TIGTA Report on IRS Use of Form 3949-A, Information Referral (5/30/19)

TIGTA issued this report:  Improvements Are Needed to Correct Continued Deficiencies in the Processing of Taxpayer Referrals of Suspected Tax Fraud (Ref. No. 2019-40-040 5/23/19), here.  (The Highlights are in the report but separately offered here.)

Key points are:

1.  Taxpayer referrals of suspected tax fraud are on Form Form 3949-A, Information Referral, here.  The instructions say:  "Purpose of the Form:  Use Form 3949-A to report alleged tax law violations by an individual, a business, or both."  As indicated below, the actual use of the information reported seems to be in the civil audit area.

2.  The report focuses principally on the use of the reported information to collect revenue and compares to collection of revenue from other sources (more below).  It is not clear how successful the forms are in pursuing criminal investigations and prosecutions.  (See the routing information in paragraph 5 below.) I note in this regard that, since criminal investigations usually require larger amounts, persons with evidence of tax fraud will likely pursue the whistleblower opportunities by filing Form 211 instead of Form 3949-A.

3.  In FYs 2016 - 2018, the information on Forms 3949-A resulted in over $246 million in assessed taxes.  (I'm not sure how much actual revenue was collected.)  For FYs 2015 - 2018, 290,742 Forms were received.

4. The report makes suggestions on improvements in the use of the Form.  The report notes that the instructions provide that the, for reports on individual taxpayers, the Form is to be sent to the IRS's Submission Processing Function which routes them to the appropriate functional area for further review.  The report explains the process from receipt to referral to the appropriate functional area.  IRS employees "continue to erroneously route a significant number of Forms 3949-A to the wrong IRS function for review."

5.  The routing data for 2018 from W&I and SB/SE indicate that 2,665 cases were routed to CI out of 61,164 total received.  See Figure 3, p. 3.

6.  The assessment statistics presented in Figure 4, p. 4 are:

1st Circuit Affirms Money Laundering and Tax Convictions and Discusses Difference Between SG Loss and Restitution (5/27/19)

In United States v. Flete-Garcia, ___ F.3d ___ (1st Cir. 2019), here, a tax crimes false refund case at heart although money laundering of the proceeds of tax crimes was the more serious charges, the court (Judge Selya) opens with this paragraph (useful at least for encountering some uncommonly used words):

Having identified defendant-appellant Fulvio Flete-Garcia as the architect of a massive swindle, the government charged him with a litany of fraud-based crimes. Following four days of trial, Flete-Garcia threw in the towel and entered a straight guilty plea to all 48 counts of the indictment. Prior to sentencing, though, Flete-Garcia experienced buyer's remorse and attempted to withdraw his guilty plea. The district court denied this motion, as well as sentencing-related motions for discovery and for an evidentiary hearing. It then sentenced Flete-Garcia to 132 months' imprisonment and ordered him to make restitution in the amount of $7,737,486.10. Flete-Garcia appeals, raising a gallimaufry of alleged errors. Finding his asseverational array long on perfervid rhetoric but short on substance, we affirm.

As I said, the opinion was written by Judge Selya.  For more on Judge Selya's and his writing style, see the Wikipedia entry here.

The opinion is 49 pages and has other uses of words not commonly encountered (in my experience).  But that's all beside the point.

Now, what might be useful for readers of this blog?  Let me say that it is all interesting even (in my case beyond the challenge of encountering uncommonly-used words).  But what is really useful for readers of this blog (or at least my target readers of this blog)?

The outline of the opinion with local page cites and links is

I. BACKGROUND (p. 3, here) 
II. WITHDRAWAL OF GUILTY PLEA (p. 8, here.)
III. CERTAIN SENTENCING RELATED MATTERS (p. 13, here,)
A. Enhancement for Number of Victims. (p. 13, here.)
B. Enhancement for Amount of Loss. (p. 18, here.)
C. Discovery. (p. 31, here.)
D. Evidentiary Hearing. (p. 35, here)
E. The Due Process Claim. (p. 38, here.)
IV. RESTITUTION (p. 40, here.)
V. INEFFECTIVE ASSISTANCE OF COUNSEL (p. 46, here.)
VI. CONCLUSION (p. 49, here.)

