Where two possible Guidelines can apply, the Guidelines instruct that the "most appropriate" Guideline to the conduct applies. U.S.S.G. App. A, Introductory cmt. The taxpayer preferred the obstruction Guideline because it produced the lower sentencing range. The sentencing court held that the tax Guideline applied. Given the tax context, that holding does not seem unexceptional. But, one has to give the taxpayer some credit for trying.
What was his argument? He urged that he really did not have an intent to evade tax, because all he was doing was trying to delay payment of the tax. Ergo, he alleged, the crime was obstruction rather than a tax crime.
Here is how the sentencing court framed the taxpayer's argument in rejecting it: "he never intended to evade paying his taxes but was merely delaying the payments (merely obstructing justice in other words) until he made real money—apparently more than $500,000 a year."
The Court of Appeals dispatched the argument as follows:
The district court thought the most appropriate guideline for Ballard's crime was § 2T1.1, and so do we. Consider the description of his offense conduct, as outlined in the indictment: that he "falsely stat[ed] to an Internal Revenue Service—Criminal Investigations Special Agent investigating [Ballard's] outstanding debt for taxes due . . . that commission checks [Ballard] received from NFP Securities, Inc. in January 2009, April 2009, May 2009, June 2009, August 2009, and December 2009 were for work done at an earlier date, and that he was not working in 2009, whereas in truth and in fact [Ballard] then well knew that these commission checks were for work done" in the months the checks issued. R. 1 at 1.
This is just the sort of "Willful Failure to . . . Supply Information or Pay Tax" that § 2T1.1 is built for. He lied to an IRS agent. Why? To throw off the investigation of his "outstanding debt for taxes." R. 1 at 1. That offense conduct could have been charged under other statutes punishable under § 2T1.1. See, e.g., 26 U.S.C. §§ 7201 (tax evasion), 7203 (willfully failing to supply required information). And the government would have incurred a tax loss of over $800,000 if that lie, in conjunction with his many other uncharged evasions, had succeeded. Even if Ballard is telling the truth about always intending to pay his tax bill once he hit it big—even indeed if he had already started repaying his outstanding taxes—§ 2T1.1 has a provision explaining how to account for that circumstance: Change nothing about the tax loss calculation. All of that points to § 2T1.1 as the right guideline. Yes, § 2J1.2 covers a broad genus of obstruction offenses, including Ballard's. But when another possible guideline explicitly includes the offense conduct, in addition to covering offenses that are close cousins of that conduct, that's where the offense belongs. See Neilson, 721 F.3d at 1188-89.
Ballard objects. Because he always admitted he owed taxes, because he had always intended to pay them one day, and because the only charged conduct was one false statement, he claims that his offense is more like obstruction of an investigation than tax evasion. Like the district court, we think these points are fair. But like the district court, we think they are unpersuasive in the end. Ballard's promise about intending to eventually pay his taxes is irrelevant to our determination of which guideline is the right one; the only facts that matter are the ones in the criminal information. See U.S.S.G. § 1B1.2; United States v. Malki, 609 F.3d 503, 510 (2d Cir. 2010). Ballard stipulated that he lied to IRS investigators in order to avoid having to pay taxes at that time and that he failed to pay the debt even though he earned a significant income in 2009, conduct quite similar to tax evasion. But even if we looked outside the charges, we have nothing but Ballard's word to indicate that he was going to pay one day. His promise is less than credible, we think, in context—particularly in the context of his efforts to outmaneuver the IRS over a dozen years and the sudden appearance of his noble intentions only after being caught.
