Offshore Account Enabler Post Conviction Motions for Acquittal and New Trial Denied; Issue on Reliance of Counsel (11/11/18; 11/15/18)

I have previously blogged on the indictment and conviction of Michael Little, a lawyer and an offshore account enabler.  I list the prior blogs at the end of this blog entry.  In an Opinion and Order dated November 1, 2018, the district court denied Little's motion for acquittal and alternative motion for new trial.  United States v. Little, 2018 U.S. Dist. LEXIS 187643 (S.D. N.Y. 2018), here.

The opinion is straight-forward. The only thing that caught my attention was this (Slip Op. p. 10):

Essentially, he [little] argues that the evidence was insufficient with respect to the third element—willfullness—because the government failed to disprove his advice of counsel defense. This claim is meritless. An advice of counsel defense is an affirmative defense. As such, the burden is on the defendant to prove the elements of the defense, not on the government to disprove the defense. A successful advice of counsel defense requires the defendant to prove that he (1) honestly and in good faith sought the advice of counsel, (2) fully and honestly laid all the facts before his counsel, and (3) honestly and in good faith followed his counsel's advice, believing it to be correct and intending that his acts be lawful. United States v. Colasuonno, 697 F.3d 164, 181 (2d Cir. 2012).

I think the court errs in saying that the advice of counsel defense is an affirmative defense requiring that the defendant bear the burden of proof.  The defendant does bear a threshold burden on the issue, like a burden of production, to put the reliance on counsel defense in play.  But the Government's burden of proof beyond a reasonable doubt is to prove willfulness and that requires the Government to disprove good faith (including reliance on counsel) when that "defense" has properly been put in play in the case.

Here is the relevant excerpt from Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015) (disclosure, I am the principal draftsman of Chapter 12):

¶ 12.05[2][b][ii] Blame others —tax professionals. 

A defendant will frequently assert that he or she lacked willfulness because he or she relied upon a tax professional. This is a Cheek argument in that the government failed to meet its burden to prove willfulness rather than a defense per se. The government thus has to show that the defendant did not rely upon the tax professional in order to show willfulness. n524 But, as in Cheek, the defendant has to put the “defense” in play by introducing some evidence of reliance on the tax professional. n525 Once the defendant does that, n526 it is then the government's burden to show that the defendant acted willfully, which means negating the taxpayer's claimed reliance. 

If the defendant does put the reliance defense in play, the following is a typical instruction that the government will request to advise the jury of what it must consider with respect to the defense: 

A good faith reliance upon the advice of a qualified tax accountant is also a complete defense to the charges because such a reliance is inconsistent with the intent required to commit these crimes. In order for the defendant to rely on the advice of a qualified tax accountant in good faith, the defendant must (1) make full and complete disclosure of all tax-related information, (2) to a qualified tax accountant, (3) actually rely upon and follow the advice that was provided, (4) without reason to believe that the advice was not correct. n527

Footnotes to excerpt:

   n524 In United States v. Stadtmauer, 620 F3d 237, 257 n. 22 (3d Cir. 2010) , the Court expressed this concept: “[T]o prove willfulness beyond a reasonable doubt, the Government would have to negate the taxpayer's claim that he relied in good faith on the advice of his accountant.”
   n525 In United States v. Kottwitz, 614 F3d 1241, 1272 (11th Cir. 2010) , opinion revised in part not here relevant, 627 F3d 1383 (11th Cir. 2010) , the Court held that the evidentiary burden to put the defense in play was “extremely low.”
   n526 The CTM asserts that reliance is an “affirmative defense.” CTM 12.07[2] (2012 ed.). Some courts refer to it as an affirmative defense, but query whether that is correct. The defendant bears no burden of pleading or proving the defense, but does have a production burden to put the defense in play by presenting evidence to make it a jury issue as to which the judge must instruct the jury. See United States v. Wilson, 887 F2d 69, 73 (5th Cir. 1989) .
   n527 See United States v. Lewis, Dkt. No. C 05-00638 (ND Cal. 2007) , unofficially reported at 2007 TNT 32-18; see also United States v. Charroux, 3 F3d 827, 831 (5th Cir. 1993) (to rely on this “affirmative defense,” the defendant must show that he relied in good faith on the professional and that he provided the professional complete information). As noted in the text, however, this is not a defense and the defendant need not show anything (at least in the sense of meeting some type of burden of persuasion as to the defense).

