Government Alleges Misconduct By Attorney in FBAR Related Summons Enforcement Case (10/26/19)

I ran across an article on Law360:  NY Man's Atty Made False Statements In FBAR Row, US Says (Law360 10/21/19), here (subscription required).  Since allegations against attorneys are rare, I poked around the docket entries in United States v. Chabot (D. N.J. - No. 3:14-cv-03055).  I offer here links to key documents filed as of today, but offer no comment on them.  Those interested should read the documents.  The attorney against whom the allegations are made has not filed a response.  I will look for the response and provide a link as an update when it is filed.

The docket entries on CourtListener are here.  They are available on Pacer, of course, but readers who are cost-sensitive might want to review on CourtListener which is a free service.

This is a summons enforcement action originally started in 2014.  Somehow, the case has been pending for a long time now, with some intrigue along the way.  One of the reasons for the delays is Chabot's continued intransigence, with resulting appeals.  See United States v. Chabot, 793 F.3d 338 (3d Cir. 2015) here, cert. denied, 136 S. Ct. 559 (2015) (rejecting Fifth Amendment as to foreign bank records); and United States v. Chabot, 2017 U.S. App. LEXIS 4355 (3d Cir. 2017), here, cert. den. (nonprecedential) (affirming Chabot's contempt).  Chabot's position in both appeals, asserted by Richard Levine appear tenuous at best, at least in hindsight. although the Third Circuit did feel the need to write a precedential opinion in the first appeal which would likely not be needed if the argument were frivolous.

The key document on the subject of the article:  U.S. brief titled "United States of America's Brief Regarding Past Statements by Eli Chabot and Richard Levine," Dkt Entry 150 here.  A prior related motion, titled "United States of America's Renewed Motion for an Increased Sanction to Compel Compliance," Dkt Entry 141 here.

In that brief (Dkt Entry 150), the Government makes strong allegations against Mr. Chabot and against his prior attorney in the litigation, Richard Levine.  The allegations are captioned, respectively:

ELI CHABOT – FALSE STATEMENTS (Brief Dkt 150 pp. 4-8) 

RICHARD LEVINE – ETHICAL VIOLATIONS (Brief Dkt 150 pp. 8-17), with the following subtitles:
The Changing Bases of Chabot’s Defense (starting on p. 9)
Misrepresentation of the FBAR Requirements (starting on p. 12)
False or Misleading Evidence (starting on p. 13)
Frivolous Motions to Compel Production (starting on p, 16)

The Government concludes by requesting that "that the Court take whatever action it deems necessary to vindicate its authority and to enforce all applicable laws and regulations governing the legal and ethical obligations of attorneys practicing in New Jersey."

Mr. Levine has engaged counsel.  See letter of 10/24/19, here, requesting until 12/4/19 to respond.

I will post an update with a link to the response when filed.

California Attorney, a Prior Tax Offender and Embezzler, Pleads Guilty to tax Evasion (10/21/19)

I received an email from IRS CI announcing the following plea

James Roy McDaniel, 66, who pleaded guilty before United States District Judge S. James Otero to one count of tax evasion, is scheduled to be sentenced on February 3, 2020.  At sentencing, McDaniel could receive a statutory maximum sentence of five years imprisonment. 

McDaniel was a licensed California attorney for more than two decades, until he pleaded guilty in late 2004 to one felony count of subscribing to a false income tax return. In 2005, McDaniel was sentenced to three years in federal prison for that crime, and he surrendered his license to practice law in California. In that case, McDaniel’s failure to report income resulted in a tax loss of $677,368 to the federal government, according to court documents. McDaniel’s additional income was the result of his embezzlement of over $1.6 million from two prominent families he represented as an attorney.  McDaniel served time in state prison for the embezzlement. 

The IRS subsequently assessed McDaniel more than $1.4 million in taxes, interest and penalties for the tax years 1997 through 2001, court papers state. 

According to the signed plea agreement, McDaniel willfully attempted to evade paying his debt to the IRS by creating two shell companies – Davis Bell Consulting LLC and James Roy Consulting LLC – where he directed payments for tax and estate planning consulting work he performed after being released from prison. During a scheme that allegedly ran from May 2008 until December 2012, McDaniel attempted to mislead federal tax authorities and conceal his income by directing other people to sign documents identifying themselves as the sole managing members of the shell companies. As part of the scheme, McDaniel directed them to open bank accounts where he deposited checks for his tax and estate planning work. 

McDaniel continued to earn income for tax and estate planning consulting work during each of calendar years 2008 to 2018, but willfully failed to report his income, and willfully failed to file tax returns with the IRS for tax years 2011 to 2018. 

McDaniel admits that from 2012 through 2017, he received taxable income of at least $527,944, and subsequently owes unpaid taxes of $184,126, in addition to the $1.4 million previously assessed. 

I'll post a link to the DOJ Tax or USAO web page on the plea when I have it.