I think readers might be interested in the discussion on restitution starting on op. 40, here, where Judge Selya addresses the differences between the loss calculation and restitution.  In brief, the loss calculation determines the Guidelines Sentencing Range ("GSR") calculation which may include intended loss in excess of actual loss; the restitution calculation is to quantify the actual loss so that the victim may be compensated.  In this case, the loss was calculated under the money laundering guideline but basically it appears to be the same quantity as the tax loss since illegal tax refunds were the object of the crimes.  (That is just to say that if the loss had been calculated under the tax guidelines, the loss amount would have been the same.)

Here is Judge Selya's discussion of restitution (or at least the excerpts from that discussion that I think would be helpful for fans of tax crimes).  Note that I used the cleaned up technique:

11th Circuit Affirms Convictions for Wire Fraud, Tax Perjury and False Statement (5/27/19)

In United States v. Beverley, 2019 U.S. App. LEXIS 14617 (11th Cir. 2019) (unpublished), here, Beverly, a previously convicted felon, appealed his convictions and sentence for four counts of wire fraud, 18 U.S.C. § 1343; four counts of filing a false tax return, 26 U.S.C. § 7206(1); and five counts of making a false statement to the United States, 18 U.S.C. § 1001.

The conduct drawing the convictions is garden variety conduct and the claims made on appeal are garden variety as well.  Here is an outline of the opinion.

I. BACKGROUND
II. DISCUSSION
   A. Evidentiary Rulings
   B. Sufficiency of the Evidence
   C. Guidelines Calculations
III. CONCLUSION

The tax convictions were for tax perjury, § 7206(1).  Beverley failed to report income that he shunted through others.  Beverly also claimed he had an $8 million NOL carryover.  He was convicted of tax perjury -- some known falsehood that he willfully presented on his tax return.  The omission of the income was sufficient to convict on the tax perjury counts.  But Beverly insisted that this $8 million NOL carryover should negate the convictions.  The Court rejected the argument as follows:

Beverley also argues that, with respect to his tax returns, the government failed to prove that he knew he was not entitled to report as negative income the $8 million net operating loss. But that argument is a red herring. Beverley's failure to report as positive income the funds he diverted from his employer supplied, on its own, sufficient evidence to sustain the tax fraud convictions.

JAT comments:

District Court Rejects Argument that JDS Seeking Law Firm Client Identities Violates Attorney-Client Privilege (5/25/19)

In Taylor Lohmeyer Law Firm PLLC v. United States, 2019 U.S. Dist. LEXIS 81809 (W.D. Tex 2019), here, the district court (i) dismissed a law firm ("Firm") challenge to an IRS John Doe Summons (JDS) for client identities and (ii) enforced the JDS.

Based on information from an audit which resulted in substantial tax liability, the IRS obtained the JDS, which is an ex parte proceeding, seeking "names of and other information related to the Firm's clients between 1995-2017 to investigate the tax liability of those who used the Firm to 'create and maintain foreign bank accounts and foreign entities that may have been used to conceal taxable income in foreign countries.'" 

The Court held that the JDS easily met the Powell factors (United States v. Powell, 379 U.S. 48, 57-58 (1964)) which it stated as:

the Government must establish that the summons: (1) is issued for a legitimate purpose; (2) seeks information which may be relevant to that purpose; (3) seeks information that is not already within the IRS's possession; and (4) satisfies all administrative steps required by the Internal Revenue Code.

The Court recounted the evidence as follows:

But the bar for "reasonable basis" is not high and the affidavit of Russell-Hendrick from the ex parte proceeding establishes a reasonable basis. She details her conclusion that Taxpayer-1 concealed his connection to offshore structures—for which Taxpayer-1 remained the beneficial owner—created under the advice of the firm. Taxpayer-1 entered an agreement with the IRS in June 2017, admitting that Taxpayer-1 owned all assets owned by the offshore trusts and earned over $5 million in unreported income between 1996 and 2000. Taxpayer-1 accepted liability for civil fraud penalties and penalties for failing to file the required forms for reporting foreign income. 

Russell-Hendrick then states the basis for her opinion that the Firm provided similar advice to other clients. Among other pieces of evidence, she states that in an interview with John Taylor, former partner of the firm, Taylor estimated that he structured offshore entities for tax purposes for 20 to 30 clients between the 1990s and early 2000s. Russell-Hendrick states in part that: 

Taylor Lohmeyer PLLC's services to their U.S. clients, as described by Taxpayer-I and Taylor himself, are the kinds of activities that, in the experience of the IRS, are hallmarks of offshore tax evasion, including: (1) structures of offshore trusts with compliant trustees, and foundations and anonymous corporations managed by nominee officers and directors, (2) the use of "straw men" to contribute nominal funds to foreign trusts to create the false appearance that such trusts have foreign grantors, and (3) the concealment of beneficial ownership of foreign accounts and assets in jurisdictions with strong financial secrecy laws and practices. 

