Opinion on Effect of Parallel Civil Proceedings, Statute of Limitations on Tax Crimes, and Kassouf (Again) (10/22/16)

In United States v. Ogbazion, 2016 U.S. Dist. LEXIS 143358 (SD OH 2016), here, the Court addressed several claims by the defendant for dismissal of counts in his criminal indictment.  The defendant was a principal in a national franchisor of tax preparation services.  The IRS first proceeded against the franchise operation with an IRS civil investigation and an ensuring civil case to enjoin the business operations.  The defendant apparently cooperated to some extent in that investigation and case, including giving a deposition.  In that case, the court entered a civil injunction and order of permanent injunction against the defendants in the case.  Approximately one and one-half years after the civil case was fully resolved, the indictment was filed.  The criminal indictment charged the defendant with

engaging in a corrupt endeavor to obstruct and impede the due administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a) (Count 1); conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count 2); [*2]  wire fraud, in violation of 18 U.S.C. § 1343 (Counts 3-7); money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(ii) (Counts 8-13); bank fraud, in violation of 18 U.S.C. § 1344 (Count 14); tax evasion, in violation of 26 U.S.C. § 7201 (Count 15); and failure to collect and pay over payroll tax, in violation of 26 U.S.C. § 7202 (Counts 16-23). (Doc. 6).

The defendant moved to dismiss the criminal indictment and certain counts therein.  Briefly, the motion sought the following relief:

1. Parallel Civil Proceeding; Dismissal of the indictment or certain counts or, in the alternative, suppression of evidence.  This gravemen of the claims here is that the civil case was improperly used to obtain evidence for the criminal case.  Basically, after detailed consideration of the facts,

the Court finds that the civil proceedings were not a ruse undertaken to obtain evidence for the criminal prosecution and, further, finds that the Government's representations and actions throughout the civil investigation did not constitute trickery or deceit. The Government's conduct throughout the course of the parallel proceedings did not amount to bad faith such that the use of evidence obtained through Defendant's voluntary cooperation would amount to a constitutional violation or a "departure from the proper administration of criminal justice." See Kordel, 397 U.S. at 11-13 [United States v. Kordel, 397 U.S. 1 (1970)]. Accordingly, neither the dismissal of the Indictment in its entirety, nor the suppression of evidence, is warranted.

For more on parallel proceedings, see Parallel Civil Proceedings and Criminal Proceedings - The Balancing Act (Federal Tax Crimes Blog 10/12/12), here; and Assertion of the Fifth Amendment by a Taxpayer in a Tax Court Deficiency Redetermination Proceeding (Federal Tax Crimes Blog 12/21/15), here.

Ooooops! Indictment Is One Day Late! Government Confesses Error (4/7/15)

In United States v. Johnson, 2015 U.S. App. LEXIS 5446 (6th Cir. 2015) (nonprecedential), here, pursuant to a Government concession that the indictment was one day late, the Court dismissed the indictment.  The Government's concession was made in its answering brief on appeal, here.

The facts were (according to the Government's brief):

Defendant filed his 2006 federal individual income return on February 17, 2007. (G.Ex. 1-1.) On April 16, 2013, a grand jury returned an indictment charging defendant with one count of willfully filing a false 2006 federal individual income tax return, in violation of 26 U.S.C. § 7206(1). (R.1: Indictment, #1-2.)

Section 6531, here, provides a six-year statute of limitations for various criminal offenses, including § 7206(1), tax perjury, here.   See § 6531(5).  Tax perjury relates to the filing of the return.  So, the six-year period would, logically, commence on the date the return was filed.

A return filed before the due date for the return is deemed filed on the due date of the return.  § 6513(a), here, for purposes of the six-year statute for tax perjury.  See United States v. Habig, 390 U.S. 222 (1968).  In Johnson, the return was filed on February 17, 2007, thus clearly invoking § 6513(a) and Habig that it was deemed filed on the due date of the return, April 15, 2007.  Focusing only on the due date of the return, the subsequent indictment on April 16, 2013 was untimely.

What confused the Government and the trial court was the application of § 7503, here, which provides that, where the due date falls on a weekend or holiday, a return filed on the next succeeding business day is "considered timely."  In Johnson, April 15, 2007 fell on a Saturday, thus making returns filed on April 17, 2007, a Monday, "considered timely."  But, from a statutory interpretation standpoint, it did not change the statutorily imposed due date for the return.  Accordingly, the Government conceded on appeal that Johnson's early filed return was deemed filed on the due date pursuant to § 6513(a).

That's pretty much it.  The result would be different had § 7503 provided that the due date is extended where the original due date falls on a weekend or a holiday.

So, the bottom line, the defendant walks away from a criminal conviction because of a statute of limitations footfault.  The order of restitution of $531,000 will also be vacated, but the IRS should have the deficiency procedures and the unlimited civil statute of limitations for fraud to collect any tax due.