Having said that, I think that, even with a proper formulation of the the defense and the Government's burden to prove willfulness, the district court would have still denied the motion because, as it recounts the evidence, the jury did not believe the defense.   But that is just my inference on what the court did say.  And, interestingly, the court did not say what instruction, if any, was given on the reliance on professional it gave and whether the standard good faith instruction that I am sure it did give would have covered the point.  (Often when a defendant has put the type of proof on to meet some production burden on good faith (including its subset, reliance on counsel), if the court did not give the specific good (or subset) instruction, the court of of appeals still affirms on the basis that the good faith instruction covered the point, for if the jury did not believe that the Government proved willfulness beyond a reasonable doubt (including disproving the good faith claim), it could not have found the defendant guilty.)

On the Good Faith / Reliance on Professional "Defense," see (reverse chronological order):

• Does A Standard Willfulness Instruction Adequately Inform the Jury of the Good Faith Defense? (Federal Tax Crimes Blog 4/19/16; 4/21/16), here; 
• Reliance on Counsel "Defense" and Jury Instructions (Federal Tax Crimes Blog 4/17/18), here;
• Good Faith as a Defense to Tax Crimes (Federal Tax Crimes Blog 2/9/13), here; 
• Making a Cheek Good Faith "Defense" Without Testifying (Federal Tax Crimes Blog 11/24/11), here; 
• First Circuit Addresses Circuit Split Over Over Standard of Review Involving the Denial of an Advice-of-Counsel Jury Instruction (Federal Tax Crimes Blog 12/22/12), here.

Prior Federal Tax Crimes Blog postings on Michael Little:

• Michael Little, British/US Lawyer, Convicted for Offshore Account Enabler and Personal Income Tax Charges (Federal Tax Crimes Blog 4/22/18), here.
• Lawyer, Alleged Offshore Account Enabler, Loses Motion to Dismiss Indictment (Federal Tax Crimes Blog 5/6/17), here.
• British Lawyer Charged in Swiss Bank Mess Related to UBS Account (Federal Tax Crimes Blog 5/11/12), here.

Addendum 11/15/18 5:30pm:

By Opinion and Order Dated 11/14/18, here, the district court denied Little's motion for reconsideration raising the issue discussed above about the burden with respect to a reliance on counsel defense.  The Court said that Second Circuit precedent was consistent with my point above -- i.e., the reliance on counsel "defense" is not an affirmative defense but simply an argument which might defeat the Government's case for willfulness which it must prove beyond a reasonable doubt.  In so holding, the court quote the following from United States v. Scully, 877 F.3d 464, 476 (2d Cir. 2017):

In a fraud case . . . the advice-of-counsel defense is not an affirmative defense that defeats liability even if the jury accepts the government's allegations as true. Rather, the claimed advice of counsel is evidence that, if believed, can raise a reasonable doubt in the minds of the jurors about whether the government has proved the required element of the offense that the defendant had an "unlawful intent." . . . The government must carry its burden to prove . . . intent to defraud, and that burden does not diminish because [a defendant] raise[s] an advice-of-counsel defense. Accordingly, the district court must advise the jury in unambiguous terms that the government at all times bears the burden of proving beyond a reasonable doubt that the defendant had the state of mind required for conviction on a given charge."