The information obtained by the IRS and discussed in this Declaration suggests that the still-unknown U.S. taxpayers doing business with Taylor Lohmeyer PLLC may not have reported their offshore accounts, entities, or structures. Instead, they have likely relied on the assistance of Taylor, and the fact the structures are hidden offshore to support a decision not to report the existence of those entities and accounts, expecting  that the IRS would not discover the accounts, omitted income, and/or the existence of the entities. 

18-MC-1046, docket no. 1-2 at 37. Thus, assuming for argument that the Firm could challenge the ex parte proceeding at this stage, issuance was proper.

The minimal Powell standards were clearly met.  The real issue was not whether the IRS abused the JDS process (per the Powell factors) but whether the information sought--the identities of clients--implicated the attorney-client privilege.  Normally, client identity is not within the purview of the attorney-client privilege because, except in rare circumstances, the mere identification of the client does not disclose any client confidential communication for obtaining legal services.  The law firm argued that this was a rare circumstance where the facts indicate that identifying the client will identify the client communications regarding the advice, then the attorney-client privilege may apply.  One now rather old tax case so held.  United States v. Liebman, 742 F.2d 807 (3d Cir. 1984).  The court rejected the argument as follows:

IRS 2018 Data Book Release; Table 18 on Criminal Investigation Program Statistics (5/20/19)

The IRS has released its 2018 Data Book.  The Data Book may be accessed here.

For readers of this blog, the key data are presented in Table 18: Criminal Investigation Program, by Status or Disposition.

The link to Table 18 for each of the years 1995-2018 is here for those wanting a deep dive into the data from year to year.

The Table 18 spreadsheet for 2018 for may be downloaded on that page.   Here is a cut and paste of the data.  (Note that the formatting is a little off, but the data should be easily understood.

Table 18.  Criminal Investigation Program, by Status or Disposition, Fiscal Year 2018
Status or disposition [1]	Total	Legal source tax crimes [2]	Illegal source financial crimes [3]	Narcotics-related financial crimes [4]
	(1)	(2)	(3)	(4)
Investigations initiated	2,886	1,099	1,064	723
Investigations completed	3,051	1,197	1,086	768
Referrals for prosecution	2,130	680	816	634
Investigations completed without prosecution	921	517	270	134
Indictments and informations [5]	2,011	636	765	610
Convictions	1,879	668	725	486
Sentenced	2,111	774	787	550
Incarcerated [6]	1,732	614	635	483
Percentage of those sentenced who were incarcerated [6]	82.0	79.3	80.7	87.8
[1]  Investigations may cross fiscal years. An investigation initiated one fiscal year may not be indicted, convicted, or sentenced until a subsequent fiscal year. Therefore, the disposition (completions, indictments/informations, convictions, sentences) of investigations shown in this table may be related to investigations initiated, completed, indicted, or convicted in prior fiscal years.
[2]  Under the Legal Source Tax Crimes Program, IRS Criminal Investigation identifies, investigates, and assists in the prosecution of crimes involving legal industries, legal occupations, and, more specifically, legally earned income associated with the violation of Title 26 (tax violations) and Title 18 (tax-related violations) of the U.S. Code. The Legal Source Tax Crimes Program also includes employment tax cases and those cases that threaten the tax system, such as Questionable Refund Program cases, unscrupulous return preparers, and frivolous filers/nonfilers who challenge the legality of the filing requirements.
[3]  Under the Illegal Source Financial Crimes Program, IRS Criminal Investigation identifies, investigates, and assists in the prosecution of crimes involving proceeds derived from illegal sources other than narcotics. These encompass all tax and tax-related violations, as well as money laundering and currency violations under the following statutes: Title 26 (tax violations); Title 18 (tax-related and money laundering violations); and Title 31 (currency violations) of the U.S. Code. The utilization of forfeiture statutes to deprive individuals and organizations of illegally obtained assets is also linked to the investigation of criminal charges within this program.
[4]  Under the Narcotics-Related Financial Crimes Program, IRS Criminal Investigation seeks to identify, investigate, and assist in the prosecution of the most significant narcotics-related tax and money laundering offenders. The IRS derives authority for this program from the statutes for which it has jurisdiction: Title 26 (tax violations); Title 18 (tax-related and money laundering violations); and Title 31 (currency violations) of the U.S. Code. IRS Criminal Investigation also devotes resources to high-level multiagency narcotics investigations warranting Organized Crime Drug Enforcement Task Force (OCDETF) designation in accordance with OCDETF Program reimbursable funding.
[5]  Both “indictments” and “informations” are accusations of criminal charges. An “indictment” is an accusation made by a Federal prosecutor and issued by a Federal grand jury. An “information” is an accusation brought by a Federal prosecutor without the requirement of a grand jury.
[6]  The term “incarcerated” may include prison time, home confinement, electronic monitoring, or a combination thereof.
SOURCE:  Criminal Investigation, Communications and Education Division.
JAT Comments: 1.  On the 2018 data, I have no comments. 2.  I have a spreadsheet whereby I compare certain of the line items from year to year.  The caveat is that statistics may be misleading.  All I do is compile the data (and in two lines derive the percentages which compares in the one percentage the IRS offers).  Here it is Total 2005-2018 Total 2012-2018 2005-2018 Average 2012-2018 Average 1 Indictments 13,816 987 8,264 1,181 2 Convictions 12,445 889 7,688 1,098 3 Percentage Convicted (l. 2 / l. 1) 90.1% 90.1% 93.0% 93.0% 4 Sentenced 12,419 887 7,678 1,097 5 Incarcerated 9,862 704 6,108 873 6 Percentage Incarcerated (l. 4 / l. 5) 79.4% 79.4% 79.6% 79.6%

