District Judge Dismisses Wire Fraud Counts with Overlapping Facts for Tax Counts Because the Lesser Burden of Proof for Wire Fraud Violates Due Process (5/7/26)

In United States v. Garza (N.D. TX 3:22-CR-0390-8), Memo and Order dated 5/6/26, CL here, the Court dismissed certain counts in a long-standing indictment. (No speedy trial here.) In broad strokes, the indictment alleges that Garza, a Dallas attorney (at least at the time of the charged conduct) and the other co-defendants participated in promoting a “fraudulent tax shelter plan to clients.” (I have a somewhat fuzzy recall that it was Garza’s version of a BLIPS variant.) They were indicted for tax crimes (§ 7206(1)) and for wire fraud crimes, on some counts related to the charged tax crimes.

The Court describes the defendants’ motion as (Slip Op. 2):

Defendants move to dismiss the Wire Fraud Counts under Federal Rule of Criminal Procedure 12 on the grounds that: (1) the Wire Fraud Counts function as an end-run around the willfulness mens rea requirement for tax fraud in violation of the Fifth Amendment’s Due Process Clause; (2) 26 U.S.C. § 7206(2) (“Tax Fraud Statute”) preempts the application of 18 U.S.C. § 1343 (“Wire Fraud Statute”) “when both rest on the same alleged scheme”; and (3) the Wire Fraud Statute, interpreted according to its text and constitutional footing, does not extend to tax fraud against the  Federal government and cannot be used to prosecute tax conduct.

The Court granted the motion as to the overlapping charges, dismissing the wire fraud counts related to the tax counts but leaving the false tax return counts. The gravamen of the holding is that by charging basically the same conduct (or at least intertwined conduct) as tax crimes with the high “willfully” standard of proof (the Cheek standard) and as wire fraud, the Government was trying to bootstrap a conviction for that conduct under the lesser burden of proof for wire fraud. The Court concluded somewhat conclusory that that phenomenon violated due process, almost as if she knew a due process violation when she saw it. (To paraphrase Potter Stewart’s famous comment on pornography.) She thus says (Slip Op. 3):

In this case, the Government’s prosecution of the same tax conduct under both the Tax Fraud Statute and Wire Fraud Statute violates the Due Process Clause by enabling the Government to avoid proving every fact necessary to constitute tax fraud.

The opinion is short and, since I am leaving Charlottesville for D.C., the primary purpose of this blog (at least as preliminarily offered) is notice. Readers can read the opinion and draw such conclusions as they wish. (I may add to this blog later, likely not until Monday.)

Quick questions:

1. I don’t think the opinion is correct and, in any event, seems to be short of analysis other than “I know it when I see it.”

2. What if the indictment had charged only wire fraud for the conduct that could also have been charged as a tax crime? Could the defendants have obtained dismissal on the ground that tax crimes require the higher Cheek standard, so that charging wire fraud violated some notion of fairness rising to a violation of due process? I think the court would not do that and, if it did, it would be reversed.

3, It would be interesting on the Court’s understanding of the overlapping facts to see (hear) how a Judge could meaningfully describe the different burdens of proof. I know it technically and mechanically can be done. I ask here whether it can be meaningfully done for the jury to understand and apply?