(a) A prisoner in custody under sentence of a court established by Act of Congress claiming the right to be released upon the ground that the sentence was imposed in violation of the Constitution or laws of the United States, or that the court was without jurisdiction to impose such sentence, or that the sentence was in excess of the maximum authorized by law, or is otherwise subject to collateral attack, may move the court which imposed the sentence to vacate, set aside or correct the sentence.A common claim in a § 2255 proceeding is that the prisoner's attorney rendered ineffective assistance of counsel at the criminal trial leading to incarceration.
James A. Simon, a person about whom I have devoted several blog entries during his trial and appeal, used § 2255 for such Monday morning quarterbacking on the basis of claimed ineffective assistance of counsel. Although mentioned in a number of blogs, prior to this blog, the last significant entry was Simon's Last Hurrah / Fizzle? (Federal Tax Crimes Blog 8/16/13), here. This blog discusses his most recent case, a § 2255 proceeding. United States v. Simon, 2016 U.S. Dist. LEXIS 86584 (ND IN 2016), here.
Prefatory to getting into the decision, I just state at the out set that I think it is a well-written and reasoned decision. The author is Robert L. Miller (Wikipedia entry here), who handled the trial and thus was uniquely situated to observe the effectiveness of defense counsel and the effect of any counsel errors on the outcome of the case. Plus, from my reading of the decisions he has written, particularly in the Simon trajectory through the end of the criminal trial, he seems to be a smart and good judge.
Now to dig into the details. The opinion is long, 51 pages. I cover only the highlights related to tax and FBAR in this blog entry. He was also convicted of mail fraud charges and made § 2255 claims for those convictions, but I do not address them here. He also made the claim about that the trial attorney erred in not having Simon testify at trial, a quintessential type of judgment call. I do not address that claim here.
I start out first with an excerpt where Judge Miller summarizes background:
Mr. Simon was a certified accountant, professor of accounting, and entrepreneur with interests in several businesses and entities. One of those ventures was JAS Partners, a domestic limited partnership in which Mr. Simon and his wife each had a one percent partnership stake and the Cook Islands-based Simon Family Trust owned the other 98 percent. Another of Mr. Simon's ventures was Elekta Ltd., a corporation chiefly owned by Mr. Simon's retired sisters but entrusted wholly to Mr. Simon's management. Elekta owned nineteen percent of a third venture that Mr. Simon managed, JS Elekta. JS Elekta in turn owned 75 percent of a fourth business, Ichua Company, also managed by Mr. Simon. Of those four businesses over which Mr. Simon had signature authority, three — Elekta, JS Elekta, and Ichua — were foreign entities possessing foreign bank accounts.
This case is about money that Mr. Simon paid to himself from those four entities and from another domestic venture, William R. Simon Farms. Between 2003 and 2006, Mr. Simon (or his immediate family members) received about $1.8 million combined from the businesses, which Mr. Simon spent on personal and family expenses and recorded as loans in his personal financial records. No promissory notes existed for these purported loans, and Mr. Simon paid no interest to the companies that made them. He repaid a small portion of the principal to JAS Partners after becoming aware of the government's investigation into his finances. He reported none of this money as income on his tax returns. In 2005 Mr. Simon paid less than $400 in taxes, and in each of the other three years between 2003 and 2006 he paid no taxes at all and claimed a refund. None of the tax returns disclosed that Mr. Simon had interests in or control over foreign bank accounts. Mr. Simon prepared and filed these tax returns himself.
During these years, Mr. Simon filled out need-based financial aid applications for the private schools his children attended. On these applications, he reported that he had no or very little income, suffered large debts or losses, spent no money on clubs or vacations, had only a few thousand dollars of assets, was in a precarious financial situation due to business failures and litigation, and had enough money to keep him "afloat but barely." These representations were all false: Mr. Simon had the payments from his businesses, spent lavishly on several expensive club memberships, and could afford vacations to Europe and Disney World in addition to a comfortable lifestyle for himself and his family. Based solely on these applications and the tax forms Mr. Simon submitted, the schools gave the Simon family a total of $120,000 in need-based financial aid. Mr. Simon also filled out federal "FAFSA" financial aid applications for one of his daughters to attend college. As he did on his private financial aid applications, Mr. Simon reported minimal gross income and assets on the FAFSA application.
In November 2007, IRS agents searched Mr. Simon's house pursuant to a warrant. Mr. Simon hired attorneys soon after that and began preparing a defense to possible charges. His attorneys hired a team of investigators and conducted their own investigation into Mr. Simon's finances, including interviewing the people already interviewed by government agents. Mr. Simon's defense team also met with prosecutors to discuss the probable charges, to guide their planning of colorable defenses.
