Thursday, August 25, 2016

Congressional Staffer Charged with Failure to File (8/25/16)

I post this item because it is unexceptional and exceptional for failure to file cases.  DOJ Tax announces here that "Congressional Staffer Charged with Failure to File Tax Returns for Five Years."  The charging document, an information, is here.  The description of the basis for the charge is short:
According to the criminal information and affidavit, Isaac Lanier Avant of Arlington, Virginia, is a staff member employed by the U.S. House of Representatives since approximately 2002.  For tax years 2009 through 2013, Avant earned annual wages of over $170,000, but did not timely file a personal income tax return for any of those years.  In May 2005, Avant filed a form with his employer that falsely claimed he was exempt from federal income taxes.  Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013. 
The IRS agent affidavit, here, says in relevant part:
7. In May of 2005, Avant filed a Form W-4, Employee's Withholding Allowance Certificate, with his employer that claimed he was exempt from federal income taxes. Upon receipt of the Form W-4, Avant's employer stopped withholding federal income tax from Avants monthly paycheck. Avant did not have any federal tax withheld from his paycheck from May of 2005 until the IRS mandated that Avant's employer begin withholding federal tax from Avant in January of 2013. 
8. During this period of time Avant was issued a Form W-2, Wage and Tax Statement, from his employer at the end of each calendar year; the Form W-2 included the amount of his federal income tax withholding during the relevant calendar year. Avant used his Forms W-2 to self-prepare and file Forms 1040, U.S. Individual Income Tax Return, for tax years 2006 and 2007, each of which reflected zero dollars ($0.00) of total federal income tax withholding. 
* * * * 
15. On January 26, 2015, Avant was interviewed by special agents of IRS-CI and the Federal Bureau of Investigation. During this interview, Avant admitted to knowing that he was required to file tax returns and pay taxes on income earned. Avant told special agents that he did not file his 2013 Form 1040, U.S. Individual Income Tax Return, because he did not have a full year of withholding in 2013.
The Congressman for whom he worked as Chief of Staff, Rep. Bennie Thompson (D-Miss.), issued this release (as reported in WaPo, here:
“After learning of these accusations, I spoke to Mr. Avant and he assured me that when the proper forum is provided to him, he will fully explain this situation,” Thompson said. “Until such time, I trust that everyone will afford Mr. Avant the presumption of innocence to which all Americans are constitutionally entitled.”
JAT Comments:

The charges are failure to file -- perhaps the easiest criminal tax case for the Government to prove.  The objective elements are simple -- (1) the defendant was required to file; and (2) the defendant did not file.  Then, of course, there is the willful element -- intentional violation of a known legal duty.  That is usually the defense for a defendant in a failure to file case going to trial rather than pleading to one or two counts (since the failure to file crime is a misdemeanor, DOJ Tax will often require a plea to two counts, which increases the maximum incarceration period from one year to two years).  (By contrast, a single felony count (in the case of tax crimes, 3 or 5 years), which is often the plea deal, will usually offer an incarceration period under the guidelines appropriate to the pattern of conduct, which includes uncharged relevant conduct.)

This case does illustrate the charging options available to DOJ Tax.  Normally, if all a defendant does is to fail to file tax returns, then the only appropriate charge is failure to file, § 7203.  But Mr. Avant did not just fail to file tax returns.  He did one thing further -- he filed a W-4 requesting that the employer not withhold.  That action could cause the failure to file to be charged as evasion.  See United States v. King, 126 F.3d 987 (7th Cir. 1997), here.  While the failure to file alone could not supply the additional element of evasion for an affirmative act of evasion, the filing of false W-4 could supply the affirmative act of evasion.  King also held that criminal statute of limitations for an evasion charge related to failure to file return and pay tax is the time the return is due even if the false W-4 was filed earlier outside the statute of limitations.

Also, the case could have been charged as tax obstruction because of the false W-4.  Like evasion, tax obstruction is a felony, but a 3-year rather than a 5-year felony.

Now, usually (but not always), the filing of an information rather than obtaining an indictment indicates that a plea deal is afoot.  If that is correct, that may be why the charge is a misdemeanor rather than a felony.  Of course, according to its public pronouncements, DOJ Tax will not usually substitute misdemeanor counts for felony counts in order to obtain a plea agreement.  E.g. CTM 5.01[1] Offense of Conviction — The Major Count Policy, here ("felony counts take priority over misdemeanor counts"); USAM 6-4.310 - Major Count Policy in Plea Agreements, here ("Felony counts have priority over misdemeanor counts;" this relates to dropping already charged felonies in an indictment in favor of misdemeanors, but I am not sure the message is that this can be avoided by agreeing to plead before the charge is made.)

That being said, it is not uncommon to arrange a plea to tax perjury (a 3-year felony) as opposed to tax evasion (a 5-year felony), because both are felonies and sentencing either under the Guidelines or with Booker discretion is not likely to be affected.  However, arranging a plea to a misdemeanor (say failure to file, § 7203, or filing false return or statement, § 7207) is quite another.  My experience is that the latter is very hard to arrange particularly where the conduct is more appropriately described in the felony statute.  Still, I dare say that everyone playing in this arena tries to do exactly that before agreeing to a felony plea, because a misdemeanor conviction is far less serious than a felony conviction.  I don't know whether that was the dynamics involved here.  All plea deals depend upon the strength of each side's hand and the perceptions of the other side as to those strengths, so there could have been factors at play here that justified charging the misdemeanor rather than the felony.

Finally, one final thing to note is that if the defendant pleads to, say, two counts of failure to file, with the other three counts being dropped, his sentence will likely be the same as if he pled to all five counts.  That is just the effect of the Sentencing Guidelines because of the consideration of relevant conduct in making the required Guidelines calculations and in any event will also be considered in the sentencing judge's Booker discretion.  (In tax cases, that discretion when exercised almost always results in a downward variance.)

My colleague, Leslie Book, discusses this case:  Tax Crime Snapshot: Ministers, Congressional Staffers and Restaurant Owners (Procedurally Taxing Blog 8/25/16), here.

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