5th Circuit Reverses Conviction to Have Court Calculate the Foreign Evidence Request Final Action for Statute of Limitations Suspension and, Properly Instructed, Have Jury Determine Whether Criminal Act Occurred in Statute of Limitations as Suspended (1/13/22)

In United States v. Pursley, 22 F.4th 586 (5th Cir. 1/13/22), CA5 here and GS here, the Court reversed Pursley’s judgment of conviction on conspiracy and tax evasion counts because

• the district court had not calculated the statute of limitations suspension period for foreign evidence requests under 18 U.S.C. § 3292; and
• the district had not instructed the jury that it must find an overt act/affirmative act within the applicable statute of limitations period as extended by § 3292.

The Court remanded to have the district court (i) calculate the suspension period under § 3292 and (ii) if after that calculation, there are acts that a jury could find were committed in the applicable statute of limitations (calculated with the suspension), to retry the case and submit the issue to the jury as to whether there were such acts.

For an introduction to § 3292, I offer the following from my 2013 Tax Crimes book which was the last time I considered it in detail (John A. Townsend, Federal Tax Crimes, 2013 pp. 463-466 ( 2013 SSRN: https://ssrn.com/abstract=2212771) (note I copy and paste the text without the footnotes, so those wanting the footnotes should download the pdf file; I think this remains a fair summary of the law even today):

b. Foreign Country Evidence.

             In a world where international commerce, often of the illegal sort and often assisting tax fraud, is increasing exponentially, key evidence may be overseas.  Because long delays may be encountered in gathering foreign evidence, 18 U.S.C. § 3292 in some cases permits the statute of limitations to be suspended during the period between the U.S. request for foreign evidence and the production of that evidence by the foreign authority.  The key elements for this tolling are:

U.S. Taxpayer Renouncing U.S. Citizenship Indicted And Extradition Started (5/11/20)

A reader just alerted me that I had overlooked a significant item of interest to readers of this blog. On March 5, 2020,, DOJ issued the following press release:  Founder of Russian Bank Charged with Tax Fraud: Allegedly Concealed $1 Billion in Assets and Income when Renouncing U.S. Citizenship, here.

Key excerpts from the release are:

According to the indictment, Oleg Tinkov was the indirect majority shareholder of a branchless online bank that provided its customers with financial and bank services.  The indictment alleges as a result of an initial public offering (IPO) on the London Stock Exchange in 2013, Tinkov beneficially owned more than $1 billion worth of the bank’s shares.  The indictment further alleges that three days after the IPO, Tinkov renounced his U.S. citizenship – a taxable event requiring Tinkov to report to the IRS the constructive sale of his worldwide assets, report the gain on the constructive sale of those assets to the IRS, and pay tax on such gain to the IRS.  Although Tinkov allegedly beneficially owned more than $1 billion of TCS shares at the time of his expatriation through a British Virgin Island structure, the indictment charges that Tinkov filed a false 2013 tax return with the IRS that reported income of less than $206,000, and a false 2013 Initial and Annual Expatriation Statement reporting that his net worth was $300,000.

If convicted, Tinkov faces a maximum sentence of three years in prison on each count.  He also faces a period of supervised release, restitution, and monetary penalties.

The indictment, here, charges two counts of tax perjury, § 7206(1), so the maximum incarceration period on the charges are six years.  The Government could always get a grand jury to issue a superseding indictment with more charges (e.g., FBAR counts or evasion counts, which are suggested by the discussion above).  It is reported that Tinkov has acute leukemia so (see e.g., Moscow Times article here), regardless of the number of accounts, I doubt that any period of incarceration would exceed 6 years.

Also, Tinkov apparently spent a lot of time outside the U.S., so during that period the statute of limitations was suspended (or not counted) toward the six-year statute otherwise allowed for the charges offenses.  § 6531(5) and flush language.

The CourtListener docket entries are here.

Ninth Circuit Botches Evasion of Assessment Statute of Limitations (2/12/20)

In United States v. Galloway, 2020 U.S. App. LEXIS 3976 (9th Cir. 2020) (unpublished), here, Galloway was convicted of four counts of tax evasion.  On appeal, Galloway made several arguments.  I focus here only on his argument that the statute of limitations foreclosed his convictions on three counts of tax evasion (evasion of assessment).  I think the Court erred.

Here is the panel’s discussion of that issue:

1. Galloway argues that the district court erred in not dismissing Counts 1–3 on statute-of-limitations grounds because the indictment was brought more than six years after Galloway filed his 2003, 2004, and 2005 tax returns. We review the district court’s decision de novo. United States v. Sure Chief, 438 F.3d 920, 922 (9th Cir. 2006). 

