Monday, June 26, 2017

Daugerdas Grasps for the Supreme Court (6/26/17)

Paul Daugerdas, a prominent topic of this blog since he was the king of bullshit tax shelters, was convicted and his conviction affirmed on appeal.  I reported on the much of his trial and appeal.  The blogs mentioning Daugerdas are here and the blog on the appeal is Daugerdas Conviction and Sentencing Affirmed by Second Circuit Court of Appeals (Federal Tax Crimes Blog 9/21/16), here.

On 3/20/17 Daugerdas filed a petition for writ of certiorari.  The petition for the writ is here.  According to the docket entries, here:

Mar 20 2017 Petition for a writ of certiorari filed. (Response due April 21, 2017)
Mar 31 2017 Waiver of right of respondent United States to respond filed.
Apr 5 2017 DISTRIBUTED for Conference of April 21, 2017.
Apr 17 2017 Response Requested . (Due May 17, 2017)
* * * *
Jun 23 2017 Brief of respondent United States in opposition filed.

The Government's brief in opposition is here.

Now, what to make of all this?  The starting point is the issue presented.

Daugerdas prefaces his statement of the issue with a summary of facts apparently believed necessary to understand the issue.  The Government does not agree with some of the nuances in the facts, so just keep that in mind.  So, I cut and paste the preface and the issue Daugerdas presents:
Petitioner Paul Daugerdas, a tax attorney, was tried by a jury for a “scheme to defraud” and obstruct the Internal Revenue Service (“IRS”) for the design, marketing and implementation of fraudulent financial tax shelters. At trial and during summations, the government presented two separate “schemes”: the first alleged that Daugerdas intentionally orchestrated a massive tax shelter fraud causing losses in excess of $1.6 billion by advising hundreds of clients to report tax losses based on financial transactions that lacked “economic substance”; the second scheme alleged that he conspired with other members of his law firm to intentionally backdate financial transactions on three or four client tax returns to fraudulently reduce their taxes owed, causing losses of approximately $2.2 million. During summations, the government urged the jury to convict Daugerdas of conspiracy, mail fraud, obstruction and relevant tax evasion counts based on the $2.2 million scheme. The jury agreed, acquitting him on six other tax evasion counts unrelated to the $2.2 million scheme. The government then asked the district court to sentence Daugerdas based on the greater $1.6 billion tax shelter scheme. As a result, the district court sentenced him to 180 months, as opposed to the 41–51 month Guidelines range for the backdating scheme, despite the government’s contrary argument to the jury and the jury’s ultimate verdict. 
The question presented is: 
Whether Petitioner’s sentence violated his rights under the Sixth Amendment and the Due Process Clause of the Fifth Amendment when a judge imposed a sentence based on an alleged greater “offense” than the government urged the jury to convict at trial, and after the jury convicted based on the lesser “offense” presented to them during the government’s summation?
In its brief in opposition, the Government goes straight to the issue (without engaging on predicate facts or even believing a statement of facts is necessary to the issue as it presents the issue):
Whether petitioner’s sentence was substantively unreasonable on the ground that the district court imposed a sentence based on judicial fact-finding regarding conduct of which petitioner was acquitted by the jury.
Basically, the issue is whether conduct in counts for which the jury acquitted can be considered in the tax loss calculation (or can be considered at all) in sentencing.  I thought that issue was long since settled and not particularly controversial which, I presume, is why the Government initially waived its right to respond.

Interested readers of this blog can pore over the submissions as their time and interests permit.  I just make the following quick comments about the Government's brief (after far less than a detailed study):

1.  On p. 4, the Government says (bold-face by JAT):
In addition, the government noted that petitioner’s participation in fraudulent backdating could support convictions on the conspiracy, mail fraud, and obstruction charges, even if the jury rejected the government’s theory that the tax shelters lacked economic substance. Pet. App. 80a; Tr. 7339-7340. The government did not argue that petitioner’s participation in backdating was sufficient to support convictions for tax evasion, nor did it argue that petitioner could be convicted of substantive tax evasion or conspiracy to commit tax evasion unless the tax shelters lacked economic substance. Pet. App. 80a. 
JAT Comment:  I am not sure of the precise context of the record or the petition to which this may be addressed, but as a statement (perhaps out of context), it does seem odd to me.  I think that backdating could support convictions for tax evasion.  And, I just do not follow the bold-faced portion beginning with "nor."  It just seems to be oddly worded.