First Circuit Pattern Criminal Jury Instruction on Willful Blindness (5/6/19)

I have expressed concern about the willful blindness instruction (which also goes by other names, such as deliberate ignorance, conscious avoidance and ostrich instruction).  So, I decided to look through the pattern jury instructions on willful blindness for the Circuits that have them to see what they may offer.  Among the ones I could find, I think the best one is the First Circuit's from the document titled "2019 Revisions to Pattern Criminal Jury Instructions for the District Courts of the First Circuit, pp. 47-49, from the District of Maine web site,here.  I bold face the part that I recommend readers pay attention to:

2.16 “Willful Blindness” As a Way of Satisfying “Knowingly”
[Updated: 12/15/17]

In deciding whether [defendant] acted knowingly, you may infer that [defendant] had knowledge of a fact if you find that [he/she] deliberately closed [his/her] eyes to a fact that otherwise would have been obvious to [him/her]. In order to infer knowledge, you must find that two things have been established. First, that [defendant] was aware of a high probability of [the fact in question]. Second, that [defendant] consciously and deliberately avoided learning of that fact. That is to say, [defendant] willfully made [himself/herself] blind to that fact. It is entirely up to you to determine whether [he/she] deliberately closed [his/her] eyes to the fact and, if so, what inference, if any, should be drawn. However, it is important to bear in mind that mere negligence, recklessness or mistake in failing to learn the fact is not sufficient. There must be a deliberate effort to remain ignorant of the fact.

Comment 

(1) This instruction is drawn from the instructions approved in United States v. Gabriele, 63 F.3d 61, 66 n.6 (1st Cir. 1995), and United States v. Brandon, 17 F.3d 409, 451-52 & n.72 (1st Cir. 1994). The First Circuit quoted and approved the last seven sentences (without mention of “recklessness”) in United States v. Jesús-Viera, 655 F.3d 52, 59 (1st Cir. 2011). The instruction was also approved in United States v. Denson, 689 F.3d 21 (1st Cir. 2012), where the court reiterated: “[t]he focus of [a] willful blindness instruction must be on the particular defendant and not on the hypothetical reasonable person.” Id. at 24 (quoting United States v. Griffin, 524 F.3d 71, 80 (1st Cir. 2008)). Indeed, it is erroneous to use “reasonable person” language. United States v. Bray, 853 F.3d 18, 24, 30 (1st Cir. 2017) (Although not finding plain error, the court stated that an instruction that a “reasonable person in [the defendant’s] shoes would certainly have known” mistakenly suggested that the jury could find the defendant guilty even if the defendant had not “consciously and deliberately avoided learning” about the violation.). 