The six-year statute of limitations for tax evasion, 26 U.S.C. § 6531(2), begins to run in evasion of assessment cases “from the occurrence of the last act necessary to complete the offense.” n1 United States v. Carlson, 235 F.3d 466, 470 (9th Cir. 2000).n2  Because tax evasion “is not a continuing offense” for statute of [*3] limitations purposes, Cohen v. United States, 297 F.2d 760, 770 (9th Cir. 1962) (quoting Norwitt v. United States, 195 F.2d 127, 133 (9th Cir. 1952)), the offense of tax evasion “is complete as soon as every element in the crime occurs,” see United States v. Musacchio, 968 F.2d 782, 790 (9th Cir. 1991). The elements of tax evasion under § 7201 are: (a) “willfulness”; n3  (b) “the existence of a tax deficiency”; and (c) “an affirmative act constituting an evasion or attempted evasion of the tax.” United States v. Kayser, 488 F.3d 1070, 1073 (9th Cir. 2007).
   n1  Both parties agree that Counts 1–3 charge Galloway with committing tax evasion only by evading the assessment of taxes, and not by evading the payment of taxes.
   n2  The Government’s contention that Counts 1–3 are timely because the statute of limitations began to run, not from the filing of the false tax returns, but from the date Galloway lied to the IRS agents about his taxable income—i.e., the last act of evasion—is squarely foreclosed by Carlson’s clear language. See 235 F.3d at 470.
   n3  The parties do not dispute that Galloway willfully filed his false tax returns.  

  When Galloway late-filed his 2003, 2004, and 2005 tax returns, he had already incurred a tax deficiency for each year. See United States v. Voorhies, 658 F.2d 710, 714 (9th Cir. 1981) (“A tax deficiency exists [by operation of law] from the date a return is due to be filed . . . .”). Therefore, each offense of tax evasion charged in Counts 1–3 was complete when Galloway willfully filed his false tax returns (i.e., each element of tax evasion was thereby satisfied). Because the indictment was brought more than six years after Galloway filed his 2003, 2004, and 2005 tax returns, Counts 1–3 are barred by the statute of limitations. We therefore reverse the district court’s denial of Galloway’s motion to dismiss and vacate his convictions as to Counts 1–3. 

The panel’s reasoning is that the crime of tax evasion (of assessment) was complete upon filing fraudulent returns underreporting the tax liability.  However, my understanding is that the crime of evasion of assessment can be committed by later acts such as lying with the intent to evade assessment of the tax liability.  The lying or other act of evasion of assessment can be a separate act of evasion if it is intended to evade an assessment.  See United States v. Beacon Brass Co., Inc., 344 U.S. 43 (1952), here (holding inter alia (p. 46), with respect to the statute of limitations "We do not believe that Congress intended to require the tax-enforcement authorities to deal differently with false statements than with other methods of tax evasion.")

Does the Statute of Limitations Affect the Issue of Whether a President Can be Indicted During His Presidency? (12/13/18; 12/17./18)

Tax crimes and other federal crimes, all statutory, have statutes of limitations.  Section 6531, here, is the statute of limitations for tax crimes.  Generally, where there might be some impediment to discovery or prosecution of a tax crime, arguments can be made that the statute of limitations should be tolled or suspended.  (That is also true of civil remedies as well.)  And, frequently, the statutes do provide for such tolling in some specifically identified cases.  For example, the general six year statute of limitations for tax crimes is 6 years (per § 6531), but the flush language provides:

The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings. (The preceding sentence shall also be deemed an amendment to section 3748(a) of the Internal Revenue Code of 1939, and shall apply in lieu of the sentence in section 3748(a) which relates to the time during which a person committing an offense is absent from the district wherein the same is committed, except that such amendment shall apply only if the period of limitations under section 3748 would, without the application of such amendment, expire more than 3 years after the date of enactment of this title, and except that such period shall not, with the application of this amendment, expire prior to the date which is 3 years after the date of enactment of this title.) Where a complaint is instituted before a commissioner of the United States within the period above limited, the time shall be extended until the date which is 9 months after the date of the making of the complaint before the commissioner of the United States. For the purpose of determining the periods of limitation on criminal prosecutions, the rules of section 6513 shall be applicable.

The issue of tolling is currently a topic in today's political environment where there are various claims bandied about that a sitting President cannot or should not be indicted.  I point readers to this article:  Jed Shugerman, The Single Fatal Flaw in the Legal Argument Against Indicting a Sitting President (Slate 10/11/18), here.  The by-line is:  Should a president be above the law because of the statute of limitations?

Let's use a tax crimes example.  Say that the Government (Mueller, the IRS, DOJ Tax etc.) has evidence that Trump committed tax crimes for the tax years 2012-2015 (2015 is the last year where a return was filed before he became President).  Assuming that he filed his tax years timely on extension for those years, the statute of limitations related to those filings would expire annually starting on October 15, 2019.  If President Trump cannot be indicted while President, the statute as the text of the law is worded would expire on those crimes starting on October 15, 2019.  Even if he is a one-term President, the statute would expire on some of those years before he leaves office (unless he leaves prematurely).  Moreover, if he is a two term President and does not leave prematurely, the statute of limitations on all of those years will expire.  Can that be?

Mr. Shugerman's article suggest that, although federal crimes are generally not tolled without an express statute for tolling (which there is not in this  case), there is a concept called "equitable tolling" that might apply.  I think that the potential of equitable tolling in this case is doubtful, particularly where it has never been established that the President could not be indicted while in office.

