Tuesday, February 13, 2018

Third Circuit Affirms Summons Enforcement for Client Identity Information (2/13/18)

In United States v. Martin, 2018 U.S. App. LEXIS 2526 (3d Cir. 2018) (nonprecedential), here, the Court of Appeals affirmed the district court's order enforcing an IRS administrative summons issued to a lawyer in a collection action to discover his income and assets.  The Court said that the scope of the summons was:
Specifically, it sought to verify the income Servin generated through his law practice. The summonses requested two categories of information: (1) Servin's current client list, including the names and addresses of each client; and (2) a list of his cases that will be settling or have settled within a specified time period, including the parties' names and addresses. In response to the summonses, Servin appeared, but refused to disclose the requested information.
The district court ordered compliance, but limited the compliance to "only those cases that have settled, not cases that may settle[.]"  Martin then appealed.  There is no indication that the court held him in contempt for noncompliance with the order but that is the usual way that a summons enforcement order gets to the court of appeals.  In any event, the court rejected Martin's claim of attorney-client privilege and attorney-client confidentiality.

Basically, the Court said that, based on precedent, there was no attorney-client privilege to protect client identities except in unusual circumstances no present here.
Servin fails to identify any unusual circumstances here that suggest protected communications would be revealed by disclosing the names and addresses of his clients and other parties. Because he has not shown that the attorney-client privilege shields the information requested by the IRS, the privilege cannot constitute grounds for quashing the summonses.
As to any state law confidentiality requirement beyond the scope of the attorney-client privilege, the Court said:

Friday, February 9, 2018

IRS CI Focuses on Crytpocurrencies and Related Tax Evasion Schemes (2/9/18)

David Voreacos, IRS Cops Are Scouring Crypto Accounts to Build Tax Evasion Cases (Bloomberg 2/8/18), here.  Excerpts:
The U.S. Internal Revenue Service *  * * has assigned elite criminal agents to investigate whether Bitcoin and other cryptocurrencies are being used to cheat the taxman. 
A new team of 10 investigators is focusing on international crimes. In addition to following undeclared assets that are flowing out of Swiss banks after a crackdown, it will also build cases against tax evaders who use cryptocurrency. The promise of anonymity that has drawn money launderers and drug dealers to virtual coins is also attracting tax cheats, the IRS has said. 
* * * * 
“It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion,” Fort [CI Chief] said. 
* * * * 
Fort said his unit is focusing on how users convert cash to cryptocurrency and back. “We know that you want to get your money out at some point,” he said. 
In addition to individuals who evade taxes, Fort’s agents are looking at unlicensed exchanges in the U.S. and overseas. They are working with other criminal agents around the U.S. and stationed abroad. 
The Criminal Investigation Division gained expertise in tracking cryptocurrency by working on hundreds of identity-theft cases. The division has shrunk in recent years as Congress has reduced funding, resulting in a loss of 21 percent of agents since 2011.\ 
As a result, the division is forming specialized teams with expertise to develop high-impact cases. Aside from cryptocurrency and the flow of funds out of Switzerland, the international team will focus on tax crimes involving expatriates and cases arising out of the Foreign Account Tax Compliance Act.

Wednesday, February 7, 2018

Second Circuit Makes Limited Remand for Sentencing Court to Explain Tax Crime Fine Variance to $10 Million from High Guideline Amount of $250,000 (2/7/18)

I have previously written on the prosecution of Morris E. Zukerman for tax crimes.  I collect those prior blogs at the end of this blob.  I had not written on his plea and sentencing which are described in highly summary fashion in the Government's appellate brief, here (from which I have also drawn some of the facts later in this blog):
Superseding Indictment S1 16 Cr. 194 (AT) (the “Indictment”) was filed on May 11, 2016, in three counts. Count One charged Zukerman with corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue laws, in violation of Title 26, United States Code, Section 7212(a). Count Two charged Zukerman with tax evasion, in violation of Title 26, United States Code, Section 7201. Count Three charged Zukerman with wire fraud, in violation of Title 18, United States Code, Section 1343. On June 27, 2016, Zukerman pled guilty to Counts One and Two of the Indictment, pursuant to a written plea agreement. 
On March 21, 2017, Judge Torres sentenced Zukerman to a term of 70 months’ imprisonment, to be followed by a one-year term of supervised release. Judge Torres also imposed a fine of $10,000,000, a mandatory $200 special assessment, and an order of restitution in the amount of $37,547,951, payable to Zukerman’s two victims: the Internal Revenue Service (“IRS”) and the New York State Department of Taxation and Finance (“NY Tax”).
The current appellate action -- a Summary Order -- relates to the fine of $10,000,000.  United States v. Zukerman (2d Cir. No. 17-948), here. For those who follow federal criminal sentencing generally and with respect to tax crimes specifically, that is a pretty high fine.  Like the sentencing for incarceration, the Sentencing Guidelines has advisory ranges for fines.  SG §5E1.2. Fines for Individual Defendants, here. For both sentences of incarceration and fines, the Guidelines ranges increase with the offense level.

