Excellent Article by Former Tax Crimes Prosecutor About How the Tax Crimes Prosecution Decisions Are Made in Politically Charged Cases (3/14/24)

This blog entry will alert Tax Crimes fans to an article about, well, tax crimes. Andrey Spektor, Opinion: What Hunter Biden and Donald Trump have in common (CNN 3/13/24), here. Spektor is identified in the article as “Having worked with the Department of Justice Tax Division and prosecuted tax offenses.” His law firm bio, here, mentions only AUSA experience for EDNY and does not mention DOJ Tax Division experience; I infer that, as a prosecutor on tax cases in USAO EDNY, he would have “worked” with the Tax Division which is common. So he has credibility to speak to the how criminal prosecution decisions are made (or not made) in politically charged cases such as Hunter Biden’s and Donald Trump’s.

The article is fairly short, engaging, well-written, and, based on my experience in the tax crimes area, very credible. As to Hunter Biden, Spektor claims (rightly, I think) that Hunter Biden would not have been prosecuted on the facts had he not been related to Joe Biden, the President, and decisions influenced by the press and politics.  I offer the conclusion in the hope that offering the conclusion will not discourage anyone from reading the article:

          Hunter Biden has been treated differently from almost any other person save for, perhaps, Trump – at least in New York, where the former president has been indicted on a novel and shaky legal theory reserved for it seems, Trump. That doesn’t mean that Trump or Hunter Biden are [sic - is] innocent; indeed, the former has more serious cases to contend with. But unequal treatment of our citizens, no matter how unethical or despicable they may be, is just as immoral.

New DOJ Charging and Sentencing Recommendation Guidance (5/12/17)

AG Sessions has issued a new Memorandum, dated May 10, 2017, titled Department Charging and Sentencing Policy.  The memorandum is here, and the DOJ press release is here.

The memorandum is short, so readers might want to go directly to it.  My bullet points as to what is covers:

• "[P]rosecutors should charge and pursue the most serious, readily provable offense."  That is stated as a general rule for which exceptions may be allowed if approved.
• "[P]rosecutors must disclose to the sentencing court all facts that impact the sentencing guidelines or mandatory minimum sentences, and should in all cases seek a reasonable sentence under the factors in 18 U.S.C. § 3553."  Sentencing recommendations to the court within the guidelines range are appropriate, with recommendations for departures and variances requiring approvals.

From some of the early comment on the new guidance:

Joseph Tanfani, Sessions orders return to tough drug war policies that trigger mandatory minimum sentences (LA Times 5/12/17), here.

He [AG Sessions] rescinded two policy memos signed by a predecessor, former Atty. Gen. Eric H. Holder Jr., that told prosecutors to be cautious in their use of methods that can produce dramatically harsher jail terms. 

In a memo released Friday, Sessions instructed Justice Department lawyers to “charge and pursue the most serious, readily provable offense." 

By definition, he added, the most serious offenses “carry the most substantial guidelines sentence, including mandatory minimum sentences.” 

* * * * 

With the rise of federal mandatory sentencing laws in the 1980s and 1990s, judges were stripped of much of their discretion on how to sentence drug users. 

Decisions made by prosecutors often effectively determine how long offenders will spend in prison. 

For example, if federal prosecutors include the amount of drugs in their written charges, that can trigger a mandatory minimum sentence. 

They also have the discretion to file motions for so-called sentence “enhancements,” which can effectively double drug sentences for repeat offenders. 

Some prosecutors use these tough tools as a hammer in plea negotiations, or to force offenders to cooperate. 

Starting in 2013, Holder instructed federal prosecutors to use that power more sparingly and to reserve the toughest charges for high-level traffickers and violent criminals. 

“As a nation, we are coldly efficient in our incarceration efforts,” Holder said in a speech decrying the growth in America’s prison population. 

The Obama-era policies led to a sharp decline in the number of drug offenders hit with mandatory minimum sentences, from 62% in 2013 to 44% last year, according to U.S. Sentencing Commission data compiled by a sentencing reform group, Families Against Mandatory Minimums. 

Prosecutor Charging Discretion (2/28/13)

Recently in my Tax Fraud class at the University of Houston Law School, we covered the broad charging discretion the prosecutor has for federal tax crimes.  We noted that this broad discretion existed for federal crimes generally and probably, in most jurisdictions, for state crimes as well.  I have just reviewed the following article:  Reynolds, Glenn Harlan, Ham Sandwich Nation: Due Process When Everything is a Crime (January 20, 2013). Available at SSRN: http://ssrn.com/abstract=2203713, here. Professoror Reynolds' article deals with the same theme.  I recommend the article to students as a good short discussion of the problem and potential solutions.

Here are some excerpts:\

As Tim Wu recounted in 2007, a popular game in the U.S. Attorney’s office in the Southern District of New York was to name a famous person – Mother Teresa, John Lennon -- and decide how they could be prosecuted.: 

It would then be up to the junior prosecutors to figure out a plausible crime for which to indict him or her.  The crimes were not usually rape, murder or the other crrimes you'd see on Law & Order but rather the incredibly broad yet obscure crimes that populate the U.S. Code like a kind of jurisprudential minefield:  Crimes like "false statement" (a felony up to five years), "obstructing the mails" (five years), or "false pretenses on the high seas" (also five years).  The trick and the skill lay in finding the more obscure offenses that fit the character of the celebrity and carried the toughest sentences.  The result, however, was inevitable: "prison time."\ 

* * * * 

This problem has been discussed at length in Gene Healy’s Go Directly To Jail: The  Criminalization of  Almost  Everything, and  Harvey  Silverglate’s  Three Felonies  A  Day. The  upshot  of  both  is  that  the  proliferation  of  federal criminal statutes and regulations has reached the point that virtually ever citizen, knowingly or not (usually not) is potentially at  risk for prosecution. That is undoubtedly true, and the consequences are drastic and troubling. 

