In United States v. Floyd, ___ F.3d ___, 2014 U.S. App. LEXIS 253 (1st Cir. 2014), here, the First Circuit panel affirmed the defendants' convictions and sentencings arising from their tax evading payroll tax scheme and warehouse banking scheme. Judge Selya (Wikipedia here) wrote the decision for the panel. (More on Judge Selya at the bottom of this blog.)
The defendants were convicted of two counts of the defraud / Klein conspiracy under 18 USC 371, here -- one count for the payroll tax scheme and the second count for the warehouse banking scheme. The Klein conspiracy is a conspiracy to impair or impede the lawful functioning of the IRS. The defendants were also convicted of tax obstruction under Section 7212(a), here, which criminalizes impairing or impeding the lawful functioning of the IRS.
Klein Conspiracy and Tax Obstruction
The Court's affirmance of the conspiracy convictions seem fairly routine -- at least I don't think they are worthy of discussing here. Moreover, the affirmance of the tax obstruction convictions is also routine and not otherwise noteworthy. What is noteworthy, is the reminder that the conspiracy and the substantive counts were so closely related in the conduct involved, with the key difference that conspiracy is not the same crime as the substantive counts. Ianelli v. United States, 420 U.S. 770, 781-2 (1974), citing Pinkerton v. United States, 328 U.S. 640, 643 n. 11 (1946). In other words, the conspiracy is based on the agreement to obstruct rather than the obstruction itself, except of course the pesky overt act requirement. Indeed, in this regard, some persons (including me) have referred to tax obstruction as a one-person conspiracy. See also David F. Axelrod, Larry A. Campagna, James A. Bruton III, The “New” Tax Laws - 26 U.S.C. Section 7212(a) and the One-Person Conspiracy (Paper prepared for ABA National Institute on Criminal Tax Fraud in 1999). The notion of a one-person Klein conspiracy is an oxymoron, of course, but the oxymoron conveys some truth.
I previously discussed the relationship between tax obstruction and the Klein conspiracy. See Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (Federal Tax Crimes Blog 5/26/11), here. Here are key excerpts:
2. As the Klein conspiracy is defined by the courts (a broader definition than the word defraud would normally connote), the two crimes substantially overlap in targeting conduct which impairs or impedes the lawful functions of the IRS. The difference is that the conspiracy requires two or more actors pursuant to a conspiratorial agreement whereas tax obstruction only requires a single actor (although it can include multiple actors as well). Because the interpretations overlap, tax obstruction may be viewed as a one person Klein conspiracy. (I realize that statement technically is an oxymoron, but the larger point, I think is correct; see CTM 17.02 (2001 ed.) where DOJ Tax asserted that tax obstruction may be charged where the Klein conspiracy is “unavailable due to insufficient evidence of conspiracy,” although that statement is omitted from the 2008 ed.)
3. With this overlap in interpretation, the Government could take the standard formula of the Klein conspiracy (impair or impede, etc.) and turn the alleged conspiracy into an offense conspiracy to violate Section 7212 rather than couching it in defraud conspiracy lingo. That's not the way the Government does it, but it seems to me that that is the practical effect of this overlap. Or, I suppose, a conspiracy to impair or impede can simultaneously be both an offense conspiracy to violate Section 7212(a) and a Klein / defraud conspiracy.