JAT Comment:  

1.  This is not your typical tax crimes case.  The typical tax crimes offender is a one-time offender and is not charged again after serving his time.  There is more than one possible reason for that.  The first is that the offender learned his lesson and will not commit tax crimes again.  The second is that perhaps the IRS and DOJ do not want to fire their limited prosecutorial bullets at repeat offenders who may seem incapable of learning lessons.  Still, I suppose that some of these repeat offenders have to be tried simply to discourage others who might be tempted after being convicted for tax crimes.

Make Tax Crimes Great Again Caps for Sale (10/14/19; 6/2/22)

I am offering for sale the "official" cap -- Make Tax Crimes Great Again (see image at right).

I offer them for a per unit cost that covers my costs of purchase, tax and mailing.  Here is the breakdown, with the costs depending upon the number purchased by me which I will then pass on.

Number Ordered	My Per Cap Cost	Tax	Total	Your Price
12	$25.73	$1.54	$27.27	$30.00
20	$20.23	$1.21	$21.44	$25.00

As you can see, I am not really looking to make money on the sale of caps.  I suspect that the difference between my purchase price and sales price is just a bit more than the cost to mail the caps, but not much.

Let me know if you are interested by emailing me at jack@tjtaxlaw.com. After I determine the number interested, I will set the final Purchase Price and then advise where to send the check and provide the delivery address for the caps.  Keep in mind that the caps are not yet made.  I am told that the time to make and deliver the caps to me is about 2 weeks.

Added as of 6/2/22: I have taken down the image of the Make Tax Crimes Great Again cap from the column on the right.  Since the image is no longer a regular part of the blog, I include it here for future reference.

A Reminder on the Cheek Good Faith Defense -- It Usually Does Not Work (10/12/19)

The United States Attorney for Nevada announced here the sentencing of William Waller Jr., a Las Vegas real estate broker and the owner of Burbank Holdings or Platinum Properties for convictions of tax evasion and willful failure to file.  His sentence was 78 months and restitution imposed is $1,459,535.70.  Key excerpts are:

According to court pleadings and evidence presented at trial, Waller sought to evade taxes by incorporating a shell entity, opening bank accounts in its name, and directing his income into those accounts rather than accounts in his own name.  He also dealt extensively in cash and reduced his equity in his home, the only asset he held in his own name, thereby making it an unattractive asset for the IRS to seize.  

Waller testified at trial that he believed that he was not required to file tax returns or pay taxes, but acknowledged that he was influenced by the teachings of several prominent tax defiers. These included one, who had been convicted three times of tax fraud, and another, who had been stripped of his CPA license. Waller also admitted to purchasing and watching tax defier courses, including one on how to beat criminal tax charges.  Following the defendant’s testimony and the conclusion of the trial, the jury returned guilty verdicts on March 18, 2019.

The first two sentences of the second paragraph describe, somewhat cryptically, his Cheek good faith defense.  That defense is that, in effect, he, in good faith, did not intend to violate a known legal duty.  See Cheek v. United States, 498 U.S. 192 (1991), here, defining willfulness (an element of most Internal Revenue Code (Title 26) tax crimes) as voluntary, intentional violation of a known legal duty.  United States v. Pomponio, 429 U.S. 10, 13 (1976), here.  As I have conceptualized that element of the crime, (i) the duty must be knowable (the law must be clear and not ambiguous, per the line of cases going back to James v. United States, 366 U.S. 213 (1961), here) and (ii) the defendant must have known the knowable duty.  A defendant's good faith belief that he is not violating the law is a defense.  In other words, real, good faith ignorance of the law (but not feigned ignorance) is a defense.

In Cheek, the defendant was successful in establishing that he was entitled to an instruction properly advising the jury of the defense, thus entitling him to retrial where the Government must prove that he intended to violate a known legal duty.  The defendant lost on retrial.  United States v. Cheek, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994), here.

I don't have statistics on how many cases in which this defense has been raised on trial it has been successful, but my sense from watching these cases over a number of years is that it is rarely successful.  It certainly did not work for Mr. Waller in the case prompting this blog.

I thought I would include some discussion of the Cheek good faith defense from Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, ¶12.05. Selected Criminal Tax Topics (of which I am the principal author):

Eleventh Circuit Remands for Better Restitution Calculation (10/5/19)

In United States v. Sheffield, ___ F.3d ___ (11th Cir. 2019), here, the Court remanded to the district court for a more precise calculation of restitution imposed on a tax preparer falsely claiming tax credits of $1,000 per return.  Basically, the Court held that the calculation was easy -- $1,000 times the number of returns.  Hence, there was no excuse for any estimation or duplication (which there apparently was, as even admitted by the Government).

In this regard, the Court of Appeals observed:

The Supreme Court, citing a 2018 publication by the Government Accounting Office, recently noted that approximately 90% of restitution orders in criminal cases are uncollectible. See Lagos v. United States, 138 S. Ct. 1684, 1689 (2018). As the district court surmised, it is highly unlikely that Ms. Sheffield and her co-defendants will be able to satisfy a restitution obligation of over $3 million. 

