Sunday, August 28, 2022

More on Tax Due and Owing and Tax Deficiency (8/28/22)

In United States v. Green, ___ F.4th ___, 2022 U.S. App. LEXIS 23750 (5th Cir. 8/24/22), CA5 here and GS here [to come], the Court affirmed convictions of (i) John Green (an attorney) and Thomas Selgas for defraud conspiracy and (ii) Selgas for tax evasion.

I don't think there is anything new in the case or that the opinion presents old law in a way that even justifies making the opinion a published opinion.  Of course, the Fifth Circuit standards for publishing an opinion are not particularly high.  See generally Precedential Effect of Published Plurality Appellate Opinion That Majority of Panel Doesn't Accept (Federal Tax Procedure Blog 8/9/22), here (addressing a published Fifth Circuit opinion that 2 members of the panel disagreed with and thus was not precedent).)

There is one item that I have expressed concern about before – describing the "tax due and owing" element for evasion as "tax deficiency." (See Slip Op. 14-18.)  The Green opinion describes the evasion element as "tax deficiency," although the Court says (Slip Op. 14) that it is "also referred to in the caselaw as a 'tax due and owing.'"

I continue to be concerned about use of the term tax deficiency for the tax due and owing element for tax evasion.  I prefer the term "evaded tax" to describe the element, but the common term is "tax due and owing." Rather than recreate the wheel in describing my concern, I quote from my article, John A. Townsend, Tax Evaded in the Federal Tax Crimes Sentencing Process and Beyond, 59 Vill. L. Rev. 599 (2014), here.  In the article, I have a section discussing Tax Liability Concepts in the Criminal Tax Universe (pp. 602-611).  In that section, I discuss Civil Tax Liability and Tax Deficiency (pp. 603-604), The Tax the Taxpayer Intended to Evade - The Criminal Tax Numbers or Figures (pp. 604-606) and the Sentencing Tax Loss (pp. 606-608).  Here is the most relevant portion of the article (pp. 604-608, some footnotes omitted):

2. The Tax the Taxpayer Intended to Evade - The Criminal Tax Numbers or Figures

            I think it helpful to illustrate the concepts in an example. Assume that, for civil tax purposes, the taxpayer had $ 100,000 of income that the taxpayer failed to report and pay. Assume that the tax liability on that omitted income is $ 35,000; that liability is the deficiency. The $ 100,000 omitted income consists of two items - $ 50,000 of embezzlement income which the taxpayer knew was taxable and chose not to report and $ 50,000 of personal injury income that the taxpayer thought or could have reasonably thought was excludable under section 104 but which, for technical reasons, is not properly excludable under that section. In calculating the tax evaded as an element of tax evasion, the Government will compute the tax only on the $ 50,000 of embezzlement income and will not include the $ 50,000 of personal injury income. So, let's say the tax on $ 50,000 of embezzlement income is $ 17,500. The criminal tax number for establishing the evaded tax element in a tax evasion case is $ 17,500 (even though the deficiency is $ 35,000). The Government must prove the evaded tax beyond a reasonable doubt.

            I need to explain now my use of the term evaded tax. Section 7201 describes the crime of tax evasion as a willful attempt "to evade or defeat any tax imposed by" title 26. It does not refer to the tax deficiency  [*605]  which, as noted above, has a defined meaning in the Code that is not the same as evaded tax. To be sure, courts - including the Supreme Court - often refer to the evaded tax element as tax deficiency. 22 Because of the different Code meaning of the term tax deficiency, I think use of deficiency for the evaded tax element is confusing. The evaded tax element is sometimes described as the tax "due and owing" - sometimes shortened to just "tax due." I find this formulation less descriptive of the evaded tax, because just based on the words used it might be interpreted the same as tax deficiency. In this Article, I will use the term evaded tax because I think it is more descriptive of the evasion element and because it permits better development of the other concepts I discuss in this Article. 24
   n22. See Boulware, 552 U.S. at 432 n.9. For a discussion of courts' references to the evaded tax element as tax deficiency, see supra note 20 and accompanying text.
   n24. My dislike of the use of the term deficiency to mean the tax the taxpayer intended to evade could be semantics if the term deficiency is considered in the context of a criminal prosecution. Because each element of a crime must be proved beyond a reasonable doubt, necessarily the tax evasion component of the prosecution must exclude the portion of the deficiency that the taxpayer did not intend to evade. Stated otherwise, when the element is stated as just the deficiency, it necessarily, because of the burden of proof, means only the portion of the civil tax deficiency that the taxpayer intended to evade. I just prefer to avoid this type of semantic uncertainty and use terms that are more descriptive of their functions in the similar but not exactly parallel civil and criminal universes. I will admit that my term "tax evaded" does conflate the willfulness element with the tax that the taxpayer intended to evade. I do not think that possible conflation is critical to this Article, because the crime of tax evasion is not the focus.

            Evaded tax is not the tax deficiency which is the civil tax number; it is instead the part of the tax deficiency the taxpayer intended to evade. In the example, the deficiency would include the $ 50,000 personal injury income, which, let's say, doubles the tax deficiency to $ 35,000. The deficiency is never less than the criminal tax number (referred to here as the evaded tax) and is often more because of the phenomenon I just mentioned - i.e., some components entering the deficiency may not be items resulting in evaded tax.

            Finally, as I develop in the example, the evaded tax is the portion that would be the element of the crime of tax evasion, which is the issue decided in the guilt determination phase before sentencing. This Article does not discuss the guilt determination phase, but I think the foregoing  [*606]  example illustrates the concept of tax evaded for that purpose. The tax evaded concept does carry forward into the sentencing phase via two key concepts - the sentencing tax loss, which is the principal driver of the sentence, and restitution.

Finally, going back to the Green opinion  I note the following one interesting item in the concluding footnote (p. 22 n. 7) on ineffective assistance of counsel ("IAC"):

   n7 In his opening brief to this court, Selgas asserts that he is entitled to de novo review because his IAC claim was brought to the district court's attention "in his Rule 33 and Rule 29 motions." This is not so. As the district court correctly noted in its order denying Selgas' s motion for reconsideration, and as our review of the record confirms, the IAC claim was not included in the initial Rule 29 or Rule 33 motions, but rather was first raised in the motion for reconsideration. In his reply brief, Selgas again misrepresents the record, asserting that his IAC claim was presented to the district court "twice," both in his motion for reconsideration and in his supporting brief. As the motion and brief were submitted to the district court at the same time and in conjunction with each other, it is misleading to claim that the issue was presented "twice." Such material misrepresentations are not appreciated, and we admonish counsel to act with the utmost candor in future appearances before this court or any court.

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