Can Misleading but True Statements Be Prosecuted as Criminally False Statements Under 18 USC 1001(a)(2)? (3/27/25; 3/29/25)

In Thompson v. United States, ___ U.S. ___, ___ S.Ct. ___ (3/21/25), SC here and GS here, the Court held that the criminal conduct described in 18 U. S. C. §1014 relating to credit applications (“knowingly mak[ing] any false statement”) does not include misleading, but not false, statements. The opinion is relatively short, so because it is not encountered often in a tax context, I will just focus on the bottom-line holding in the prior sentence and ask that readers consider the related statute, 18 U. S. C. § 1001(a)(2), often appearing in tax prosecutions, that criminalizes “materially false, fictitious, or fraudulent statement[s].”

Does Thompson’s analysis mean that misleading statements cannot be prosecuted under § 1001(a)(2), often called the false statements crime?

The specific issue is not addressed directly in the DOJ Criminal Tax Manual Section 24.00, titled False Statements (18 U.S.C. § 1001), here. I direct readers’ attention to the discussion in Section 24.04, titled False Statements or Representations, starting on p. 4 and specifically to the discussion on p. 5 of Bronston v. United States, 409 U.S. 352 (1973), a perjury case holding that literally true but misleading statements under oath could not be prosecuted under the perjury statute. So, the question is whether literally true but misleading statements not under oath can be prosecuted under the false statements statute? As the CTM notes (p. 5), Bronston acknowledged a possible exception for a “criminally fraudulent statement” at p. 358 n. 4 as follows:

   n4 Petitioner's answer is not to be measured by the same standards applicable to criminally fraudulent or extortionate statements. In that context, the law goes "rather far in punishing intentional creation of false impressions by a selection of literally true representations, because the actor himself generally selects and arranges the representations." In contrast, "under our system of adversary questioning and cross-examination the scope of disclosure is largely in the hands of counsel and presiding officer." A. L. I. Model Penal Code § 208.20, Comment (Tent. Draft No. 6, 1957, p. 124).

Sixth Circuit Holds that Forfeited Deferred Compensation Account is Not Taxable to Defendant (3/27/25)

In Hubbard v. Commissioner, ___ F.4th ___ (6th Cir. 3/19/25), CA6 here and GS here, the Court held that the Government’s judicial forfeiture in a criminal case of a deferred compensation account—here a “simplified employee pension”—followed by distribution to the Government from the account did not give rise to taxable income to the defendant. The law is settled that the distribution from such an account to the employee or to another (including the IRS) to meet an obligation of the employee generates taxable income to the employee. The Court avoided that rule because the form of the forfeiture was that the account was forfeited to the Government rather than the proceeds of the account.

JAT Comments:

1. I think the Court focuses on formalities rather than substance. I suspect that the IRS applied the distribution proceeds in payment of the employee’s tax liability, thus giving the employee the benefit of the distribution, despite the fact that the distribution was formally to the Government rather than the employee. I assume that the IRS assessed the tax liability on the distribution as a restitution-based assessment and applied the payment to Hubbard’s account accordingly.

2. It may be in a defendant’s best interest to have a deferred compensation account treated as the income of the employee. That is because the distribution, if taxed to the defendant, will still result in an amount exceeding the tax liability on the amount(s) distributed that can then be applied to tax liability on other income. (I am not sure that, if the excess amount could have otherwise generated a refund (a phenomenon where restitution exceeds the defendant’s tax liability), the IRS could refund since it is part of the restitution.)