In April 2010, Mr. Simon was charged in a 23-count indictment. Counts 1-4 alleged that Mr. Simon filed false tax returns for the years 2003-2006. The tax returns were allegedly false in that they underreported income, and in that they didn't check the "yes" box of Line 7a on Schedule B to IRS Form 1040. The question associated with Line 7a asked whether Mr. Simon had any interest in or authority over foreign accounts. Counts 5-8 charged Mr. Simon with failing to file forms called Reports of Foreign Bank and Financial Account, or "FBARs," for the years 2004-2007. FBARs concern foreign financial accounts, and a person is required to file them if he or she has an interest in or signature authority over foreign accounts worth more than $10,000. Counts 9-19 charged Mr. Simon with mail fraud related to the need-based financial aid applications he made to the private schools his children attended. Those counts alleged that Mr. Simon underreported his income on the forms, and that the tax returns he attached were fraudulent for the same reasons as alleged in counts 1-4. Counts 20-23 charged Mr. Simon with federal financial aid fraud based on the FAFSA forms he filled out on his daughter's behalf. The FAFSA application required Mr. Simon to include information from his tax returns; if the tax returns were false (as alleged in counts 1-4), the aid applications were fraudulent as well.
At trial, Mr. Simon's defense to the tax fraud counts was generally that the $1.8 million he received from his business entities wasn't taxable income. He primarily characterized the money as funds loaned to him legitimately by his businesses, and which he intended to pay back. He suggested in the alternative that the payments could be considered nontaxable partnership distributions rather than taxable income. With regard to not checking the "yes" box on the part of Schedule B of his tax returns asking whether he had interest in or control over any foreign bank accounts, Mr. Simon's defense was that he used TurboTax software to automatically fill out his tax forms. Based on how he answered the program's questions, the program didn't ask him anything about foreign accounts. His defense as to the FBAR reporting requirements was that the requirements were confusing, and in any case filing or not filing them had no effect on tax liability so there would be no reason for him to intentionally conceal his control over the foreign accounts. With regard to the mail fraud and financial aid fraud counts, Mr. Simon's defense was that if the jury accepted his explanations on the tax and FBAR issues — that the money wasn't taxable income and he didn't think he had to file the FBARS — then none of the statements on the financial aid applications were false. In addition, for the private financial aid applications, even if his statements about his income and assets were false they weren't materially so; because his children were high-performing academically, the schools wanted them to attend and essentially made price concessions on tuition. He argued that the schools themselves had instructed him to just estimate the information on the forms, because the answers wouldn't really affect the amount of tuition his family would have to pay.
After a six-day trial, the jury mostly rejected these explanations. The jury found Mr. Simon not guilty of three of the mail fraud counts but guilty as to the other twenty counts in the indictment. The court sentenced Mr. Simon to an aggregate term of 72 months imprisonment and an aggregate term of 3 years of supervised release. n1 The court of appeals affirmed the conviction in all respects, and Mr. Simon timely filed this motion to vacate under § 2255.Judge Miller than states the conditions for relief under § 2255 -- relief "only if he can show a fundamental defect which inherently results in a complete miscarriage of justice." (Internal quotes omitted.) For the ineffective assistance of counsel claim, the prisoner must show that (i) the attorney's performance fell well below an objective standard of reasonableness and (ii) that there is a reasonable probability that, but for the attorney's errors, the proceeding would have been different. Strickland v. Washington, 466 U.S. 668, 688-693 (1984). These are referred to as the Strickland requirements.
n1 Mr. Simon notified the court that he anticipated being released to home confinement on June 1, 2016 and so may no longer be in custody. Nonetheless, he has notified [*8] the court that he intends to pursue relief under § 2255 despite his release, and he is entitled to do so because he was in custody when he filed his petition. See Virsnieks v. Smith, 521 F.3d 707, 717-718 (7th Cir. 2008).
Focusing on the first Strickland element, the the performance prong, Judge Miller said that the attorney's performance is presumed effective and the court must be "highly deferential to eliminate as much as possible the distorting effects of hindsight."
Focusing on the second Strickland element, Judge Miller said (quotation marks and citations omitted) that the prisoner must show a probability of a different outcome sufficient to undermine the confidence in the outcome. Mere trial errors will not suffice.
Judge Miller provides an excellent background nuanced presentation of the requirements for these Strickland elements, so I refer readers to that background. Now, turning to the items I will discuss, I use the captions used in the opinion for the portions that I discuss.
