discussion as now presented will not be materially revised.  I may also post some links to the cases which have not already been linked below.

Today, I start a series of blogs directed to students and new practitioners to analyze the indictment of former Tax Court Judge Kroupa and her husband.  I discussed the US Attorney press release for her indictment yesterday.  Former US Tax Court Judge Kroupa Indicted (Federal Tax Crimes Blog 4/4/16), here. I think that a course on Tax Crimes could be taught around the indictment, with some detours along the way.  But, I will try to restrain myself in these blogs and just hit some parts that I think might be interesting to students and new practitioners.

The Kroupa indictment is here.

The Kroupa indictment charges a number of counts for statutorily distinct crimes.  The overall pattern of conduct alleged is that the couple cheated on their taxes.  But, as to any pattern of criminal conduct, there are many federal crimes that can be charged.  For example, mail is almost always involved in a tax crime which would permit a wire fraud charge.  The mail fraud statute is 18 USC §1341, here. For run of the mill tax crimes (such as in this case), DOJ Tax will not authorize a wire fraud charge.  But it could have, and the grand jury surely would have indicted.

DOJ Tax did authorize and the grand jury charged the following counts:

Defraud/Klein Conspiracy, 18 USC § 371, here, a five year felony - 1 count
Tax evasion, § 7201, here, a five year felony - 2 counts
Tax Perjury, § 7206(1), here, a three year felony - 2 counts
Tax Obstruction, §7212, here, a three year felony - 1 count

Now, if the defendants are convicted on all counts, the concept of stacking means that the maximum incarceration period they could be sentenced is 24 years.  But, they will not be sentenced to that maximum period because the sentencing will be governed by the Sentencing Guidelines and the Court's Booker discretion (United States v. Booker, 543 U.S. 220  (2005)), which will certainly be far less than 24 years and likely will be less than 5 years and probably 3 years or less.  So, from this perspective, why bring all the counts.  I plan to offer later in the series on the Kroupa indictment some discussion of how the Sentencing Guidelines will come into play.

Now, back to the indictment.

Paragraphs 1 - 4 of the indictment provide introductory background.  Kroupa's status as a Tax Court judge is alleged to support that she had knowledge of the law.  For most tax crimes in Title 26 (IRC), willfullness is an element of the crime.  Willfulness is the intent to violated a known legal duty.  Cheek v. United States, 498 U.S. 192 (1991).  Ignorance of the law is an excuse.  See also Bryan v. United States, 524 U.S. 184, 195 (1998).  The introductory allegations about Kroupa are fairly straightforward -- she was a Tax Court judge and she resigned.  (See ¶ 3 of the indictment.)  Her tax background which seems to be extensive (see Wikipedia entry, here, even though perhaps not the strongest for a Tax Court judge) is not alleged, but probably will be introduced at trial (if there is a trial).

Further on willfulness, some of the crimes charged in the indictment do not have a specific willfulness textual element.  Specifically, the indictment charges the defraud/Klein conspiracy, 18 USC § 371 and tax obstruction, § 7212(a).  Neither have a specific textual requirement that the defendant act willfully.  I will discuss that issue in discussing each of the crimes, but I will state now that I believe that each of those crimes have textual elements that as interpreted and applied in tax crimes cases are basically the same as willfulness.  There is a lot behind that statement and I just don't have time to develop it here.

COUNT 1 (Conspiracy to Defraud the United States) 18 U.S.C. § 371.

On the detailed allegations in the Introduction and in Count One, Kroupa and her husband (¶ 6 of the indictment):
unlawfully, knowingly, voluntarily, and intentionally combine, conspire, confederate, and agree with each other to defraud the United States for the purpose of impeding, impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service of the United States Department of the Treasury in the ascertainment, computation, assessment, and collection of revenue, particularly by impairing and obstructing the ascertainment and computation of taxes.
This charge in the above paragraph is the defraud/Klein conspiracy.  Klein conspiracy is a term of art referring to a defraud conspiracy in a tax setting.  See United States v. Klein, 247 F.2d 908 (2d Cir. 1957), cert. denied 355 U.S. 924 (1958).  All practitioners should know the term of art, so that when a judge or colleague says the words "Klein conspiracy," the practitioners know what it means.  The statute, 18 USC § 371, criminalizes two types of conspiracy -- a conspiracy to commit an offense (such as tax evasion) and a conspiracy to defraud (as applied in tax cases, a conspiracy to impair or impede the lawful functioning of the IRS as alleged in the indictment ¶ 6).  This indictment does not allege the offense conspiracy although, based on all the allegations in the indictment, it probably could have.  (Indeed, ¶ 7 does seem to make a pass at an offense conspiracy by alleging "The purpose of the conspiracy was to evade unlawfully FACKLER and KROUPA's tax obligations," but ¶ 6 seems to be the key charge for the Count; if they meant to allege an offense conspiracy in addition to the defraud/Klein conspiracy, that is an odd way to do it; for a more traditional way to charge both types of conspiracy, see the Stein indictment here, at ¶ 72, alleging both in the opening paragraph for the count.)  Charging both the offense conspiracy and the Klein conspiracy can sometimes muddy up the water, particularly if charged in the same count, in charging the jury.  (For example, the offense conspiracy to commit tax evasion requires proof of willfulness for the offense conspiracy because it imports that requirement from the offense that is the object of the conspiracy, whereas there is not similar importation of the willfulness element for the Klein conspiracy.