It seems to me that the proper course to set up even the possibility for equitable tolling would be to indict the President (perhaps under seal) and, if President Trump wants to fight whether he can be indicted, let the parties fight to final resolution (also perhaps under seal) whether the President can be indicted.  This would all occur during his presidency and the matter will be resolved.  If he can be indicted, there might be policy reasons to let the indictment remain under seal under he leaves office.  But, if he can't be indicted, the indictment would be dismissed and the issue of equitable tolling would be set up.

German Court Denies U.S. Request for Extradition of Wegelin Banker (12/9/16)

We covered in several blog entries the saga of Raoul Weil, a top UBS banker, who was arrested in Italy on an Interpol Red Notice and extradited to the U.S.    See entries on Weil, here.  Now, we have news that a German court has refused to extradite a Wegelin banker, Roger Keller.  Nate Raymond, Ex-Swiss banker goes home after U.S. loses extradition from Germany (Reuters 12/9/16), here.  All posts on Keller can be viewed here.  Key excerpts from the article on Keller are:

A former Swiss banker who was arrested last year in Germany on U.S. charges that he helped wealthy Americans evade taxes is back in Switzerland after the denial of a request to extradite him to the United States from Germany, his lawyer said on Friday. 

Roger Keller, a onetime client adviser in Zurich at Wegelin & Co, was one of three bankers at the now-defunct Swiss private bank charged in a 2012 indictment in New York federal court for helping U.S. taxpayers hide more than $1.2 billion in assets. 

He was arrested in Germany in February 2015 at the request of the U.S. government, which sought his extradition, and served seven months in jail before being granted bail, said Thomas Green, Keller's U.S. lawyer at the law firm Sidley Austin. 

By German court order, he was officially released on Friday after the U.S. request to extradite him was denied, Green said, though Keller had already been allowed to return to Switzerland a "few days ago."

Denial of extradition just wins that battle.  It does not resolve the U.S. criminal charge against Keller.

And, the statute of limitations is determined by the filing of the charges.  And, as to any other charges, the statute would be suspended by § 6531, here, which provides:  "The time during which the person committing any of the various offenses arising under the internal revenue laws is outside the United States or is a fugitive from justice within the meaning of section 3290 of Title 18 of the United States Code, shall not be taken as any part of the time limited by law for the commencement of such proceedings."

Government Avoids Hyde Amendment Fees and Expense Liability After It Blew the Criminal Statute of Limitations (8/29/16)

In United States v. Johnson, 2016 U.S. App. LEXIS 15879 (6th Cir. 2016), here, the Court of Appeals affirmed the district court's denial of recovery of attorneys fees and litigation expenses under the Hyde Amendment.  Under unusual facts (discussed in more detail below), the prosecutors obtained an indictment for tax perjury, § 7206(2), that was outside the criminal statute of limitations.  The prosecutors did not realize it at the time.  Indeed, when the defendant raised the issue before trial, the prosecutors constructed an argument that the indictment was timely.  The district court agreed with the prosecutors.  After a 5-day trial, the jury convicted the defendant.  The defendant appealed the conviction urging again that the indictment was untimely.  This time the Government confessed error in its answering appellate brief; the indictment had been untimely.  United States v. Johnson, 599 Fed. Appx. 242, 2015 U.S. App. LEXIS 5446 (6th Cir. 2015), here.  The case was remanded for dismissal. The current appeal was over the district court's denial of recovery of attorneys fees and expenses under the Hyde Amendment which "which permits an award of attorney's fees and other litigation expenses to the prevailing party in a federal criminal case if, among other requirements, the Government's position was vexatious, frivolous, or in bad faith."  As noted, the Court of Appeals affirmed the district court's disallowance of Hyde Amendment recovery.

Let's dig into the facts to set up the very nice procedural issues behind the statute of limitations in the case and why it had expired.  Students of tax procedure will understand the scenario almost instinctively.  I will set out each key fact with appropriate commentary and citation to relevant provision.

1.  The indictment for filing a false return was obtained on April 16 2013.  There is a six year statute of limitations from the date of filing.  § 6531, here.  That would mean the the filing of the return had to be on or after April 16, 2007.

2. The defendant filed his 2006 tax return in February 2007, well before the prescribed due date of April 15, 2007 prescribed in § 6072(a), here.  Section 6501(b)(1), here, provides that "a return * * * filed before the last day prescribed by law * * * shall be considered as filed on such last day."  See also DOJ CTM 7.02[1][a] General Rule, here.  If we stopped at this point, the defendant's 2006 return would be deemed filed on April 15, 2007, one day outside the statute of limitations and the indictment would be untimely.

3.  April 15, 2007, however, was a Sunday and the following day (Monday) was a holiday.  Section 7503, here, provides:  "When the last day prescribed * * * for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday."  (Bold face supplied by JAT.)  Now, as written, this statute does not change the last day prescribed by law, but simply says that returns filed on the next succeeding business day are deemed timely filed.  The normal due date is still the last day prescribed by law (April 15, 2007 in this case).  So, if the return had been filed by Tuesday April 18, it would not have been timely filed but would only have been considered to have been timely filed by the April 15, 2007 due date.  This analysis is confirmed in IRM 9.1.3.6.3 (02-24-2010), Running of the Statute of Limitations, here, which says:

4. If the statutory due date falls on a Saturday, Sunday, or legal holiday, the filing of the return on the next succeeding business day is considered timely (see 26 USC §7503). However, the statutory due date remains unchanged. Therefore, the calculation of the statute of limitations in investigations involving early filed returns or failures to file should use the statutory due date regardless of the day of the week on which that date falls. See Rev. Rul. 81-269, 1981-46 I.R.B.13.