Nor are we swayed by the fact that the charged conduct was just one lie. The egregiousness of the offense does not determine which of these two sections is appropriate (though it can, and here did, drive the district court to vary below the guidelines range). What matters in the choice between two guidelines sections is which section is more precisely tailored to reflect offense characteristics—like tax evasion and tax loss—and which section covers a more closely related group of crimes. What Ballard did, and what the government charged, was a lie to the tax collector about his earnings. The district court sentenced Ballard accordingly.Addendum 3/10/17:
In ruminating on this case, I recalled an earlier case, Edwards v. United States, 375 F.2d 862 (9th Cir. 1967), here. In Edwards, the defendant, a tax return preparer, was convicted of 25 tax crimes counts -- failure to file (§ 7203), tax perjury (§ 7206(2)) and tax evasion (§ 7201). I focus here on the tax evasion convictions (17 counts), which apparently related to his clients' tax returns rather than his own. The defendant had created a special trust account to receive client funds pending payment to the IRS of the taxes with respect to their returns. He began having some difficulties with the account (those difficulties are recited earlier in the opinion with respect to the § 7206(2) charges for claiming tax payments not made). Then in discussing the tax evasion counts, the Court said: "Appellant's troubles with his trust account led him to prepare tax returns, collect the amount of tax due and then fail to file the return or make the payment."
The Court of Appeals then considered his arguments. The Court first rejected his Spies argument as to the nature of tax evasion. I don't discuss that here since it is irrelevant to the subject of this blog, except to note the Spies element for tax evasion that an affirmative act of evasion is required.
In this case the failure to file or pay was implemented by affirmative conduct designed to assure its continuation and preclude its discovery. Appellant falsely represented to certain clients that their returns had been filed and their taxes paid, and this was accompanied by a diversion of the funds entrusted for the purpose of payment. These acts in our judgment were sufficient to constitute attempts to evade or defeat the tax imposed and payment thereof, if done with the requisite state of mind. Wilson v. United States, 250 F.2d 312 (9th Cir. 1957).
The trouble in this case is in its lack of proof of willfulness in the sense of a specific intent to evade or defeat the tax or its payment. Evasion and defeat, as we understand their use in this section, contemplate an escape from tax and not merely a postponement of disclosure or payment. n6 A knowing and intentional omission to file could be the result of either purpose, and either purpose might support a prosecution for the state crime of embezzlement or other form of theft. Tax evasion, however, focuses on the accused's intent to deprive the Government of its tax moneys, and this requires more than just delay. n7
n6 Sansone v. United States, 380 U.S. 343, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965), is consistent with our understanding. There a return was falsified to exclude taxable income. It was asserted by the taxpayer that he intended to declare the income in the future, and that this vitiated the requisite willfulness to sustain the conviction. This was held to be no defense, since tax for the taxable period had been intentionally evaded; declaration in the future would bring the income into a different tax year. But here, by tardy filing of a proper return, the tax for the taxable period has not been evaded; its payment has merely been postponed. Cf., Wilson v. United States, 250 F.2d 312 (9th Cir. 1957); United States v. Jannuzzio, 184 F. Supp. 460 (D.Del. 1960).
n7 Cf., Leathers v. United States, 250 F.2d 159 (9th Cir. 1957), where an accountant understated his client's income on the tax return for the client's business and pocketed the tax thus saved, defrauding both the client and the Government. His conviction was sustained.
While a scheme of the sort appellant perpetrated could be carried out with intent to escape the tax, the facts on this record do not support such an inference. It appears that some shortages in his trust account were traceable to his practice of accommodating some of his clients with advances — embezzling from Peter to pay Paul's taxes. But hard times came to him, and he also drew on the account for personal uses, gradually falling behind in filing returns and remitting payments. On the other hand one of his techniques was to apply to the District Director for six month extensions of time for filing returns, as permitted by Int.Rev.Code of 1954 § 6081(a). 1Such extensions had been obtained for a number of the returns cited in the indictment. He thereby disclosed to the Government that as to those taxpayers a return was due.
It thus appears that appellant's purpose was to take advantage of the time lag in Government investigation of delinquent returns to tide him over during a period of personal financial hardship. Nothing in the record would suggest that he ever intended the permanent evasion of any of his clients' taxes.
One pursuing a path such as that of appellant might eventually fall so far behind that no reasonable man could believe that he would ever catch up. It does not appear, however, that appellant's straits had become that serious.