At oral argument, Ms. Sheffield asserted that the duplicate entries totaled $136,000. The government, for its part, stated that the duplicate entries amounted to only $31,000. If Ms. Sheffield is correct about the extent of the duplication error in the spreadsheet, that error amounts to a mere .04% of the government’s proposed total of $3,461,638. So one may wonder why it is that we are reversing a multimillion dollar restitution order when the result on remand is likely to be approximately the same and payment (at least full payment) is unlikely. The reason is a simple one. Ms. Sheffield has the “right not to be sentenced on the basis of inaccurate or unreliable information,” United States v. Giltner, 889 F.2d 1004, 1008 (11th Cir. 1989), and is not required to pay restitution she is not responsible for.

DOJ Tax New Crime-Fraud Strategy (10/3/19)

I recommend to readers this short introduction to DOJ Tax's recent initiatives for the crime-fraud exception to the attorney-client privilege.  Sarah Paul and Daniel Strickland, Tackling the Tax Division’s New Crime-Fraud Strategy (Bloomberg Tax 10/2/19), here.

A good discussion of the attorney-client privilege and the crime-fraud exception in a current context is in Paul Rosenzweig, Michael Cohen, Attorney-Client Privilege and the Crime-Fraud Exception (Lawfare 4/10/18), here.

I have written before on the crime-fraud exception.  Here are some key blog entries (in reverse chronological order):

• Third Circuit Reverses District Court on Application of Work-Product Privilege for Email to Return Preparer (Federal Tax Crimes Blog 1/30/17), here.
• Update on the Zukerman Indictment - Potential Waivable Conflicts of Interest of Advocate as Witness (Federal Tax Crimes Blog 5/28/16; 6/21/16), here.
• Second Circuit Affirms Application of Crime-Fraud Exception to the Attorney-Client Privilege (Federal Tax Crimes Blog 10/10/15; 5/24/16), here.
• Third Circuit on Crime-Fraud Exception to Attorney-Client and Work-Product Privileges (Federal Tax Crimes Blog 12/12/12), here.

N.C. Doctor Sentenced for Tax Evasion (10/2/19)

One of the downsides of paying too much attention to Federal Tax Crimes is to see people who abuse the privileges that they have received in life.  Here is a case of a doctor who had a privileged position.  Certainly, he had a good education (he did get in and graduate from medical school) and was ahead, financially and in status, of most Americans.

This doctor, Dr. David Russell, was convicted and sentenced to prison for tax evasion.  He got a rather light slap on the wrist (sentenced to 12 months and a day, so that he will get significantly less than 12 months with the good time credit).  I just wonder if the minority mechanic down at Joe's Body Shop who did roughly equivalent things would have gotten such a lenient sentence.  I won't know that, because it is a counterfactual.

The DOJ Press Release is here, and the key excerpt is:

According to documents and information provided to the court, from May 2012 to December 2015, Dr. David Russell, 66, took several actions to evade payment of federal income taxes, interest, and penalties he accrued over six previous tax years. Russell ignored a duly-issued Internal Revenue Service (IRS) summons to appear before an IRS collections officer with his pertinent financial records.  After the IRS sought and received a court order compelling Russell to comply with the summons, he provided minimal information and omitted records related to any financial accounts and assets he may have had. Russell also hid his assets from the IRS by depositing his paychecks on a reloadable debit card and having wages issued in the name of a company he controlled rather than directly to himself.  He also used a business to pay personal expenses.  In addition to evading the payment of these taxes, Dr. Russell failed to timely pay the taxes due for the years 2013 through 2015.

JAT Comment:

1. None other than the introduction.

Guilty Plea for Lying on Pre-Sentencing Financial Disclosure Form (10/2/19)

I previously reported on the guilty plea and sentencing of Casey Padula for tax and bank fraud.  See  Another Offshore Account Guilty Plea Coupled with Bank Fraud Conspiracy (Federal Tax Crimes Blog 3/25/17), here; and Offshore Account Tax and Bank Fraud Conspiracy Sentencing (Federal Tax Crimes Blog 7/19/17), here.  Well, Padula is back with a guilty plea for lying on his pre-sentencing Financial Disclosure Form.  See DOJ Press Release, here. 

Key excerpt from the Press Release:

According to documents filed with the court, Casey Padula, age 51, formerly of Port Charlotte, Florida, made the false statements on a financial disclosure statement he was required to submit to the government after pleading guilty to tax and bank fraud. On July 17, 2017, in the prior prosecution, Padula was sentenced to 57 months in prison on one count of conspiracy to defraud the United States and commit bank fraud. Padula admitted using offshore entities and accounts to commit the tax fraud. Padula also committed bank fraud by carrying out a fraudulent short-sale transaction designed to reduce or eliminate his $1.5 million mortgage at Bank of America. Pursuant to his plea agreement, Padula was required to provide a full and accurate financial disclosure statement to the government. Instead Padula submitted a false financial disclosure statement in which he failed to disclose numerous assets, including a boat valued at almost $340,000, at least $80,000 in cash, and a $90,000 Mercedes he had recently purchased for his daughter.

JAT Comments:

1.  I suspect that some level of lying on the financial disclosure form is not uncommon.  (That happens on tax returns as well.)  And, as the saying goes, "Pigs get fat, hogs get slaughtered"