All of that is pretty straight-forward statutory analysis.  The IRM is just a recognition of the straight-forward statutory analysis.

Ninth Circuit Affirms Conviction for Tax Misconduct Related to Failure to Honor Levy and Potential Bankruptcy Discharge (7/27/16)

In United States v. Wanland, ___ F.3d ___, 2016 U.S. App. LEXIS 13661 (9th Cir. 2016), here, the Ninth Circuit panel rejected two of the taxpayer's argument's to reverse his convictions for "tax related charges, including tax evasion."  In a companion unpublished opinion, here, the panel rejected other of his arguments for reversal.  I deal here with only the published precedential decision.

The Ninth Circuit staff provides a summary that is not part of the opinion but is usually a useful guide the opinion.  Here is that summary:

The panel affirmed the district court in all respects in a case in which the defendant was convicted of tax related charges, including tax evasion. 

The panel held that neither the district court nor the jury erred in concluding that the defendant's monthly income from his law practice qualified as "salary or wages" under 26 U.S.C. § 6331(e), and therefore rejected the defendant's contention that the government could not prove concealment of property subject to a levy, as required for conviction under 26 U.S.C. § 7206(4). 

Rejecting the defendant's contention that the district court erred in dismissing the levy counts because they exceeded the three-year statute of limitations, the panel held that the six-year statute of limitations of 26 U.S.C. § 6531(1), covering tax offenses "involving the defrauding or attempting to defraud" the government, applies to prosecutions under § 7206(4). 

The panel held that the district court properly rejected the defendant's argument that res judicata precludes the government from pursuing a criminal action concerning his debts that were already discharged in bankruptcy. The panel held res judicata cannot apply because the IRS in a bankruptcy action and the United States government in a criminal action are not in privity.

1. The partner draws.

JAT introduction to partnership taxation.  Technically, partner draws from a partnership are not income or even salaries or wages unless they are guaranteed payments.  Rather, for income tax purposes, the draws are treated as advances against the partner's capital account which, if the partnership makes money is increased by partnership income allocated and taxable to the partner.  So, from a tax accounting perspective, the draws are not income. But, given the relationship between draws and capital accounts, the partner's income must ultimately produce income consistent with partner draws in excess of capital contribution.

Wanland's charges did not relate to the taxable income of the partnership or his allocable share but to whether an IRS levy on the partnership that required the partnership to turn over "wages and salary" covered the partnership draws.  If the levy did cover the draws, then Wanland's failure to advise the partnership of the levy was an act that violated § 7206(4), here, for failure to honor a levy.  The partnership made regularly payments allocated to draw, aggregating $1,8 million.

Consistent with other cases, the panel affirmed the district court in adopting a practical approach indicating that the levy did cover the draws which were in every practical sense like salary or wages to be subject as such to levy.

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.

Third Circuit Affirms Conspiracies Convictions From US Virgin Island Shenanigans (2/4/15)

In United States v. Bailey, 2015 U.S. App. LEXIS 1681 (3d Cir. 2015) (nonprecedential), here, the Third Circuit affirmed the convictions of two persons -- Bailey and Haddow -- for conspiring to defraud the United States [Klein conspiracy] and to evade the U.S. Virgin Islands  of taxes [offense conspiracy].

As described in the opinion, the principal scheme appears to be just garden variety enabler tax fraud.  The defendants were principals in a Virgin Islands company that billed U.S. taxpayers for "services" never rendered and then, after the customers paid, returned most of the amounts to the taxpayers.  The U.S. taxpayers deducted the payments for "services" and treated the amounts returned as "gifts."  The defraud conspiracy charged related to this conduct. The VI company also claimed certain tax credits against it VI tax liability that it was not entitled to.  The offense conspiracy charge related to this conduct.

1.  The Court first determined that, although the defendants tried had not been specifically identified at trial as the defendants named in the indictment, there was sufficient evidence to satisfy that requirement.  Suffice it to say that identification of the defendants in the dock as the persons charged in the indictment is a check list item for the prosecutors.  No reason is given as to why this did not occur here.  But, the majority concluded, there was ample evidence that pointed to their being the individuals named in the indictment.  (The dissenting opinion concurred in all holdings excerpt the holding on identifying the defendants; the dissent would have reversed for failure to make proper identification.)

2.  The Court held that the evidence was sufficient to prove that Bailey had the required mental state for conspiracy and that Haddow joined the conspiracy.  Defraud conspiracy enthusiasts will recall the the defraud conspiracy does not have as a textual element that the defendant have acted willfully.  As recounted by the Court, the elements of the crime that must be proved are:

(1) two or more people agreed to defraud the United States; (2) the defendant became a member of that agreement; (3) the defendant joined the agreement knowing its purpose was to defraud the United States and intended to achieve that goal; and (4) a conspirator committed an overt act in furtherance of the objective. 