2. The Government says (pp. 4-5, bold-face by JAT):
The district court instructed the jury that, in order to convict petitioner on conspiracy to commit tax evasion and substantive tax evasion, the jury had to find the existence of a substantial tax deficiency for the year or years at issue. Tr. 7668-7669, 7677-7678. The court instructed the jury that showing a substantial tax deficiency required proof that the tax shelters lacked economic substance—in other words, that “the relevant taxpayer had no genuine business purpose for engaging in a transaction in question apart from the creation of the tax deduction” and that “there was no reasonable possibility that the transaction would result in a profit.”  Tr. 7678-7679. The court further instructed the jury that in order to prove the willfulness element of the tax-evasion charges, the government had to prove that petitioner “was aware that tax deductions based on transactions lacking economic substance were prohibited,” that he knew “that the tax shelters, in fact, lacked economic substance,” and that he “knew that the relevant taxpayer had no genuine business purpose apart from the creation of a tax deduction for entering into the tax shelter.” Tr. 7685.
JAT Comment:  Note the phrase "relevant taxpayer" that I have bold-faced.  In these large bullshit tax shelter promotions, I have previously wondered about this "relevant taxpayer" formulation.  At the most basic level, the question may be whether taxpayer guilt of the crime of tax evasion is required for the promoter guilt of tax evasion.  Perhaps this relevant taxpayer formulation suggests something like that.  And, of course, taxpayer guilt of tax evasion would be required if the promoter could be convicted of tax evasion with respect to taxpayer's returns only through aider and abettor liability under 18 USC § 2.  But, promoters can be directly guilty of tax evasion regardless of the guilt or innocence of the taxpayers involved.  See Even More on Principals, Accomplices, Causers and Pinkerton Conspirators - the Daugerdas Case (Federal Tax Crimes Blog 5/10/11), here; for more extensive discussion of that concept, see John A. Townsend, Theories of Criminal Liability for Tax Evasion (May 15, 2012), here.  If that is true, I wonder whether there is any real reason to discuss or require some jury finding as to what may or may not have been in the taxpayer's mind.  And, of course, if the inquiry is as to what must have been in the taxpayer's minds is important, then how exactly does the Government prove that where there may have been 20, 50 or possibly more taxpayers, for which there would have to be a mini-evasion trial for all of them set in the larger evasion trial of the promoter?  For postings on the tax evasion instructions to the jury, see Daugerdas Retrial Jury Instructions - Part 06 Tax Evasion Instructions Part 1 Tax Evasion and Conspiracy to Commit Tax Evasion (11/25/13), here; and  Daugerdas Retrial Jury Instructions - Part 07 Tax Evasion Instructions Part 2 Tax Evasion and Conspiracy to Commit Tax Evasion - Derivative Liabilities (11/25/13), here.

3.  The Government says (p. 5):
The jury convicted petitioner of conspiring to defraud the IRS, Pet. App. 9a, with the jury specifically finding that the government had proved each of the charged objects of the conspiracy: defrauding the United States, tax evasion, and mail fraud, Tr. 7807. In addition, the jury convicted petitioner on four client tax-evasion counts, the obstruction count, and the mail fraud count. Pet. App. 9a. The jury acquitted petitioner on six additional client tax-evasion counts and the three personal tax-evasion counts. Ibid.
JAT Comment:  Unless the Government proved guilt of tax evasion by at least one taxpayer within the scope of the conspiracy, then the only conspirators would be the promoters (including Daugerdas).  And, if taxpayer guilt of tax evasion were required, then conspiracy to commit tax evasion would have required that the Government prove tax evasion by at least one taxpayer.  But, as noted, promoters can be guilty of tax evasion without a guilty taxpayer.

4.  The Government says (pp. 5-6)
At sentencing, the district court found that the tax loss caused by petitioner’s offenses exceeded $400 million. Pet. App. 58a. The court disagreed with petitioner’s  contention that the court should consider only petitioner’s backdating conduct in calculating the loss amount on the ground “that the jury convicted [petitioner] only of the very limited conduct of fraudulently backdating transactions.” Id. at 59a. The court “rejected th[e] argument” that the jury had convicted petitioner only of that conduct. Ibid. Instead, the court concluded, the jury’s “verdict demonstrates that [petitioner] was convicted of the broad tax shelter conspiracy alleged in the indictment,” not simply backdating. Id. at 60a. In any event, the court added that it was well-settled that courts may find relevant conduct as part of the sentencing process, under a preponderance-of-the-evidence standard, even if “jurors could not find those facts beyond a reasonable doubt.” Id. at 61a.
I think the key part here is that Daugerdas was convicted of two types of conspiracy -- tax evasion and defraud / Klein conspiracy.  For the latter, the Government does not have to show tax evasion but simply orchestrated commotion -- including overt acts -- to impair or impede the lawful function of the IRS.  Daugerdas and his co-conspirators certainly did that.

5.  Now, the Government engages with Daugerdas' claim that the large tax loss involved actual acquitted conduct.  I will leave that issue for readers to pursue in the briefs if they have the time and interest.  But, even if tax loss as determined by the court did include tax loss for acquitted conduct, the sames to have been settled that acquitted conduct can be included in the sentencing factors, here tax loss which is the principal driver of the Sentencing Guidelines:  From the Government's brief (pp. 10-11):
Petitioner contends that the district court’s loss calculations were constitutionally impermissible because the court relied on losses from petitioner’s knowing participation in a fraudulent scheme involving transactions that lacked economic substance, while, in petitioner’s view, the jury acquitted petitioner of that conduct. See Pet. i, 18-33; see also Pet. App. 32a (describing substantive reasonableness argument pressed below). But the Fifth and Sixth Amendments do not preclude sentencing courts from finding facts under a preponderance standard as prescribed by the Sentencing Guidelines when a defendant was acquitted of the conduct under a higher standard of proof. As this Court explained in United States v. Watts, 519 U.S. 148 (1997) (per curiam), which addressed judicial fact-finding by a preponderance-of-the-evidence standard under the Sentencing Guidelines, “a jury’s verdict of acquittal does not prevent the sentencing court from considering conduct underlying the acquitted charge, so long as that conduct has been proved by a preponderance of the evidence.” Id. at 157.
JAT Comment:  None.

I must turn to other matters now.  I may be back with more, particularly if the Court accepts cert and the parties file their briefs.

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