As stipulated by the parties, recommended by the Probation Office and found by the Court, the offense level was 27 and a criminal history category of 1.  The Guidelines fine range for level 27 is $25,000 through $250,000.  As with the sentencing ranges, the court is authorized to vary above or below the recommended fine ranges.  The Government recommend that the judge make a "substantial variance" upward, but did not make a recommendation of what the fine should be.  Zukerman sought either no fine or at most a modest fine within the stipulated Guidelines range.  The Probation office recommended a fine of $100,000.  The Court imposed a fine of $10 million.

Of course, variances, particularly substantial variances as involved here, require explanations by the sentencing judge imposing the fine.  That was the point of the current Summary Order by the Second Circuit.  The Court of Appeals felt that it did not have enough explanation of the sentence to decide Zukerman's claim that the fine was excessive.

Saturday, February 3, 2018

Problems with Restitution Based Assessment in Excess of Amount Due (2/3/18)

In Choi v. United States, 2018 U.S. Dist. LEXIS 14393 (D. Md. 2018), here, the Court rejected an attempt by a defendant convicted of tax evasion to reduce the amount of restitution based on a subsequent resolution of the underlying liability with IRS Appeals that, on its face to me at least, indicates that the restitution amount was grossly overstated.  There is a lot to unpack there.  At the outset, I offer the following additional documents that I pulled from Pacer:

  • The defendant's memorandum in support of the 28 USC § 2255 motion, here, whereby the defendant sought to invoke the Court's authority to reduce the restitution award and the resulting tax assessment under § 6201(a)(4).
  • The U.S. Response, here, and Exhibit 1, here, to the Response (a Memo from Appeals)
  • The docket entries as of yesterday, here.  Note that there are many extensions for the U.S. response, as the views of IRS CI and IRS Appeals were sought (this is noted in the U.S. response linked above).

The basic problem is that, once the criminal judgment becomes final, there appears to be no way to reduce the restitution award even if it exceeds the subsequently determined real loss to the victim (here the IRS).  Bottom line, that is what the Choi court held, although in any event the procedural device Choi used - the 28 USC § 2255 motion was not the proper procedure in any event.

The basic facts as narrated by the Court are (I eliminate the record references for easier readability):
On March 30, 2012, Petitioner Choi pled guilty in this Court to one count of tax evasion in violation of 26 U.S.C. § 7201. In his plea agreement, he agreed that the corporate tax returns that he filed for his business, Frankford Garden Liquors, for the years 2006 through 2009 "each understate the amount of the corporation's taxable gross receipts by more than $300,000." Further, he acknowledged that he understated his corporation's income to evade paying taxes. The plea agreement, however, did not state an agreed amount of taxes due and owing as a result of Choi's undereporting. Rather, the plea agreement laid out the Internal Revenue Service's (IRS) calculation of the taxes due and owing for the years 2006 through 2009. By the time of Choi's sentencing, however, both parties told this Court that they agreed to the IRS's calculation of tax loss and the imposition of a restitution order in the amount of $739,253.98 representing the taxes he owed for the years 2006 through 2009. This Court subsequently sentenced Choi to eighteen months incarceration, six months home detention, and three years supervised release. Additionally, this Court ordered a payment of $100.00 in special assessment, a $20,000.00 fine, and $739,253.98 in resitution. 
After his sentencing, Choi challenged the amount of taxes owed by his company in a civil action with the IRS Office of Appeals. In December of 2013, Petitioner was released from prison after serving his eighteen month term. Around January of 2016, Choi negotiated a settlement through the IRS Office of Appeals for total amount of $132,991.00.1