The Klein conspiracy is an obstruction crime -- a conspiracy to impair or impede the lawful function of the IRS.  See generally John A. Townsend, Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?, 9 HOUS. BUS. & TAX L.J. 260 (2009) Article available here; Appendix to article available here.  It may be viewed as essentially the tax obstruction crime in § 7212(a), but with multiple parties; conversely, the tax obstruction crime in § 7212(a) may be viewed as a one person conspiracy, as DOJ Tax in a former version of the Criminal Tax Manual described it.  My article goes into this and related issues in considerable detail, so I will move on for purposes of this blog entry.

I do alert practitioners, as I develop in detail in my article, that the Klein conspiracy and its counterpart, tax obstruction under § 7212(a), as interpreted and applied, do not actually require an intent to defraud, as the word defraud is almost always used in the federal criminal laws.  The actual text of § 371 states the crime as a conspiracy "to defraud the United States, or any agency."  The statutory term "defraud" normally means something more than simply impairing or impeding the lawful function of the Government agency, but the Supreme Court interpreted the word defraud in the conspiracy statute beyond its normal meaning.  Defraud usually means taking something of value through fraud.  That is the meaning in the common law and in most federal criminal statutes.  But the word as interpreted in the conspiracy statute seems to apply simply through obstructive acts without an intent to defraud in the traditional sense.  This too is a big issue for this blog entry, so I just refer readers to United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), here, cert. denied, to my article above, and to Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.  For those having access to the Saltzman Treatise (either hardcopy or online), I discuss this issue in ¶ 12.03[1][c][iii][B] Defraud/Klein conspiracy.  The bottom line is that, as interpreted in expansive language used by the courts, the defraud conspiracy is amorphous and dangerous.  (As an aside, I represented one of the defendants in an early tax shelter criminal prosecution where the defraud/Klien conspiracy was alleged along with other charges that had a willfulness element; I that the Government would not be able to prove willfulness but the amorphous nature of the defraud/Klein conspiracy charge concerned me; fortunately, my the charges against client and 12 others were dismissed because of Government abuse.  See  United States v. Stein, 541 F.3d 130 (2d Cir. 2008), here.)

Every case where husband and wife alleged cheat on the tax return probably could support a conspiracy charge.  I have not done empirical research on this, but I don't think the Government usually charges a conspiracy in at least some, perhaps most, of husband and wife tax cheating.  The extent of the actions as alleged in the Kroupa indictment may have precipitated the conspiracy charge, although it seems clear that, had conspiracy not been charged, convictions on the other counts would vindicate any legitimate prosecutorial interest the Government had.