(2) Although in United States v. Anthony, 545 F.3d 60, 66 (1st Cir. 2008), the First Circuit said that it was not error to omit reference to “recklessness,” we have nevertheless added the statement that “recklessness” in failing to learn a fact is not enough because of the Supreme Court’s decision in Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011). Although GlobalTech was a patent case, it described the doctrine of willful blindness as “well established in criminal law,” id. at 2068, and spoke approvingly of the circuits’ approach as “giv[ing] willful blindness an appropriately limited scope that surpasses recklessness and negligence.” Id. at 2070. In Denson, 689 F.3d at 24-25, the First Circuit recognized the authority of Global-Tech for a willful blindness instruction, but the issue there was not about recklessness. Following Global-Tech, the Fourth Circuit has agreed that recklessness is not sufficient. United States v. Jinwright, 683 F.3d 471, 480 (4th Cir. 2012); see also United States v. Goffer, 531 Fed. Appx. 8, 20-21 (2d Cir. 2013) (endorsing the standard that recklessness is insufficient, but finding that the jury instruction satisfied that standard without using the term “reckless”).  

(3) The rule in the First Circuit is that: A willful blindness instruction is warranted if (1) the defendant claims lack of knowledge; (2) the evidence would support an inference that the defendant consciously engaged in a course of deliberate ignorance; and (3) the proposed instruction, as a whole, could not lead the jury to conclude that an inference of knowledge was mandatory. Gabriele, 63 F.3d at 66 (citing Brandon, 17 F.3d at 452, and United States v. Richardson, 14 F.3d 666, 671 (1st Cir. 1994)); accord United States v. Valbrun, 877 F.3d 440, 445 (1st Cir. 2017); United States v. Figueroa-Lugo, 793 F.3d 179, 191 (1st Cir. 2015); United States v. Appolon, 695 F.3d 44, 63 (1st Cir. 2012); United States v. Mitrano, 658 F.3d 117, 123 (1st Cir. 2011); United States v. Coviello, 225 F.3d 54, 70 (1st Cir. 2000); United States v. Camuti, 78 F.3d 738, 744 (1st Cir. 1996). “The danger of an improper willful blindness instruction is ‘the possibility that the jury will be led to employ a negligence standard and convict a defendant on the impermissible ground that he should have known [an illegal act] was taking place.’” Brandon, 17 F.3d at 453 (quoting United States v. Littlefield, 840 F.2d 143, 148 n.3 (1st Cir. 1988)). “[T]he government is not required to prove willful blindness by direct evidence.” United States v. Valbrun, 877 F.3d 440, 446 (1st Cir. 2017). The government “may satisfy its burden of production by adducing evidence that red flags existed that the defendant consciously avoided investigating.” Id. 

Sixth Circuit Approves "Slight Connection" Conspiracy Instruction (5/2/19)

 In United States v. Daneshvar, 2019 U.S. App. LEXIS 12773 (6th Cir. 2019) (unpublished), here, involving healthcare fraud, Daneshvar complained about the following jury instruction (emphasis supplied by JAT):

If you are convinced there was a criminal agreement, then you must decide whether the government has proved that the defendant knowingly and voluntarily joined that agreement. To convict the defendant, the government must prove that he knew the conspiracy's main purpose, that he voluntarily joined it intending to help or achieve its goals.
This does not require proof that the defendant knew everything about the conspiracy or everyone else involved or that he was a member of it from the very beginning. Nor does it require proof that the defendant played a major role in the conspiracy or that his connection to it was substantial. A slight role or connection may be enough.

As I note at the bottom of this blog, the bold-faced language, although a variation of one often used in the past, is now disfavored.  That was the complaint that Daneshvar raised.  Here is the Court's discussion:

This instruction is identical to the Sixth Circuit Pattern Jury Instruction 3.03. Daneshvar  argues that we "should take this opportunity to disavow the jury instruction" (Appellant Br. at 40), and in doing so, he makes the same argument as in United States v. Mahbub, 818 F.3d 213, 230 (6th Cir. 2016), where the defendant contended that the jury instruction lowers the burden of proof.  

In Mahbub, we held:  

[The defendant's] contention lacks merit. The instruction states, and the district court read, "[a] slight role or connection may be enough" to link a defendant to a conspiracy, which is an accurate legal proposition. See United States v. Price, 258 F.3d 539, 544 (6th Cir. 2001) ("The connection of the defendant to the conspiracy need only be slight, if there is sufficient evidence to establish that connection beyond a reasonable doubt."); United States v. Betancourt, 838 F.2d 168, 174 (6th Cir. 1988) ("The existence of a connection to the conspiracy must be shown beyond a reasonable doubt, but the importance of the connection need not be great."). To the extent that the disputed language lowers the burden of proof to support a conviction, we note that "no single provision of the jury instruction can be read in isolation;" instead, "the charge must be considered as a whole." United States v.Horton, 847 F.2d 313, 322 (6th Cir. 1988).
Id. We determined that "the district court made it abundantly clear that the reasonable-doubt standard applied in determining whether [the defendant] should be found guilty of criminal conspiracy" by using the phrase "beyond a reasonable doubt" in the jury instructions. Id.  