A. Ineffectiveness related to Mr. Simon's proposed willfulness-based defense
Judge Miller turns first to an alleged error his alleges his attorneys made with respect to what Judge Miller calls the "tax fraud counts." Actually, tax fraud is not the correct term for the counts of conviction to which this claim is made. Simon was convicted of tax perjury, § 7206(1), here, which requires simply making false statements on a return filed under penalty of perjury. There is no requirement of tax due and owing and hence, in the absence of such a monetary element, the crime does not involve fraud. It is a type of perjury -- a false statement made under oath. Tax fraud is the word sometimes used for tax evasion, § 7201, here, which does have an element of tax due and owing -- the taxpayer attempted to defraud the Government of the tax. Simon was not convicted of tax evasion, but instead of lying on his returns filed under penalties of perjury. The lies the Government claimed was treaty payments from the businesses as nontaxable loans and not checking yes to the Schedule B foreign account question. So, focusing on the characterization of the payments as loans rather that some other taxable or nontaxable payment, the Government's case would be made if it could show that the payments were not loans, regardless of whether the payments were not taxable under some other basis. This may sound like a quibble, but it helps explain Simon's first claim.
In the returns and supporting contemporaneous documents, Simon had characterized the payments as loans from the businesses. The Government claimed in the trial in chief that the evidence showed that the payments were not loans and that Simon had acted willfully in so characterizing them in the returns. Simon asserted a defense that the payments were loans, but anticipating the possibility of a loss on that issue, made an argument that he nevertheless acted in good faith to so treat them as loans. If he had acted in good faith, then he would not have acted willfully, an element of the tax perjury offense. The good faith that he attempted to assert was based on a claim that, if the payments were not loans (as he had characterized them), then they were still not taxable because they nontaxable return of basis from a partnership or recompense for advances Simon made for the businesses making the payments. Now, tax crimes fans will recognize that that defense seems to be directed to a tax evasion claim -- specifically the tax due and owing element of the offense. But, as I noted above, tax evasion was not charged here. Rather, it was tax perjury as to the return reporting position that the payments were loans. The claimed good faith defense was more subtle as to the tax perjury claim. It was that, given the nontaxability of the payments (or at least not clear taxability of the payments), Simon had no reason -- motive -- to lie about the loan characterization and thus did not act willfully in doing so. Simon's attorney had tried to launch that claim initially through an expert witness whose testimony Judge Miller excluded in the case in chief. Simon's attorney then attempted to seize the day through a requested good faith instruction to the jury which Judge Miller rejected because the request had not been timely made. And, as Judge Miller found in the current opinion, in any event, there was not sufficient objective evidence as to the claimed nontaxability for other reasons to support the good faith defense instruction. Judge Miller reasoned:
That Mr. Simon's counsel wound up on the wrong side of an evidentiary ruling doesn't mean that they made a fundamental legal error that prevented Mr. Simon from mounting a full and reasonable defense. Counsel doesn't act deficiently simply by pushing the envelope. There is an obvious strategic logic in at least trying to admit favorable but likely inadmissible evidence, or proposing favorable but likely improper jury instructions; if successful such efforts might secure the defendant an unreviewable acquittal, and if unsuccessful there's no real cost to the defendant. Mr. Simon is certainly correct that there is never a valid strategic reason to submit untimely jury instructions as opposed to timely ones, but his argument that this mistake made his trial unfair presupposes that there was any legally valid way to present his chosen defense to the jury. In fact, there was not. The court wouldn't have permitted Mr. Simon's preferred good-faith defense to be presented to the jury even if his attorneys had submitted timely and correct jury instructions, because the defense Mr. Simon wanted to raise would have been wholly speculative given the evidence at trial. Even if his attorneys made a mistake by submitting jury instructions too late, this error couldn't possibly have prejudiced Mr. Simon because the instructions would have been rejected even if timely.JAT Comment: It seems to me that implicit in Simon's claim in the § 2255 proceeding is that his attorneys did not introduce enough evidence to support a good faith defense so that, had the attorney timely requested the instruction, the request would have been granted. As I have noted before, a party is not entitled to a specific good faith instruction unless there is evidence to support it. Otherwise, the general willfulness instruction will suffice to tell the jury that it can only find willfulness if good faith does not exist, but to be "entitled" to a specific good faith instruction in addition to the willfulness instruction it is the defense's job to make sure the record supports it. (And, as I have noted before, even in the presence of such evidence, a court's refusal to give a properly requested good faith instruction will usually not be considered reversible error on appeal because the general willfulness instruction will suffice to instruct the jury as to the concept.) But Judge Miller found here that there was not sufficient evidence in the record to support the good faith jury instruction.
Moreover, Judge Miller found, in any event, the tax perjury charge alleged two falsehoods -- one related to the characterization of the payments and the second related to his answer (apparently a nonanswer) to the Schedule B foreign account question. The jury convicted of separate FBAR counts for three years meaning that, necessarily, Simon had falsely failed to answer the Schedule B foreign account question for those years, thus making the returns false for purposes of the tax perjury statute. (JAT comment: From the wording of the opinion, it appears that Simon may not have actuallly answered that question "no;" rather he may have had not answered the question at all which Judge Miller assumed made the return false; and it is perhaps even more subtle than that, because the returns apparently did not include Schedule B at all, since the Schedule B instructions generally require a Schedule B only if there is in excess of $1,500 income but require one in any event if the question regarding foreign accounts is supposed to be yes, then the failure to include the Schedule B may have been; see more on this below.)
