Thursday, June 30, 2022

6th Circuit Affirms Convictions and Holds that § 7206(2) Does Not Require Filing of the Fraudulent Return (6/30/22)

In United States v. VanDemark, ___ F.4th ___, (6th Cir. 6/30/22), CA6 here and GS here [to come], the Court affirmed the conviction of VanDemark, rejecting Vandermark’s appeals from denials of his motions for “acquittal on three of these counts and a new trial on all six counts." The six counts were (Slip Op. 4):

Counts One and Two dealt with the Supermarket’s 2013 and 2014 corporate returns. Counts Three and Four concerned Vandermark’s 2013 and 2014 personal returns. Count Five charged VanDemark with structuring payments, in violation of 31 U.S.C. § 5324(a)(3). And Count Six charged VanDemark with making false statements to federal agents, in violation of 18 U.S.C. § 1001.

VanDemark is described (Slip Op. 1) as “a millionaire car salesman who tried to hoodwink the IRS” and the owner of “the Used Car Supermarket, which sells cars from two lots in Amelia, Ohio.”  (I had never heard of Amelia, Ohio, so I just point to the Wikipedia entry for Amelia, here.)  Basically, he skimmed cash receipts in large amounts, in the time-honored way that many cash retail businesses do so, but customized to his particular business. Since this is a variation of garden variety tax evasion, I won’t go into the detail on the skimming.

Some interesting items:

1. How did he use the cash he skimmed? The Court says (Slip Op. 3):

             It turned out that VanDemark used most of this cash to pay the mortgage on his multimillion-dollar mansion. Wary of attracting the IRS’s attention, VanDemark asked an employee at his bank to confirm the IRS reporting threshold. She told VanDemark that the bank had to report “[a]nything over 10,000 in cash” to the IRS. (R. 73, Trial Tr. (Luck), PageID 1086-87.) So with this information in hand, VanDemark began to make cash payments toward his mortgage several times a month, keeping each payment below $10,000.

Note that the VanDemark’s employee made the inquiry to the bank, but the bank employee answered to VanDemark.  (No explanation of the missing link there.)

2. The bank inquiries (enquiries?) resulted (Slip Op. 3):

His enquiries at the bank had raised some eyebrows. The bank employee reported her conversation with VanDemark to her Bank Secrecy Act officer. This information made its way to the IRS, which deployed a special agent to investigate.

 3. Then, two significant events occurred. The IRS did a sting on VanDemark, sending an incognito agent to inquire about buying the business. (Slip Op. 3-4.)  VanDemark made damaging admissions to the sting agent. Then, the IRS executed search warrants on the three residential properties and the two Supermarket car lots. During that process, the agents (Slip Op. 4):

found VanDemark at his paddleboat-shaped house and interviewed him for over three hours. He told the agents that his QuickBooks files contained all of his business records. At no point did he mention the ledger books. Asked whether he had skimmed cash from his dealership, VanDemark claimed that his employees deposited everything into the Supermarket’s bank account.

Basically, he lied in that interview, hence the Count for violating 28 USC 1001.

4. The only noteworthy point of the opinion (which made it a published opinion) is in outline par. III.B. of the opinion (Slip Op.9-10, which I copy and paste here:

B. Motion for Acquittal: Count Three

            Count Three charged VanDemark with assisting in the preparation of a false personal return. VanDemark argues that “one of the elements of 26 U.S.C. Section 7206(2) is that a return has to be filed.” (Appellant Br. at 41.) And because the IRS has no record of receiving VanDemark’s 2013 personal return, the argument goes, VanDemark deserves an acquittal.