The Court then held:

The Court's instruction regarding Little's advice of counsel defense was also consistent with Scully. Under Scully, once there are sufficient facts in the record to support an advice of counsel defense, "it is for the government to carry its burden of proving fraudulent intent beyond a reasonable doubt and for the jury to decide whether that burden was met." Id. at 476-77. The Scully court advised that it might be "potentially confusing to instruct the jury that the defendant 'has the burden of producing evidence to support the defense' or must 'satisfy' the elements of the defense, or that it is the jury's job to determine whether the defense was 'established.'" Id. Consistent with the Second Circuit's guidance, this Court charged the jury as follows: (Tr. 2189-90). The language of this Court's charge is substantively the same as the language suggested by the Scully court. n2 See id. at 477-78. The Court's instructions on Counts Ten through Nineteen were, therefore, proper.
   n2 The Scully court recommended two sample instructions. One of the samples read as follows:
   You have heard evidence that the defendant received advice from a lawyer and you may consider that evidence in deciding whether the defendant acted willfully and with knowledge.
   The mere fact that the defendant may have received legal advice does not, in itself, necessarily constitute a complete defense. Instead, you must ask yourselves whether the defendant honestly and in good faith sought the advice of a competent lawyer as to what he may lawfully do; whether he fully and honestly laid all the facts before his lawyer; and whether in good faith he honestly followed such advice, relying on it and believing it to be correct. In short you should consider whether, in seeking and obtaining advice from a lawyer, the defendant intended that his acts shall be lawful. If he did so, it is the law that a defendant cannot be convicted of a crime that involves willful and unlawful intent, even if such advice were an inaccurate construction of the law.
   On the other hand, no man can willfully and knowingly violate the law and excuse himself from the consequences of his conduct by pleading that he followed the advice of his lawyer.
   Whether the defendant acted in good faith for the purpose of seeking guidance as to the specific acts in this case, and whether he made a full and complete report to his lawyer, and whether he acted substantially in accordance with the advice received, are questions for you to determine.
Scully, 877 F.3d at 477-78.

You've heard evidence that defendant received legal advice from lawyers, and you may consider that evidence in deciding whether the defendant acted willfully [*5]  and with knowledge. However, the mere consultation with a lawyer is not a defense to criminal conduct. 

In considering whether the defendant acted willfully and with knowledge as to Counts Ten through Nineteen, you must consider whether, before taking action, the defendant honestly and in good faith sought the advice of a competent lawyer as to what he may lawfully do. This means that he sought and obtained legal advice regarding a proposed course of conduct before proceeding with that course of conduct. You must also consider whether the defendant fully and honestly presented all relevant facts to the lawyer, and whether he honestly followed such advice in good faith, relying on it and believing it to be correct. In short, you should consider whether, in seeking and obtaining advice from lawyers, the defendant intended for his acts to be lawful. If he did so, a defendant cannot be convicted of a crime that requires willful and unlawful intent, even if the advice received was incorrect. 

On the other hand, no defendant can willfully and knowingly violate the law and excuse himself from the consequences of his conduct by asserting that he followed the advice of a lawyer. Whether the defendant acted in good faith for the purpose of seeking guidance as to the specific acts in this case before engaging in those acts, whether he made a full and complete presentation of the facts to his lawyer, and whether he acted substantially in accordance with the advice received, are questions for you to determine. 

To the extent that the Court's Order implied that a defendant who asserts an advice of counsel defense thereby bears the burden of proof with respect to the "willfulness" element of his charged offense, rather than the burden of production with respect to his asserted defense, such is not the law. As this Court instructed on Counts Ten through Nineteen, "[i]n order to prove the defendant guilty of aiding or assisting in the filing of a false tax return, the government must prove each . . . element[] beyond a reasonable doubt," including willfulness. (Tr. 2187). Regardless, this Court's factual analysis in the Order with respect to Little's motion for a judgment of acquittal on Counts Ten through Nineteen remains unchanged. In his motion for acquittal, Little argued that the government's evidence was insufficient with respect to the element of willfulness. This Court discussed the relevant evidence and determined that the evidence was sufficient. United States v. Little, No. S2 12-cr-647 (PKC), 2018 U.S. Dist. LEXIS 187643, 2018 WL 5668874, at *5 (S.D.N.Y. Nov. 1, 2018). That determination stands undisturbed.