Sixth Circuit Affirms Preparer's Convictions Including Tax Perjury (3/27/17)

In United States v. Williams, 2017 U.S. App. LEXIS 5184; 2017 FED App. 0173n (6th Cir. 2017) (nonprecedential), here, the Court affirmed the Williams' convictions for tax perjury (3 counts) with respect to his personal returns and aiding and assisting (17 counts) with respect to returns he prepared for others.  His arguments for reversal of the tax perjury convictions caught my attention.

Because the opinion itself is a bit cryptic, for more detail I offer readers the two briefs that were filed.

• Williams' Brief, here.
• U.S. Brief, here.

There were two fact patterns for his personal return convictions.

2004 return

For the year 2004, his business operations were through his tax return preparation S corporation.  The filed a false S corporation return reporting a $745 loss.  He then filed his personal return, Form 1040, reporting a $1 gain on Schedule C but apparently omitting the amount from the S Corporation.  He had thus overreported the income solely by reference to the S Corporation's return K-1.  He claimed that there was no perjury with respect to his Form 1040.  He complained that the Government had not prosecuted him for the false return he actually filed for the year -- the S Corporation but, rather, improperly prosecuted him for the "literally true" return that he did file which, based on my math, overreported his income for 2004 if the S Corporation return set what he was supposed to report on his personal return.

Of course, any falsity on the personal return can be prosecuted as tax perjury.  Overreported income, if false, can be prosecuted.  And, of course, here, Williams did not report the S Corporation loss but reported $1 of Schedule C income when a Schedule C business did not even exist.

And, the Court did not look favorably his argument about tax perjury only being involved with the S Corporation return and handily dispatched it as follow:

In 2004, Williams reported that Imperial experienced a loss of $745 on the company's corporate tax return. He reported one dollar of income on his personal income return, using Form 1040. According to Williams, because Imperial's tax return showed that "the corporation did not report any income, [he] did not have an affirmative duty to report a positive income figure on his individual Form 1040 return." This argument is untenable. "Section 7206 is a perjury statute that criminalizes lying on any document filed with the IRS." Tarwater, 308 F.3d at 504 (emphasis added). If an individual lies on a corporate tax return, he cannot copy that false information onto a personal tax return and claim it as "literal truth." Rather, the tax return would contain information known to be untrue. Williams correctly points out that the government did not charge him with preparing false returns on behalf of the corporation, but because Imperial's income flows through to Williams, evidence of corporate earnings is relevant to determining Williams's personal income. 

At trial, an IRS agent testified that he found unreported income for Williams for the 2004 tax year, explaining that he found a number of deposits made into Imperial's bank account in 2004 totaling over $21,000. The jury was shown a summary schedule of these deposits, and the agent testified that these deposits were income from tax-preparation services. The agent further testified that Williams was the only individual who was involved with Imperial, or who obtained any financial benefit from Imperial. Finally, the agent testified that Imperial's corporate tax return for 2004 did not explain the one dollar reported by Williams on his personal tax return, despite the fact that Williams claimed that the one dollar was earned in connection with Imperial. This testimony provided a sufficient basis from which the jury—or any rational trier of fact—could have found beyond a reasonable doubt that Williams knew that his tax return for 2004 was not true and correct as to every material matter.

2006 and 2008 Returns

Williams seems to have been studying the criminal tax law after 2004.  Essentially, Williams' argument was a variation of the argument for 2004 -- that there was no falsehood on the return he filed -- Forms 1040EZ for each year.  Of course, the Form 1040EZ is an inappropriate return if the taxpayer had, as he had here, income from sources other than allowed on the Form 1040EZ, such as S Corporation return.  So, his use of the Form 1040EZ was inappropriate to start with.  And, the Court noted that he reporting he actually made was inconsistent with the Form 1040EZ instructions and, further, omitted income that the jurat on the Form 1040EZ required him to report.  That jurat, unique to the Form 1040EZ, was:

"Under penalties of perjury, I declare that I have examined this return and, to the best of my knowledge and belief, it is true, correct, and accurately lists all amounts and sources of income I received during the tax year." 

So, he was alerted that that his reporting was amiss and that was enough.

Although the parties briefed a key Form 1040EZ tax perjury case, United States v. Reynolds, 919 F.2d 435 (7th Cir. 1990), the Court in Williams does not mention Reynolds.  I would like to discuss Reynolds briefly because Williams may have been inspired by Reynolds when he started improperly using the Form 1040EZ.