            VanDemark’s only support for this argument is an outlier from the Ninth Circuit. In United States v. Dahlstrom, the Ninth Circuit held that “the filing of a return is in fact an element of a section 7206(2) violation.” 713 F.2d 1423, 1429 (9th Cir. 1983). But Dahlstrom does not get VanDemark very far. n7  For starters, the case is non-binding in our circuit. And to the extent that it conditions liability on “filing” alone, it contradicts the statute’s plain meaning. Section 7206(2) imposes liability on “[a]ny person who . . . [w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation” of a fraudulent return. (emphasis added). It’s well-established that “every word . . . is to be given effect” in a statute, and interpretations that cause words “to have no consequence” are best avoided. Delek US Holdings, Inc. v. United States, 32 F.4th 495, 498 (6th Cir. 2022) (quoting Nielsen v. Preap, 139 S. Ct. 954, 969 (2019)). We must give non-redundant meanings to “preparation” and “presentation.” Not least because Congress chose to say, “preparation or presentation,” and not “preparation and presentation.”  All this is to say that a defendant is guilty even if he helps prepare, without presenting, the fraudulent return. And it stands to reason that the act of filing the tax return falls under “presentation,” but not “preparation.”
   n7 Dahlstrom, in turn, relies on two cases: one from the Supreme Court and the other from our circuit. See United States v. Habig, 390 U.S. 222 (1968); Butzman v. United States, 205 F.2d 343 (6th Cir. 1953). At first blush, there is dicta that appears to support VanDemark. See Habig, 390 U.S. at 223 (noting that violations of § 7206(2) are “committed at the time the return is filed”); Butzman, 205 F.2d at 351 (“No crime was committed by [defendant] until the Application was filed.”). But neither of these cases addressed the specific question at hand. Both involved taxpayers who filed the tax return in the end. Habig, 390 U.S. at 222-23; Butzman, 205 F.2d at 346, 351. And in that specific context, the two cases held that the limitations period began at the date of filing. Habig, 390 U.S. at 223; Butzman, 205 F.2d at 351. Indeed, this is precisely the point that the dissent made in Dahlstrom. 713 F.2d at 1431 (Goodwin, J., dissenting).

            In fact, other sister courts have said just that. See United States v. McLain, 646 F.3d 599, 604 (8th Cir. 2011) (“We agree with the district court that liability under section 7206(2) can attach even if a false return is never filed.”); United States v. Borden, 269 F. App’x 903, 905  [*10] (11th Cir. 2008) (concluding that “the evidence [was] sufficient to sustain [defendant’s]  conviction” because “a person may be convicted . . . under 26 U.S.C. § 7206(2) if that person either prepares or presents the relevant return,” and defendant “[did] not dispute her involvement in the preparation of the return in question”). We said the same thing in United States v. Feaster, 843 F.2d 1392, 1392 (6th Cir. 1988) (per curiam) (unpublished table decision) (holding that because the statute’s text “provides that a violation occurs if a person aids, assists, counsels, or advises [in] the preparation or presentation of a fraudulent tax return,” the filing of a tax return is not “a required element of 26 U.S.C. § 7206(2)”).

            And to the extent that the term “preparation” has any meaning (which it must), it encompasses these facts. VanDemark’s tax preparer completed the 2013 personal return. He then tried to file it electronically, but the submission didn’t go through. So he mailed the return instead, and now the IRS says that it has no record of receiving it. In other words, VanDemark, through his tax preparer, completed every step just shy of placing the return in the IRS’s hands. However narrow or broad the scope of “preparation” may be, it surely applies here. n8  VanDemark’s conviction for Count Three stands. n9
   n8 We leave the task of defining the precise scope of “preparation” for another day. For this appeal, it’s enough for us to say that the term has some meaning.
   n9 Perhaps VanDemark “presented” his 2013 personal return as well. After all, VanDemark apparently expected and intended that his preparer would file with the IRS. The First Circuit, for example, emphasized that it does “not equate ‘filing’ with ‘receipt by the IRS’ in a situation involving an intermediary.” United States v. Monteiro, 871 F.2d 204, 210 (1st Cir. 1989); see also United States v. Cutler, 948 F.2d 691, 694-95 (10th Cir. 1991). But we need not resolve that question today.

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