By contrast, the offense conspiracy charge to evade VI tax, does require that the defendant act willfully because the offense conspiracy imports the willfulness requirement from the offense (here tax evasion) that is the object of the conspiracy.

The Court's treatment of these issues is very cursory, but (at least in its mind) sufficient to show the defendants had the required mental state.

3.  The Court next rejected the defendants' claim that the 5-year statute of limitations normally applying to conspiracies under Title 18 Section 371 applied to the conspiracies they were charged with.  The key word in the foregoing sentence is normally, suggesting there might be an exception.  There is -- a six year statute of limitations for conspiracies related to conspiracies related to tax crimes.  See . § 6531(1) & (8), here.

Raoul Weil Pleads Not Guilty: Thoughts and Speculations (1/8/14)

Raoul Weil, the top UBS banker, pled not guilty yesterday.  See Zachary Fagenson, UPDATE 2-Ex-UBS banker pleads not guilty in major tax fraud case (Reuters 1/7/14), here.  For prior blogs on Weil, see the list at the end of this blog.

The not guilty plea is a routine step in a criminal case.  So there really is nothing eventful in Weil's plea itself.  A plea deal is often agreed to or finalized after the initial not guilty plea, and the defendant will still qualify for hte sentencing benefits of accepting responsibility provided it is not immediately before trial after all the preparation work has been done.

The article, however, does report some speculations from Bradley Birkenfeld's lawyer on his whistleblower claim that the government may be "negotiating a 'sweetheart deal'" with Weil in order to keep him from implicating prominent former UBS account holders.  This claim is made on the lawyer's web site under an entry titled Federal Court Hearing Scheduled for UBS Tax Fraud Kingpin Raoul Weil (Whistleblowers Protection Blog 1/6/13), here.  The source of the lawyer's claim is obviously Birkenfeld, who worked for Weil at UBS.

I can't speak to whether the lawyer's claim is true.  I am skeptical.  If the Government wanted to keep things quiet , the Government would not have obtained his indictment and then pursued his extradition.  This smacks of a conspiracy theory with scant but speculations on thin threads.

I do note at least the possibility that Weil could be a whistleblower and claim some gargantuan award.  Of course, his central role in the tax underpayments involved would likely disqualify him from a whistleblower award.  See Section 7623(b)(3), here.

Tax Notes Today has an article offering skeptical comments on the lawyer's claim.  Stephanie Soong Johnston, Former UBS Banker Pleads Not Guilty to Tax Fraud Conspiracy Charges, 2014 TNT 5-2 (1/8/14).  Peter Hardy, a well-known criminal tax lawyer (bio here), expresses his doubts as well.  From the article:

 "He may or may not know embarrassing details, but generally speaking, the DOJ wants to prosecute, when appropriate, the elite, not to make sweetheart deals to protect them," Hardy told Tax Analysts. "The government is going to want him to enter into a guilty plea and cooperate."

According to Hardy, it is unusual that Weil faces only one count of conspiracy because economic crime cases, including tax fraud, usually include multiple counts. Because the general statute of limitations for tax crimes is six years and the last overt act the indictment references is in 2006, the government may not be able to add any additional charges, he said.

Ex Top UBS Banker Arrested; Likely to be Extradited (10/21/13)

Raoul Weil, a fugitive from U.S. justice [Wikipedia entry here], was arrested in Italy.  See Guy Dinmore and Daniel Schäfer, Former UBS banker faces US extradition (Financial Times 10/21/13), here.  Excerpts:

A prominent Swiss asset manager is facing extradition to the US after being arrested while holidaying in Italy on charges he helped American clients with $20bn of assets to evade US taxes during his previous job at UBS. 

Police in Bologna said Raoul Weil was arrested early on Saturday after he registered at a hotel and his name appeared on a police list of international arrest warrants. Mr Weil was transferred to Bologna’s prison where the next step would be for the US authorities to request his extradition, police said. 

Under Swiss laws, a suspect has to consent to an extradition, making it all but impossible for foreign authorities to succeed with such a request. Under Italian law, however, Mr Weil could be extradited within weeks or months, according to a US official following the case.

Tax Notes Today has the following article:  Kristen A. Parillo and Andrew Velarde, Fugitive Swiss Banker Wanted by U.S. Arrested in Italy, 2013 TNT 204-3 (10/22/13).  Excerpts:\

Weil was indicted by the DOJ in 2008 for conspiring to defraud the United States by helping U.S. clients conceal taxable assets. The indictment alleged that Weil and others conspired between 2002 and 2007 to help about 17,000 Americans conceal about $20 billion in assets in Swiss bank accounts. In January 2009 Judge James Cohn of the U.S. District Court for the Southern District of Florida signed an order declaring Weil a fugitive after he failed to surrender himself to U.S. authorities. (Prior coverage 2009 TNT 10-7: News Stories.) 

Bryan C. Skarlatos of Kostelanetz & Fink LLP told Tax Analysts that the latest development highlights the DOJ's long reach. "Swiss banks, bankers, and other professionals who claim to have no connection to the U.S. still have real risks because the U.S. can and will indict them on charges of conspiring to help U.S. citizens evade U.S. tax," he said. 