C. Ineffective assistance related to the Schedule B filing requirements
As noted, one of the Government's tax perjury claims was that the returns were false because the Schedule B foreign accounts question had not been answered yes. Since the question is not just about whether the taxpayer has foreign accounts but has foreign accounts exceeding, in the aggregate, $10,000, Simon claimed his attorneys were ineffective in not asking for jury instructions informing the jury that it had to find that the accounts exceeded $10,000 in each year. Alternately, Simon claims his attorneys should have asked to dismiss if there were no evidence to that effect for each year. But, Judge Miller found, the evidence did in fact show accounts in excess of $10,000 for three of the years and the instructions with that limit were introduced and referred to in closing argument. Hence, if there were attorney error in not specifically addressing that limit, it was harmless. Now, as to the final year in which there was no such evidence, the Government had dismissed the related FBAR count but for some unexplained reason, Simon's attorneys did not pursue the link to the tax perjury count for that year based, in part, on the allegedly false Schedule B foreign account answer. Judge Miller said, however, that this did not make the representation ineffective:
Still, the court agrees with the government that this error was a minor one in the context of the entire trial. No attorney is perfect, and the Sixth Amendment doesn't entitle Mr. Simon to a flawless defense. His attorneys vigorously put the government to its burden of proof on every charge, and mounted colorable defenses on every issue. That they missed a clear winning argument on an issue relating to one part of a single count in a complex 23-count trial doesn't mean they fell so far below professional standards of reasonableness that they weren't functioning as counsel within the meaning of the Sixth Amendment.
More importantly, Mr. Simon ignores that count 2 alleged two falsehoods on the tax return: checking "no" on Schedule B and underreporting income. Even had his attorneys noticed the $10,000 issue as to the 2004 Schedule B and successfully moved to dismiss, it wouldn't have resulted in dismissal of count 2 entirely because the allegations about income underreporting would survive. Mr. Simon could still be convicted on count 2 if the jury found that he underreported his income on his 2004 tax return. Mr. Simon's defense to the income underreporting for 2004 was exactly the same as his defense to the alleged underreporting in every other year: he argued that the money he received constituted loans and didn't need to be reported. The government's evidence was strong that the money Mr. Simon considered loans actually wasn't. And the jury convicted Mr. Simon on every other count that depended on his misrepresenting his financial status, so it would be somewhat bizarre for the jurors to decide the payments from the 2004 returns were legitimate untaxable loans but all the other purported loans in the case were fraudulent.
There simply isn't a reasonable probability that the jury would have acquitted Mr. Simon on count 2 even if his attorneys had succeeded in getting the Schedule B allegations to that count dismissed, because the jury would have found that Mr. Simon's 2004 tax return was false in underreporting his taxable income. Even if his attorneys provided ineffective assistance by not investigating the filing requirements of Schedule B, Mr. Simon hasn't carried his burden of showing that such a deficiency prejudiced him.D. Ineffective assistance related to the TurboTax program
Simon claimed that his attorneys failed to adequately investigate the workings of the TurboTax software he used for the returns charged as a basis for the tax perjury counts. Specifically, his claim is with respect to the Schedule B foreign account question. Apparently, the attorneys made a failed attempt by trial subpoena to get testimony from a TurboTax representative but that representative did not testify for some unexplained reason. Simon claimed that the TurboTax representative would have explained that TurboTax would not have printed a Schedule B in the absence of interest income exceeding $1,500. But, as noted above, the Schedule B is required even with interest income of less than $1,500 if there are foreign accounts exceeding $10,000. But, Simon claimed, TurboTax did not ask about foreign accounts and hence did not prepare a Schedule B. This line of testimony, had it been presented, presumably would have gone to both the tax perjury charges based on the supposed answer to the Schedule B foreign account question and as to whether he willfully failed to file the FBARs for the respective years. Bottom line, however, Judge Miller says that there was evidence in the record that established that, if Simon had answered TurboTax's questions about foreign accounts correctly, TurbotTax would have printed out Schedule B with a correct "yes" answer and alerted Simon to the FBAR filing requirement. Judge Miller concluded:
His attorneys reasonably decided not to press the issue and stopped investigating the workings of TurboTax. When an attorney begins investigating an issue and correctly surmises that it won't come out in his client's favor, that attorney's decision to cease the investigation is itself a strategic choice entitled to deference.And, in any event, even if error there was, it was not prejudicial to Simon because the jury heard the defense through other sources, including the Government's closing argument.