Daneshvar argues that unlike in Mahbub, "the rest of the jury instructions in this case combined to relieve the government of its high standard of proof and replace it with speculation and probabilities." (Appellant Br. at 39.) We do not find that Daneshvar's argument has merit, let alone establishes that the district court committed plain error. As in Mahbub, the district court here repeatedly used the reasonable-doubt standard. Before beginning the conspiracy section, the court stated: "A conspiracy is a kind of criminal partnership. For you to find the defendant guilty of the conspiracy charge, the government must prove each and every one of the following elements beyond a reasonable doubt . . . ." (Trial Tr. Vol. 8, R. 121, Page ID # 1816.) Again, the court stated, "You must be convinced that the government has proved all of these elements beyond a reasonable doubt in order to find the defendant guilty of the conspiracy charge." (Id. at Page ID # 1817.) 

Although Daneshvar points out that other circuits do not use the phrase "slight evidence," our circuit continues to do so, so long as, considering the jury instructions as a whole, the instructions do not lower the burden of proof. See Mahbub, 818 F.3d at 230; see also United States v. Price, 258 F.3d 539, 544 (6th Cir. 2001)("The connection of the defendant to the conspiracy need only be slight, if there is sufficient evidence to establish that connection beyond a reasonable doubt."). Upon reviewing the jury instructions as a whole, including the district court's repeated use of the reasonable-doubt standard, we find that the instructions did not lower the burden of proof. Thus, we find no error in the use of the conspiracy jury instruction.

JAT Comments:

Fifth Circuit on Willful Blindness / Deliberate Ignorance as Circumstantial Evidence of Intent Element (5/2/19)

In United States v. Ricard, ___ F.3d ___, 2019 U.S. App. LEXIS 12598 (5th Cir. 2019), here, "Ricard was convicted by a jury of one count of conspiracy to pay and receive kickbacks for referring Medicare patients to a particular health care provider, three counts of receiving such kickbacks for such referrals, three counts of identity theft, and one count of making false statements to a federal agent."  Although this is a nontax case, the case has some good discussion on issues that arise in criminal tax cases, particularly regarding the willful blindness jury instructions.

The Court explained the crime involved:

Willfulness in the Medicare kickback statute "means that the act was committed voluntarily and purposely with the specific intent to do something the law forbids; that is to say, with bad purpose either to disobey or disregard the law." United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998) (quoting United States v. Garcia, 762 F.2d 1222, 1224 (5th Cir. 1985)). Under this definition of willfulness, "knowledge that the conduct is unlawful is all that is required." n8 Bryan v. United States, 524 U.S. 184, 196, 118 S. Ct. 1939, 141 L. Ed. 2d 197 (1998).
   n8 In contrast, a heightened willfulness standard applies in certain tax and currency structuring cases. Those statutes "carve out an exception to the traditional rule that ignorance of the law is no excuse and require that the defendant have knowledge of the law." Bryan, 524 U.S. at 195 (internal quotation marks and footnotes omitted).

At this point, I am not sure what the Court means by "In contrast."  The Court says the crime is a "specific intent" crime requiring that the defendant know the law and intend to violate it.  I am not sure that, as articulated, it is distinguishable from the tax and currency structuring cases.  I don't think this need detain us, other than those digging into the issue might want to dig deeper on that.

The willful blindness / deliberate ignorance instruction the trial court gave was from the Fifth Circuit's Pattern Jury Instructions § 1.37A (2015).:

You may find that a defendant had knowledge of a fact if you find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. While knowledge on the part of the defendant cannot be established merely by demonstrating that the defendant was negligent, careless, or foolish, knowledge can be inferred if the defendant deliberately blinded himself to the existence of a fact.

The trial court also gave an "inferring mental state" charge as follows (this time from the Sixth Circuit pattern jury instruction § 2.08 (2013 ed.):

But a defendant's state of mind can be proved indirectly from the surrounding circumstances. This includes things like what the defendant said, what the defendant did, how the defendant acted, and any other facts or circumstances in evidence that show what was in the defendant's mind. 

You may also consider the natural and probable results of any acts that the defendant knowingly did or did not do, and whether it is reasonable to conclude that the defendant intended those results. This, of course, is all for you to decide.

