10th Circuit Reverses on Defraud/Klein conspiracy instruction and Advice of Counsel Instruction, with Reminder on Limitations of Pattern Jury Instructions (9/4/25; 9/7/25)

See discussion added at end on 9/5/25 @ 11:30 am.

In United States v. Kearney, ___ F.4th ___ (10th Cir. 9/2/25), CA10 here and GS here [to come], the Court held that the trial court erred in two jury instructions: (i) the trial court instructed the jury on the uncharged offense conspiracy rather than the charged defraud conspiracy; and (ii) the trial court did not include the conspiracy charge in the advice-of-counsel defense instruction. Both errors required a remand for further proceedings.

Both holdings are not particularly exceptional. The first holding does offer an opportunity to remind readers of the difference between the two types of conspiracy criminalized by 18 USC § 371, here, helpfully titled “Conspiracy to commit offense or to defraud United States.” The two types of conspiracy are thus often identified as the offense conspiracy and the defraud conspiracy. The offense conspiracy is a conspiracy to commit a specific offense. The defraud conspiracy is a conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” But defraud, as interpreted, has a special meaning for the defraud conspiracy. The word “fraud” and its counterpart “defraud” normally requires an object to obtain money or property by fraudulent means. Fraud for purposes of the defraud conspiracy includes that object but also includes an object to impair or impede the lawful functioning of a government agency, here the IRS. (When charged with the latter object (impair or impede), the defraud conspiracy is often referred to as a Klein conspiracy, named after United States v. Klein, 247 F.2d 908 (2d Cir. 1957).) I have written on the defraud/Klein Conspiracy and its textual problem. The following is my most recent foray into the subject: Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (Federal Tax Crimes Blog 8/3/24; 8/6/24), here (citing a prior article and blogs).

But, for this blog, accept the defraud conspiracy as it is now; it does not require what we normally think of as fraud with a monetary or property object but can include an object “to interfere with or obstruct one of its lawful governmental functions by deceit, craft[,] or trickery, or at least by means that are dishonest.” Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), quoted in Kearney at Slip Op. 8.

The problem in Kearney was that, at the Government’s invitation at trial, the court instructed the jury based on the 10^th Circuit’s pattern jury instruction describing the offense conspiracy which was not charged. Kearney was charged with and convicted for the defraud conspiracy which, the 10^th Circuit panel holds should have included the limiting language from Hammerschmidt quoted above.

The Government requested the offense conspiracy instruction based on the 10^th Circuit’s Pattern Jury Instructions. The 2025 version of the pattern jury instructions is here (see Instruction 2.19 CONSPIRACY 18 U.S.C. § 371). That pattern instruction is for the offense conspiracy without any discussion of the defraud conspiracy, a discussion which, if included, might have timely alerted the parties and the judge as to the problem with the offense conspiracy instruction. (In fairness, Kearney’s attorney realized the problem and proposed a variation instruction.)

The Court offers this helpful discussion on the limitations of pattern jury instructions (Slip Op. 12-13):

          To be sure, the district court used this circuit’s pattern instruction on § 371 conspiracies, which typically “weighs against a finding of plain error.” United States v. Kepler, 74 F.4th 1292, 1315 (10th Cir. 2023). But pattern instructions are merely a guide. See Tenth Cir. Crim. Pattern Jury Instrs. Introductory Note (“The Committee’s approach was to generate generic minimalist instructions that would be tailored to individual cases.”); United States v. Freeman, 70 F.4th 1265, 1280 n.13 (10th Cir. 2023) (noting that “pattern instructions are merely intended to serve as a guide” and suggesting that, where Tenth Circuit has not issued pattern instruction for offense, parties may need “to select alternate formulations” of offense elements). And the pattern instruction in this instance not only fails to account for the two kinds of conspiracies in § 371, it doesn’t describe the charged offense at all. See Tenth Cir. Crim. Pattern Jury Instrs. § 2.19 at 98 (2025). Given the  statute’s plain language, the error in using the pattern instruction on conspiracy to violate the law for a charge of conspiracy to defraud was also plain.

I have previously discussed pattern jury instructions and their limitations based on the particular facts and charges in actual cases. E.g., More on Defraud Conspiracy as Requiring Object to Obtain Money or Property (Federal Tax Crimes Blog 5/11/20), here (at JAT Comment #3); and  Court of Appeals Rejects Arguments that Instructions on Willfulness and Good Faith Were Reversible Error (Federal Tax Crimes Blog 7/16/14), here (at JAT Comment #2).

I spent some time looking through the trial level docket entries (CL here) for the case to figure out the parties’ respective positions on the jury instructions. The Government proffered jury instructions based on the 10^th Circuit Pattern Instruction for conspiracy, which, as noted above was for the offense conspiracy. Kearney offered a revised version that noted the requirement of an “intent to deceive” the IRS. The trial court gave the pattern jury instruction requested by the Government. After conviction, Kearney’s attorneys filed a motion for new trial. At a hearing on that motion, the Court (Dkt entry 165):

Court ordered Defendant Victor Kearney to submit: (i) the language he would have preferred the Court to have used in its Conspiracy element instruction; and (ii) citations to the docket or trial transcript that show how and where Kearney raised his Klein conspiracy argument before or during trial. The Court also ordered the United States to consult its appellate lawyers and submit a letter to the Court addressing: (i) whether the appellate lawyers are prepared to defend the Court's Conspiracy instruction on appeal; and (ii) whether they would confess error on appeal.