Not only do Swiss banks face the prospect of paying stiff fines and potentially going out of business, but the individual bankers or professionals are effectively imprisoned in Switzerland for fear of being picked up on an international arrest warrant, Skarlatos said. "The lesson here is that the DOJ does have real leverage in forcing banks and bankers to comply with U.S. demands for information," he said, adding that this is why so many Swiss banks are considering making a voluntary disclosure to the United States under the recently announced DOJ settlement program for Swiss banks.  

* * * * 

Weil likely doesn't have a lot of settlement options given that the UBS probe is completed and other UBS bankers entered into plea deals with the DOJ, [Peter D.] Hardy said. "Perhaps there are some individuals out there that he can provide information on, but at this point I wouldn't be surprised if we saw a trial," he said. "And based on the indictment, he'd be looking at significant jail time.

Attorneys quoted in the foregoing excerpts are Bryan C. Skarlatos, here, and Peter D. Hardy, here.

JAT Comments:

Criminal Complaints in Tax Crimes (6/27/13)

One of my co-authors of the Tax Crimes book published by LEXIS-NEXIS started a discussion among us yesterday about the role of the criminal complaint.  I thought it might be helpful to share the fruits of that discussion.  First I start with the criminal complaint that started the discussion:

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
UNITED STATES OF AMERICA
v.
YETUNDE OSENI
12902 Crickmore Trace
Bowie, MD 20720-4683
DOB 1/7/1976; SSN ***-**-5682
Defendant(s)
Case No. 13-1016 JKS
CRIMINAL COMPLAINT
I, the complainant in this case, state that the following is true to the best of my knowledge and belief. On or about the date(s) of 8/22/2009 - 11/29/2012 in the county of Prince George's in the District of Maryland, the defendant(s) violated:
Code Section: 18 U.S.C. 641
Offense Description: knowingly and unlawfully embezzle, steal, purloin and knowingly convert to her use things of value of the United States, to wit: household items and food products purchased using a government purchase card belonging to the Internal Revenue Service.
This criminal complaint is based on these facts:
See attached affidavit.
Continued on the attached sheet.
[signed]
Complainant's signature
S.A. Tracey Giannakoulias, TIGTA
Printed name and title
Sworn to before me and signed in my presence.
[signed]
Jillyn K. Schulz
Judge's signature
Date: 05/02/2013
City and state: Greenbelt, Maryland
Thomas M. DiGirolamo,
U.S. Magistrate Judge
Printed name and title
AFFIDAVIT
I, Tracey V. Giannakoulias being duly sworn, depose and state:
INTRODUCTION
I am a Special Agent with the United States Treasury Inspector General for Tax Administration (TIGTA), Washington Field Division, New Carrollton, Maryland Post of Duty. I was also a Special Agent for The United States Department of Education Office of Inspector General: I have been a special agent for the past fifteen years. I attended Treasury Inspector General for Tax Administration Special Agent Basic Training at the Federal Law Enforcement Training Center. I have a Bachelor and Master Degrees in Criminal Justice. I am duly commissioned as a Special Agent, and I am authorized to conduct criminal and other investigations arising under the laws of the United States, regulations administered by the Department of the Treasury and the Internal Revenue Service (IRS), to carry firearms, to execute and serve search or arrest warrants, to make arrests without warrant, to serve subpoenas and summons, and to require and receive information relating to such laws and regulations. I have conducted and participated in numerous investigations of criminal violations involving the IRS, including fraud, theft, embezzlement, assault and threats and attempts to interfere with the administration of IRS laws. I have executed and participated in several search warrants and seized evidence relating to criminal activity.

Statutes of Limitations for FBAR Noncompliance Related to Tax Noncompliance (3/12/13)

A person commenting on an earlier blog asked the following question (modified slightly for clarity):

Does the statute of limitations for the FBAR penalty (both civil and criminal) toll if the taxpayer is outside the U.S.? 

I answered at least the criminal part of the question in a comment reply.  I thought the question was worthy of a blog entry to expand the reply and alert readers who may not work their way to the comment and reply.

Suspension of the FBAR Criminal Penalty Statute of Limitations

Before I answer the question, I should first state why the question may be important.  A U.S. person with a concern of criminal prosecution for FBAR violations may absent himself from the U.S. until the statute has run on the FBAR violations and thereby hope to avoid prosecution.  That person, of course, would want to become compliant prospectively upon adopting the strategy, if it worked, so that, with enough time (5 years for FBAR prosecution), the risk of FBAR prosecution would go away.

With that background, I think the direct answer is that the FBAR criminal statute of limitations would be tolled (or suspended). 18 USC 3290, here, provides simply and cryptically "No statute of limitations shall extend to any person fleeing from justice." Title 18 is the general criminal code.  The immediate question, of course, is whether  § 3290 applies to crimes outside Title 18, such as the FBAR crime codified in Title 31.   I have not researched the issue in great detail.  But I did find a case where for an immigration crime (18 USC 1326, felony re-entry), the  Second Circuit applied  § 3290.  United States v. Rivera-Ventura, 72 F.3d 277, 284 (2d Cir. 1995).  Section 3290 requires that the person be "fleeing from justice" (whether inside or outside the U.S.).  I suppose the question then is what this means.  As I say in my Federal Tax Crimes book, the “majority rule” for §  3290 is that “intent to avoid arrest or prosecution must be proved” for § 3290's fugitive definition to apply; the minority rule is that mere absence from the jurisdiction, regardless of intent, is sufficient (I suppose just the objective fact of being absent from prosecution of justice is sufficient).