At trial:

Ricard objected to the deliberate ignorance instruction, arguing that it was "covered by" the instruction concerning "inferring [the] required mental state" and that only one or the other charge should be given. The district court overruled the objection, saying that "while they both deal with the mental element" the deliberate ignorance instruction "is a different charge."

On appeal, Ricard made a different argument -- that the elements required for the deliberate ignorance instruction were absent, so that Court reviewed for plain error, noting that, in any event, "even if a deliberate ignorance charge is error, it is harmless where substantial evidence of actual knowledge exists." (Internal quotation marks omitted.)

Another Case Holding that Marinello's Pending or Expected Proceeding Requirement for Tax Obstruction Does Not Apply to the Defraud / Klein Conspiracy (5/2/19)

In United States v. Herman, 2019 U.S. Dist. LEXIS 70151 (W.D. Tex. No. AU-17-CR-301-XR 4/24/19) [no link available], the court somewhat cryptically rejected the defendant's argument that the pending or expected proceeding reasoning of Marinello v. United States, 138 S. Ct. 1101 (2018) on the tax obstruction crime (§ 7212(a)) applied to the defraud / Klein conspiracy under 18 USC § 371(a).  The Court's holding on that issue is:

Defendants argue that Marinello v. United States, 138 S. Ct. 1101, 200 L. Ed. 2d 356 (2018) mandates the dismissal of count one. In Marinello, the Supreme Court interpreted 26 U.S.C. § 7212(a) and concluded that "to secure a conviction under the Omnibus Clause [of that statute], the Government must show (among other things) that there is a 'nexus' between the defendant's conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action." Id. at 1109. "In addition to satisfying this nexus requirement, the Government must show that the proceeding was pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant." Id. at 1110. Defendants argue that "it is now clear that with regard to 'obstruction conviction[s], the government would need to prove beyond a reasonable doubt that a person, acting with corrupt intent, engaged in obstructive conduct with a sufficient nexus to a pending or contemplated proceeding.'" Defendants further argue that the Indictment fails to include this essential element. This Court rejects Defendants' argument for the same reasons as stated by the Court in United States v. Flynn, No. CR 16-347 ADM/KMM, 2019 U.S. Dist. LEXIS 3317, 2019 WL 135701, at *7 (D. Minn. Jan. 8, 2019). The limitations on the substantive offense of 26 U.S.C. § 7212(a) do not apply to Klein conspiracies charged under the general conspiracy statute of 18 U.S.C. § 371. See also United States v. Parlato, No. 15-CR-149-FPG, 2019 U.S. Dist. LEXIS 33035, 2019 WL 988450, at *2 (W.D.N.Y. Mar. 1, 2019) (declining to apply Marinello to a statute the Supreme Court did not consider). The motions are denied (docket nos. 73 and 76).

I previously reported on Flynn: Two Cases Involving Marinello (Federal Tax Crimes Blog 1/15/19), here.  I also reported on Parlato. District Court Rejects Argument that Marinello Applies to Defraud / Klein Conspiracy (3/7/19), here.

10th Circuit Rejects Affirmative Act Challenge to Tax Evasion Convictions (5/2/19)

In United States v. Gorrell, ___ F.3d ___, 2019 U.S. App. LEXIS 12758 (10th cir. 2019), here, "Gorrell was convicted of three counts of wire fraud, 18 U.S.C. § 1343, and three counts of tax evasion, 26 U.S.C. § 7201."  Gorrell appealed only his convictions of tax evasion.  As interpreted by the Court, his argument on appeal was that "the jury was improperly instructed because the alleged affirmative acts contained in the jury instructions (as set forth in the Superseding Indictment) are legally insufficient in light of the evidence presented at trial."  The Court concludes that the alleged affirmative acts were sufficient to support the general jury verdict of guilt on the tax evasions charges.

The instruction on tax evasion was:

To find the defendant guilty of tax evasion, you must be convinced that the government has proved each of the following elements beyond a reasonable doubt: 

FIRST: The Defendant owed substantial income tax in addition to the tax liability which he reported on his income tax return for the year charged in a particular Count; 

SECOND: The Defendant intended to evade and defeat payment of that additional tax; 

THIRD: The Defendant committed an affirmative act in furtherance of this intent, as charged in the Superseding Indictment; and 

FOURTH: The Defendant acted willfully, that is, with the voluntary intent to violate a known legal duty.