The problem was thus identified and recognized by the trial court, albeit after trial. After receiving submissions by the Government and by Kearney, the trial court then denied Kearney’s Motion for New Trial. The 64 page order is here (recounting the pre-trial submissions on the conspiracy and advice-of-counsel instruction, and other matters).

I don’t know that readers will benefit by going deeper into the trial level proceedings related to the issue. Those interested can further explore at the links provided above.

This is yet another reminder that pattern jury instructions are just a starting point and should be tailored by the trial court, with assistance from the attorneys, to the particular facts and law of the case.

I also remind readers that the DOJ Criminal Tax Manual offers proposed jury instructions here. The proposals in relevant part are: (1) that prosecutors not charge an offense and defraud conspiracy in “in the same count or indictment” because “rarely necessary and tends to unduly complicate the trial, especially with respect to the jury instructions.” (Id at 30 n. 1 and 45 n. 1.) Further, the following is offered for the defraud conspiracy charge in the 9^th Circuit:

n1 Prosecutors charging Klein conspiracies in the Ninth Circuit should be aware of United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993). The first element of the jury instruction should read:

First, [beginning on or about ____ and ending on or about ____] [starting sometime before ____] there was an agreement between two or more persons to defraud the United States by cheating the government out of money, [such as income tax payments, or property] and also an agreement [JI-22] to defraud the United States that involved the impairing, impeding, obstructing, or defeating of the lawful functions of an agency of the government, such as the IRS, by deceit, craft, trickery, or means that are dishonest. Caldwell, 989 F.2d at 1060.

I would think that is the type of charge that should be recommended in all Circuits, certainly in the 10^th Circuit after Kearney.

Finally, I have to wonder whether the Government's request for the offense conspiracy instruction resulted from the trial proceedings being handled by the USAO rather than DOJ Tax CES. I don't think it is fair to speculate on that. But this type of error might have been avoided by attorneys with more specialized criminal tax experience, particularly since the defraud/Klein conspiracy is charged so often in criminal tax cases and DOJ Tax CES would likely have had more familiarity with the Criminal Tax Manual discussion of the issues (albeit limiting the discussion to the Ninth Circuit). DOJ Tax CES attorneys would have certainly known that the pattern jury instruction for the offense conspiracy was not the proper instruction for the offense conspiracy.

Added 9/5/25 11:30am:

I thought it appropriate to add a comment about the “remand for further proceedings.” (Slip Op. 19.) According to the Judgment entered in the trial court here, the following are the Counts of Conviction:

• One Count for Conspiracy to Violate 26 U.S.C. Sec. 7206(2); and
• One Count for “Making and Subscribing False Return, Statement, or Other Document,” 26 USC 7206(1).

These Counts of Conviction raise the following issues:
 
1. It is not clear why the Judgment indicates the conspiracy conviction was for an offense conspiracy. The 10^th Circuit opinion is predicated on the conviction having been for a defraud conspiracy rather than an offense conspiracy. There is nothing otherwise in the Jury Verdict here or the Judgment that addresses the issue. And, of course, the jury instructions addressed in the 10th Circuit opinion relate to an offense conspiracy. At least by the time of the Judgment (after acting on the Motion for New Trial), the sentencing judge should have been fully aware of the important difference between the two and that the indictment charged a defraud conspiracy and hence that the conviction should have been for a defraud conspiracy.
 
2. The 10^th Circuit opinion says Kearney’s substantive count of conviction was for § 7206(2); the actual judgment (linked above) and the jury verdict (linked above) say the substantive count conviction is for § 7206(1). I have not tried to track down why that discrepancy happened.

 
3. For the substantive count of conviction (whether § 7206(1) or § 7206(2)), the maximum sentence is 3 years (i.e., 36 months). Kearney was sentenced to 27 months incarceration on the two counts of conviction, to run concurrently. (See Judgment linked above.) That means that, even though the conspiracy conviction is reversed for further proceedings, the substantive count conviction may be all that is needed to continue the sentence as originally imposed. So, further proceedings, other than to vacate the conspiracy count of conviction may not be necessary. And, if there is a reconsideration of the sentence, the court could consider the conduct underlying the defraud conspiracy count as relevant conduct in further justifying the 27 month sentence for the remaining single count of conviction. In this regard, readers should recall that acquitted conduct can no longer be considered as relevant conduct in sentencing, but the conspiracy count remand is not an acqittal. See Sentencing Guidelines Amendment Eliminates Acquitted Conduct from Sentencing Calculations (Federal Tax Crimes Blog 6/6/24; 6/11/24), here.

4. The foregoing suggests that, since Kearney did not contest his substantive count of conviction under § 7206(1), it is not at all clear what exactly he hoped to gain by appealing only the conspiracy issue and the advice of counsel defense related to the conspiracy issue.

Added 9/7/25 2:45 pm.

I just picked up this discussion of the Kearney 10^th Circuit opinion:  Klein Conspiracies Require “Deceitful or Dishonest Means” and Advice-of-Counsel Must Be Instructed Across Counts: United States v. Kearney (10th Cir. 2025), Casemine 9/4/25, here. It is detailed and somewhat repetitive. (I speculate that it may have been generated by AI.) Still, for those new to the area, it covers some of the key themes of the case.