Failure to File Statute of Limitations Commences on Failure to File by Extended Due Date (3/1/13)

In United States v. Lyerly, 20132 U.S. Dist. LEXIS 20743 (SD AL 2013) [link to come], Judge Proctor, in a well-reasoned opinion, held that the statute of limitations for criminal failure to file when the taxpayer filed for an automatic extension to 10/15 but then failed to file by 10/15 begins to run on 10/15, the last day the taxpayer could have filed.  The taxpayer argued that, his failure to file by 10/15 meant that the extension was invalid and thus the return was due 4/15; hence, his failure to file by 10/15 started the criminal statute of limitations under Section 6531.

The Court noted, in essence, that the statute cannot begin running until the crime is committed.  The taxpayer could not be prosecuted for failure to file until 10/15 had come and gone without filing.

I had not included this nuance in the Federal Tax Crimes book.  I have added this to the ongoing draft and it will be included in the next version of the book.

Court Holds Criminal Statute of Limitations Commences on Due Date of Return and Summons Suspends for Husband but not Wife

In United States v. Buckler, 2011 U.S. Dist. LEXIS 39839 (WD KY 2011), the court made two holdings relevant for this blog in a criminal tax prosecution of husband and wife.

First, the Court held that the criminal statute of limitations for a return filed before the normal due date of the return (April 15 for individuals) commences on the normal due date (April 15), thus making the indictment timely. The Court cited for this proposition Section 6513(a) and United States v. Habig, 390 U.S. 222, 225 (1968). Section 6513(a) provides that "For purposes of section 6511," which deals with claiming refunds, (i) the statute of limitations commences on the due date rather than an earlier filed date and (ii) the due date "shall be determined without regard to any extension of time granted the taxpayer and without regard to any election to pay the tax in installments." Section 6531, dealing with criminal statutes of limitation, provides that "for the purpose of determining [such] periods of limitation . . . the rules of section 6513 shall be applicable." In Habig, the defendant sought to interpret the bold faced provision of Section 6513(a) to mean that it applied to returns filed after the due date, so that returns filed during the extension period required a due date commencement of the civil and criminal statute of limitations. The Habig Court rejected that argument, holding that returns filed after the due date have their statutes of limitation commence on the date of filing rather than the earlier due date of the return. In Buckler, the return was filed before the normal due date and hence fell squarely within the rule that the return is deemed filed on the normal due date of the return.

New Sixth Circuit Failure to Pay Over Case

In United States v. Blanchard, ___ F.3d ___ (6th Cir. 2010), the defendant was "convicted of fifteen counts of Failure to Account for and Pay Over Withholding and FICA Taxes, in violation of 26 U.S.C. § 7202, and three counts of Making and Causing the Making of a False Claim for a Tax Refund, in violation of 18 U.S.C. § 287." The decision in the case is useful because it covers a lot of the key issues presented in failure to pay over cases which seem to be coming more frequently in recent years

1. Statute of Limitations. The Court holds that the statute of limitations under § 6531 is 6 years. The defendant's argument was that "pay" in the 6 year statute (§ 6531(4)) was a different concept than "pay over" which is the concept in § 7202 and thus that the default tax crimes statute of limitations of 3 years applied. The defendant argued that, not only was it a different concept, but analysis of the 1954 Code predecessor -- the 1939 Code -- supported this reading of § 6531(4). The Court rejected the argument, consistent with the mainstream (but not unanimous) holdings. The Sixth Circuit provides a good discussion of the cases on the subject.

2. Admission of Evidence of Discretionary Expenditures. The Court held that the evidence of defendant's discretionary expenditures was relevant to his willfulness and thus was properly admitted at trial.

3. Ability to Pay is Not An Element. Following the Ninth Circuit's holding in Easterday (discussed here), the Court rejects the argument that the Government must prove ability to pay as an element of the offense. The essence of the holding is that a defendant cannot immunize himself or herself from criminal tax charges by avoiding having the resources to pay -- such as by spending the money otherwise available to pay.

4. Failure to Instruct on the Defendant's Theory of the Case. Failure to properly instruct on a defendant's theory of defense is viewed as reversible error (at least if not harmless), as we noted in discussing Kottwitz. But, unlike Kottwitz, the Sixth Circuit finds no reversible error because the other instructions covered the gravamen of the defense. So, let's see. The defendant's claim was that he relied upon his accountant / return preparer. There was sufficient evidence that he did so, at least sufficient to support the requested instruction on the defense. The Sixth Circuit held that there was no reversible error because the defense was subsumed in the willfulness and good faith instructions the trial court did properly give to the jury. In other words, if the jury understood those instructions, it would have known that the defendant would have a defense if he indeed relied upon the accountant / return preparer. This notion, of course, relies upon the legal construct that juries understand jury instructions as given and are able to extend the concepts beyond the instructions. Finally, the Court does state as its final sentence that there was "no error here." I read the analysis as being a no reversible error opinion. I think that in a case with the proper evidentiary predicate for a reliance defense, the defendant is entitled to the instruction and the general willfulness and good faith instructions will not cover the ground. Hence, I think the Court's concluding sentence is unfortunate.