The Court of Appeals presents the separate jury instruction on the affirmative acts of evasion as follows:

Jury Instruction Number 19 defines an "affirmative act of evasion" and further explains that "[t]he government needs only to prove one act of evasion to satisfy this element of the offense, but you must unanimously agree on which act or acts were committed." Id. at 118. Jury Instruction Number [*8]  17 lists six actions which the government asserts satisfy the affirmative act element of tax evasion. The same six affirmative acts are found in each count of tax evasion. n4 Gorrell argues that four of these alleged affirmative acts are legally insufficient to sustain a conviction for tax evasion based on the evidence produced at trial. The four affirmative acts at issue are:

a. GORRELL caused investor funds to be deposited into various accounts at banks and E*TRADE that he maintained in his own name and in the name of his financial services company, Gorrell Financial, Inc., thereby commingling the investor funds with his personal funds and converting them to his own use;
b. GORRELL caused the payment of personal expenses from investor funds that had been deposited into the various financial accounts that he maintained at banks and at E*TRADE;
c. GORRELL caused the withdrawal of large amounts of cash from the various financial accounts that he maintained at banks and at E*TRADE;
d. GORRELL stopped using tax preparation services provided to him for free by his father, who was an accountant in Tulsa, Oklahoma, and instead engaged new tax preparers, located in Florida, who were previously unfamiliar with his business ventures, financial accounts, personal income, and expenses . . . .

[Note that the latter listing is from the Superseding Indictment.]

The Court describes the argument as follows:

DOJ Tax Obtains a John Doe Summons for U.S. Bank Information at Treaty Request by Finnish Tax Administration (5/1/19)

DOJ Tax announced that it had obtained a district court order to serve John Doe Summonses (JDS) on Bank of America, Charles Schwab, and TD Bank.  See press announcement here.  The JDS's were sought at the request of the Finnnish Tax Administration pursuant to the tax treaty between Finland and the U.S., which has an exchange of information and commitment to use each country's tax enforcement processes (such a summonses).  The following are key excerpts:

“The Department of Justice and the IRS are committed to working with the United States’ international treaty partners to identify and stop individuals using hidden offshore accounts to evade tax laws,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division. “The United States does not tolerate offshore tax evasion, nor does it sanction tax evasion committed through U.S. financial institutions.” 

“Our continued success in combatting offshore tax noncompliance has been helped by the assistance we receive through the network of tax treaties around the globe,” said IRS Commissioner Charles Rettig. “Yesterday’s effort reflects that the U.S. will return this help by working under the law with tax administrators in other nations to help them in their fight against tax evasion and avoidance. A global economy should not be allowed to serve as a possible vehicle for tax evasion in any country.” 

The United States petitioned the United States District Court for the Western District of North Carolina to authorize the summons at the request of the government of Finland under the tax treaty between Finland and the United States. That treaty allows the two countries to cooperate in exchanging information that is necessary for carrying out each country’s tax laws. The IRS summons seeks the identities of Finnish residents who have payment cards linked to bank accounts located outside of Finland so that the Finnish government can determine if those persons have complied with Finnish tax laws. Finland has advised the IRS that, in circumstances where the payment cards are used only at ATMs or in other transactions where authorization is by PIN code, and the cardholder need not identify himself or herself to the merchant, the cardholders cannot be identified from sources in Finland. 

The filing does not allege that Bank of America, Charles Schwab, or TD Bank violated any U.S. or Finnish laws with respect to these accounts. 

As described in the petition and supporting documents filed by the United States, the request is part of a foreign payment project being conducted by the Finnish Tax Administration (FTA), in which information on the use of payment cards issued by foreign financial institutions is used to identify non‑compliant Finnish taxpayers. Earlier FTA investigations of approximately 120 to 150 Finnish taxpayers who used foreign payment cards in a similar manner have yielded extremely high rates of tax non-compliance, as noted in the United States’ memo in support of the petition, which indicates that it is likely that the John Does sought by the summons are Finnish residents who are failing to report these foreign accounts and associated income. 

The court order in this case authorizing this enforcement action is part of ongoing international efforts by the United States and its treaty partners to stop persons from using foreign financial accounts to evade taxes. Courts have previously approved John Doe summonses allowing the IRS to identify individuals using offshore accounts to evade their U.S. obligations, and have also approved John Doe summonses to be used to identify individuals using U.S. financial institutions or accounts to evade foreign tax obligations.

The Ex Parte Petition for Leave to Serve "John Doe" Summonses and Memorandum in Support are linked on the announcement and are here.