Finally, just a note of other concern about the conspiracy charge.  As I note in the Saltzman treatise (¶ 12.03[1][c][i][A] The dangers in conspiracy charges., at fn 232):
In United States v. Reynolds, 919 F2d 435, 439 (7th Cir. 1990) [a tax crimes case], Judge Easterbrook lamented that the conspiracy add-ons are “inevitable because prosecutors seem to have conspiracy on their word processors as Count I; rare is the case omitting such a charge.” See also Brickey, “In Enron's Wake: Corporate Executives on Trial,” 96 J. Crim. L. & Criminology 397, 401, and 420–423 (2006) (empirical research that in federal corporate crime cases during the period 2002 through 2006, over two-thirds of the cases had multiple defendants and all of those had at least one conspiracy count).
And, as I also note, conspiracy charges are fraught with dangers for a defendant (from ¶ 12.03[1][c][i][A] The dangers in conspiracy charges. (footnotes omitted)):
Conspiracy charges are frequent charges accompanying traditional tax crimes to permit the government to increase its chances of obtaining a conviction. The conspiracy concept is “elastic, sprawling, and pervasive offense,” and “so vague that it almost defies definition.” The mere allegation of a “conspiracy” has a sinister connotation. The law treats a conspiracy as a serious criminal act independent of any offense that might be the object of the conspiracy. Herding a gaggle of defendants into a single case with an overarching conspiracy charge may make it difficult for the jury to consider independently the guilt or innocence of each defendant and invite a finding of guilt by association. Conspiracy cases tend to be more complex as the government mounts extensive evidence, sometime tenuous, to connect the dots — real or imagined — among the alleged conspirators, particularly, for example, in allegedly large conspiracies such as those involving widely-promoted large tax shelters. The government can obtain convictions for substantive crimes committed by co-conspirators within the scope of the conspiracy. The government can admit in the trial statements of co-conspirators that would otherwise be inadmissible hearsay, obtains a relaxed standard of proof and relevancy, is able to toll or refresh the statute of limitations by actions of remote participants, and may obtain venue in remote judicial forums of the government's choosing. With all of these benefits and more, Judge Learned Hand long ago noted that conspiracy is “the darling of the modern prosecutor's nursery.” 
Not surprisingly, therefore, the government charges conspiracy often. The conspiracy count allegations are framed as a cascade of allegations telling a damning story. This contrasts with counts for the tax offenses, which are dry, sparse, boring, and usually not even flowered up for dramatic effect. The benefits for the government are great, and the downsides are few; after all, the prosecutors' life and liberty are not at stake. This means, of course, that the government's power to tack on conspiracy charges can be abused, particularly with a weapon as potent and elastic as conspiracy. The Supreme Court has cautioned as follows: 
We agree that indictments under the broad language of the general conspiracy statute must be scrutinized carefully as to each of the charged defendants because of the possibility, inherent in a criminal conspiracy charge, that its wide net may ensnare the innocent as well as the culpable.
I have now run out of time and will probably add some more on the conspiracy charge later this week.  I will be traveling all day tomorrow.

Addendum 4/6/16 5:00am:

The language of the defraud / Klein conspiracy charge in the indictment is very interesting.  Here it is (bold face supplied by JAT):
[The defendants] did unlawfully, knowingly, voluntarily, and intentionally combine, conspire, confederate, and agree with each other to defraud the United States for the purpose of impeding, impairing, obstructing, and defeating the lawful functions of the Internal Revenue Service of the United States Department of the Treasury in the ascertainment, computation, assessment, and collection of revenue, particularly by impairing and obstructing the ascertainment and computation of taxes.
The Stein indictment linked above contains similar language.  And my poking around on the web indicates that that this is a common formula.

The statute (18 USC 371), however, is much leaner:
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, * * * 
So, why would it be necessary to allege anything other than that the defendants conspired to achieve the object of defrauding.  What is that business of "combine,  * * *, confederate and agree" in addition to "conspire."  Do those extra words add anything?  If the extra words are redundant, then they are not needed.  If they are not redundant, but add something not covered by the statutory word "conspire," then they improperly expand the statute (note that the conjunctive is used so that the meaning all of these words must be present as written).

Generally charging documents (such as an indictment) charge in the language of the statute and the additional words do not appear in the staute but conspire does.  See USAM 225. Charging in the Language of the Statute, here.  To be sure the defraud conspiracy requires a lot of factual detail about the conduct.  DOJ CTM 23.07[1][c] Scope of Defraud Clause, here, provides after noting the courts' concern about the potential scope and abuse of charging a defraud conspiracy :
Thus, the courts have held that when the government proceeds under the conspiracy to defraud clause, it must plead the "essential nature" of the alleged fraudulent scheme. See, e.g., United States v. Helmsley, 941 F.2d 71, 90-91 (2d Cir. 1991). It is not sufficient for the indictment to simply reallege the language in the statute; rather, it must allege the fraudulent scheme in its particulars. United States v. Rosenblatt, 554 F.2d 36, 41 (2d Cir. 1977). This means that a defraud clause indictment should include (1) the name of the agency impeded, (2) the functions of the agency that were impeded; (3) the means used to impede the agency; and (4) the identities of those charged with impeding the agency. United States v. Mohney, 949 F.2d 899, 904 (6th Cir. 1991).
But, in my mind, that does not require that the charging document use other words for the statutorily required "conspire."  And, at least one of the words -- confederate -- not found in the statute seem to me to be charged words -- making the charge appear more sinister than if only the statutory word conspire were used.  Stated another way, if the prosecutor did not think he would have some advantage over using just the statutory word, the prosecutor would not put the extra nonstatutory words in the charging document.

Now, let's look at the jury charge instructions.  I have not surveyed all the pattern just instructions for conspiracy, but have looked at the Fifth Circuit Pattern Jury Instructions, here, 2.15A (Offense Conspiracy) and 2.15B (Defraud / Klein Conspiracy) and the DOJ Tax CTM, here,  No. 18.371-1 and 18.371-4, Conspiracy -- Existence of an Agreement.  None of these documents mention the word combine or confederate.  So, if the jury looks at the indictment, it might find itself a bit confused.

The discussion of the language of the charging document was revised on 4/6/16 6:41pm.

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