5. The Net Wage Entitlement to Credit for Withheld Taxes. In reporting his personal income tax liability, the defendant claimed a credit for the tax he was supposed to cause his "employer" to withhold and pay over but did not; based on this notion, the defendant claimed that he could not be guilty under 18 USC § 287 (false claims) for claiming those credits. The general scheme for withholding is that, upon payment of net wages, the employee gets the credit for taxes withheld whether or not the withholding agent (the employer) ever pays over those withheld (or deemed withheld) amounts to the IRS. Of course, that is the general scheme. This general scheme was not designed to benefit the person who is responsible for the failure to pay over in the first instance. Interestingly, in this regard, the Sixth Circuit relied (or at least found persuasive) an unpublished decision affirming a § 7201 conviction in a similar circumstance. The defense is just a bit too cute.

6. Amount of Restitution for Tax Crimes. The Court reversed the imposition of restitution related to the tax crimes (as opposed to the Title 18 crimes). Restitution is just not available for tax crimes except as a condition for some benefit (such as condition of probation) conferred on the defendant.

Notable Decision in SDNY Criminal Tax Shelter Case (1/14/10)

I have previously blogged that John B. Ohle was an unindictead alleged co-conspirator in the Daugerdas et al. indictment.  See here.  Ohle was indicted apart from that indictment.  He was indicted along with a guy named Bradley.  That indictment generated a significant decision from Judge Leonard Sand in United States v. Ohle, 2010 U.S. Dist. LEXIS 2150 (SDNY No. S2 08 Cr. 1109 (LBS)).  The following are the points that attracted my particular attention:

1. The Court rejected a challenge to the wire fraud count (Count One). Ohle argued that "Count One of the indictment impermissibly uses the wire fraud statute to reach an alleged criminal tax conspiracy, citing United States v. Henderson, 386 F. Supp. 1048 (S.D.N.Y. 1974)." The Court essentially took the life out of Henderson. Prosecutors have their choice of how to charge tax conspiracies. Why does it matter if a conspiracy is a conspiracy and there is a single punishment scheme in 18 U.S.C. § 371? Ah, but there are other potential consequences of wire and mail fraud -- forfeiture and even ramping up to money laundering or RICO -- which are not available for tax crimes and tax conspiracy (either offense or Klein defraud conspiracy). See fn. __ on page __. For the DOJ Tax Division policy for prosecutors to make the choice, see Directive No. 128 here (noting that virtually all tax crimes can be charged as mail or wire fraud, and attempting to provide guidance and preclearance directives so the mine-run tax cases are not willy-nilly charged as mail or wire fraud). Thus, these charging decisions are not tweedle dum / tweedle dee from the defendant's perspective.

2. The Court rejected a challenge to another conspiracy (Count Five) as duplicitous. The indictment contained a "boilerplate" allegation that appeared to allege a single conspiracy. The overt acts, however, seemed to suggest multiple conspiracies. Yet, because the apparent multiple conspiracies were related and involved players not acting in a vacuum, with compensation flowing around, the Court concluded that the allegation is of a single conspiracy and not multiple conspiracies so as to implicate duplicity concerns. In the process of getting to that holding, the Court had a nice discussion of the concerns that are implicated by duplicity in counts (case names and quotation marks omitted to easier see the logical flow):

An indictment is duplicitous if it joins two or more distinct crimes in a single count. Duplicitous pleading is not presumptively invalid; rather, it is impermissible only if it prejudices the defendant. Duplicity is only properly invoked when a challenged indictment affects one of the doctrine's underlying policy concerns: (1) avoiding the uncertainty of a general guilty verdict, which may conceal a finding of guilty as to one crime and not guilty as to other, (2) avoiding the risk that jurors may not have been unanimous as to any one of the crimes charged, (3) assuring the defendant has adequate notice of charged crimes, (4) providing the basis for appropriate sentencing, and (5) providing the adequate protection against double jeopardy in subsequent prosecution.

The Court of Appeals for the Second Circuit has recognized that application of the duplicity doctrine to conspiracy indictments presents "unique issues." In this Circuit, it is well established that [t]he allegation in a single count of a conspiracy to commit several crimes is not duplicitous, for the conspiracy is the crime and that is one, however diverse its objects. A single conspiracy may be found where there is mutual dependence among the participants, a common aim or purpose or a permissible inference from the nature and scope of the operation, that each actor was aware of his part in a larger organization where others performed similar roles equally important to the success of the venture. Each member of the conspiracy is not required to have conspired directly with every other member of the conspiracy; a member need only have participated in the alleged enterprise with a consciousness of its general nature and extent. If the Indictment on its face sufficiently alleges a single conspiracy, the question of whether a single conspiracy or multiple conspiracies exists is a question of fact for the jury. Accordingly, courts in this Circuit have repeatedly denied motions to dismiss a count as duplicitous.