Judgment on these counts is reversed.In United States v. Jewell, 614 F.3d 911 (8th Cir. 2010), here, the Court discussed and distinguished Edwards. Jewell was a tax lawyer who cooked up a scheme to evade clients' taxes. He was charged with aiding and abetting tax evasion for causing the filing of a false tax return for the clients. (The charged statutes were 26 USC § 7201 (tax evasion) and 18 USC § 2(a) (aiding and abetting).) He was also charged with other counts unrelated to the tax evasion. The jury convicted him on the tax evasion count (aiding and abetting tax evasion) but acquitted on the unrelated counts. Citing Edwards, Jewell argued that he cannot be guilty of tax evasion. Here is the discussion:
Jewell also claims he cannot be guilty of tax evasion because the Evanses eventually paid their taxes. Jewell relies upon a case from the Ninth Circuit for the proposition a defendant must intend a permanent escape from paying a tax and not merely a postponement. See Edwards v. United States, 375 F.2d 862, 867 (9th Cir. 1967) ("[E]vasion and defeat . . . contemplate an escape from tax and not merely a postponement of disclosure or payment."). The Eighth Circuit has not adopted such a position, however, and the Ninth Circuit itself has limited Edwards to the unique facts involved in that case, where there was no evidence at all of an intent to avoid payment of taxes, but merely to delay. See United States v. Huebner, 48 F.3d 376, 380 (9th Cir. 1994) (indicating the escape not postponement "statement in Edwards must be read in the light of the facts of that case."). The fact that the Evanses eventually reconciled their tax deficiency with the IRS does not exonerate Jewell where a reasonable jury could determine he had the intent to assist the Evanses with evading taxes in the tax year 2000. n6Note that the footnote is not relevant to the point in this blog, but I include it for defense counsel to tuck away for possible future use.
n6 Jewell also claims the evidence was insufficient because the admission of the Evanses' 2000 tax return violated Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (2004). Jewell contends a tax return is "testimonial" because it is signed by taxpayers under penalty of perjury. 1The government offered the tax returns prior to trial as business records, and Jewell did not object to them except as to relevancy, so we review this claim for plain error only. We find no plain error. Because Carl Evans testified, Jewell had an opportunity to challenge the accuracy of the tax returns. In addition, in United States v. Garth, 540 F.3d 766 (8th Cir. 2008), abrogated on other grounds, United States v. Villareal-Amarillas, 562 F.3d 892 (8th Cir. 2009), we rejected the argument that admission of tax returns, even as to non-testifying witnesses, violated Crawford. Id. at 778 (noting Crawford did not consider business records to be testimonial, and that the defendant stipulated the tax returns were business records).
I will note that the charging of Jewell for tax evasion through the aiding and abetting statute (18 USC § 2(a)) is inappropriate because Jewell's conduct made him a principal of the crime of tax evasion (even though he was not the taxpayer). I won't get further into that issue here, but direct readers attention to the following:
- John A. Townsend, Theories of Criminal Liability for Tax Evasion (SSRN May 15, 2012), here,
- 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;
- Daugerdas Retrial Jury Instructions - Part 06 Tax Evasion Instructions Part 1 Tax Evasion and Conspiracy to Commit Tax Evasion (Federal Tax Crimes Blog 11/25/13), here;
- Even More on Principals, Accomplices, Causers and Pinkerton Conspirators - the Daugerdas Case (Federal Tax Crimes Blog 5/10/11), here;
As an aside, the multiple counts charged in this case seems a bit odd, but I am looking at it through a post-Sentencing Guidelines lens. This case was before the Sentencing Guidelines. One of the main purposes of the Guidelines was to take away the incentive to overcharge cases by making sure that the sentence is determined by the real offense (in tax cases principally by the aggregate tax loss involved rather that the discrete events contributing to the tax loss). So, now, the Government can assure the same sentence by charging fewer counts, thus making the prosecution easier and the court time less, but with all of the conduct considered at sentencing as relevant conduct.