I discussed Reynolds in the final version of my discontinued Federal Tax Crimes Book as follows:

In United States v. Reynolds, the taxpayer skimmed money from a public project.  However, he elected to file a form 1040EZ which is supposed to be filed only by relatively low income taxpayers.  The 1040EZ requested information only for wages, salaries, tips and interest.  The taxpayer dutifully inserted all information requested on the return.  The taxpayer did not include the skimmed income because it fit none of the categories on the form.  The question was whether he could be prosecuted under § 7206(1).  The Government’s theory was that by including only the information requested on the form, he implicitly represented that he had no other income.  The Court responded:  

The prosecutor's argument that by filing form 1040EZ a taxpayer implicitly represents that he has no additional income has more substance, but this is not the theory in the indictment. It charged that line 7, specifically, was false, and line 7 is derived arithmetically from other lines.  Section 7206(1) is a perjury statute, and literal truth is a defense to perjury, even if the answer is highly misleading.  Using the wrong form does not violate § 7206(1).  If the form has an open-ended line calling for § 61 income, and the taxpayer leaves some income out, § 7206(1) applies.  Form 1040EZ is anything but open-ended, however.  The right charges are tax evasion (26 U.S.C. § 7201) and failure to supply information required by law (26 U.S.C. § 7203).  Reynolds did not reveal his complete income (§ 7203) and evaded taxation on that income (§ 7201).  Neither the indictment nor the charge to the jury set out the elements of these offenses, so the problem is deeper than a citation to the wrong statute in the indictment.  We vacate Reynolds' tax convictions, without foreclosing indictment and trial for the offenses that match the prosecution's theory of the case.

It is not clear that Williams followed Reynolds in his Form 1040EZ filings, but it is clear that the Government changed the jurat after Reynolds to catch people playing that game.  That revised jurat was quoted by the Williams Court and is quoted above.

Possible Uncertainty as to Elements of Tax Perjury

Finally, in its brief, the Government noted (p. 14) some confusion in the Sixth Circuit regarding the elements for tax perjury as follows:

The elements of the offense are: (1) the defendant filed a tax return signed under penalty of perjury; (2) when he knew it was false as to a material matter; and (3) with the specific, willful intent to violate the law. n6 United States v. Lawrence, 557 F. App’x 520, 526 (6th Cir. 2014); United States v. Bishop, 412 U.S. 346, 350 (1973).
   n6 The case law in this circuit is not consistent about the number of elements. Compare Lawrence, 557 F. App’x at 526 (three elements), with United States v. Tarwater, 308 F.3d 494, 519 (6th Cir. 2002) (two elements). Although the majority of cases identify three distinct elements, even those cases differ as to what those elements are. Compare Lawrence, 557 F. App’x at 526, with United States v. VanArsdale, 491 F. App’x 626, 627 (6th Cir. 2012); United States v. Bilbrey, 172 F.3d 49, at *3 (6th Cir. 1998) (table). Most other circuits note four elements. See United States v. Hills, 618 F.3d 619, 638 (7th Cir. 2010); United States v. Griffin, 524 F.3d 71, 76 (1st Cir. 2008); United States v. LaSpina, 299 F.3d 165, 179 (2d Cir. 2002); United States v. Aramony, 88 F.3d 1369, 1382 (4th Cir. 1996); United States v. Frase, 496 F. App’x 163, 165 (3d Cir. 2012); United States v. Boyd, 378 F. App’x 841, 845 (10th Cir. 2010). This Court has approved jury instructions that denote the four elements used in other circuits, but it has not addressed the internal discrepancy directly. See United States v. Aaron, 590 F.3d 405, 407–08 (6th Cir. 2009).

In the Williams opinion, a nonprecedential opinion, the Court described the elements as follows:

To convict under § 7206(1), the government must prove: (1) that the defendant willfully made and subscribed a return, statement, or other document, (2) that contained a written declaration that it was made under penalties of perjury, and (3) that the defendant did not believe to be true and correct as to every material matter. United States v. Tarwater, 308 F.3d 494, 504 (6th. Cir. 2002). 

Regardless of the precise nuance in the statements of elements of the crime, Williams was certainly guilty.  However, it would be nice if the Sixth Circuit would settle on the elements so that juries can be properly instructed.