* * * * 

Most of us remain safe.   Prosecutors have limited resources, and there are political constraints on egregious overreaching.   And, most of the time, prosecutors can be expected to exercise their discretion soundly. Unfortunately, these limitations on prosecutorial power are likely to be least effective where prosecutors act badly because  of  politics  or  prejudice Limited resources or not, a prosecutor who is anxious to go after a political enemy will always find sufficient staff to bring charges, and political constraints are least effective where a prosecutor is playing to public passions or hysteria. 

* * * *

Charging Decisions for Trust Fund Tax Crimes - 7202 or 7201 (12/22/12)

In United States v. Farr, 701 F.3d 1274 (10th Cir. 12/27/12), here, the defendant served as administrator of her late husband's medical clinic.  The clinic did not withhold from its employees (by paying them net of withholding) but failed to pay over the deemed withheld amount to the Government.  The IRS assessed a trust fund recovery penalty (TFRP) under Section 6672, here.  She dilly-dallied.  "When . . . Farr did not pay the penalty assessed against her, a civil proceeding evolved into a criminal one."  The Government then charged her with tax evasion under Section 7201, here.  After some trial level sparring and some appeals, the Government sought a new indictment for tax evasion under Section 7201.  The defendant was convicted.  This appeal ensued.

The key issue in this appeal that I want to discuss is defendant's argument that the conviction should be reversed because the Government improperly charged her for tax evasion under Section 7201 rather than for willful failure to collect and pay over under Section 7202, here.  Her argument, as stated by the Court of Appeals, was:

Farr argues, as she did in her motion to dismiss, that the Internal Revenue Code (IRC) "provides a specific criminal penalty for those responsible for collecting and paying trust fund taxes who willfully fail to do so under § 7202." App. at 29-30. She argues that the indictment should therefore have charged her with violating § 7202 rather than § 7201. In support, she asserts that "[w]hile ordinarily the government is free to charge under whatever statute it deems appropriate under the facts in question, when Congress sets forth provisions governing the duties, penalties, and procedures with respect to specific conduct or individuals as it did in Section[] 7202 . . . , the government may not ignore th[at] provision[] specifically deemed by Congress to be the appropriate vehicle under which to impose prosecution, simply because it favors another better." Id. at 31.

The Court of appeals rejected the argument as follows:

Charging and Plea Policies in Federal Tax Cases (9/1/12)

The White Collar Crime Blog has this offering:  Lawrence S. Goldman, Prosecutorial Overcharging is Not "Regular" (White Collar Crime Prof Blog 8/28/12), here.  Mr. Goldman offers a good succinct discussion of one aspect of charging decisions of federal prosecutors.  Mr. Goldman rebuts the notion, sometimes made and recently appearing in a New York Times editorial, that, in order to force a plea, "[p]rosecutors regularly overcharge defendants with a more serious crime than what actually occurred."  The notion is that, fearing conviction of the aggressive more serious crime, the defendant will plead to a lesser crime.  The notion is rebutted by a letter to the New York Times, here, from USAO for DNJ.

I recommend both the letter and Mr. Goldman's article.  I use them as introduction to my offering  some excerpts from the manuals for federal charging and plea policies and practices in federal criminal cases generally and then in federal criminal tax cases. Since the great majority of cases plead, there is a correlation between the plea policies and the charging policies.  In most cases, I eliminate case citations except where I feel them important and have eliminated footnotes; case citations and footnotes are in the original materials for which I provide links.

UNITED STATES ATTORNEY MANUAL FOR CHARGING DECISION GENERALLY:

USAM 9-27.300  Selecting Charges—Charging Most Serious Offenses [here]

Except as provided in USAM 9-27.330, (precharge plea agreements), once the decision to prosecute has been made, the attorney for the government should charge, or should recommend that the grand jury charge, the most serious offense that is consistent with the nature of the defendant's conduct, and that is likely to result in a sustainable conviction 

****

Government Discretion to Charge where Criminal Statutes Overlap (10/16/10)

In United States v. Jenkins, 2010 U.S. Dist. LEXIS 106847 (ED VA 2010), the defendant was charged with tax evasion (§  7201). The evasion related the taxpayer's liability for the Trust Fund Recovery Penalty (§ 6672). The acts of evasion alleged were that, in order to evade payment, he established a business in the name of a nominee and that, in submitting two an offers-in-compromise, he omitted assets and income. The taxpayer was charged for evasion, a five year felony, although he could have been charged under § 7206(5), a three year felony. Section 7206(5) deals specifically with false information submitted in connection with offers-in-compromise.

The taxpayer argued that the Government could not charge him under § 7201 because § 7206(5) was the more specific and thus is the exclusive charge that should / could be brought for the conduct alleged. Bottom-line, the court concluded that the conduct alleged could have been charged under either provision and that the Government had the choice as to which of the two to charge. The Court reasoned:

1. The two provisions are not coterminous because many actions that could violate § 7206(5) would not violate § 7201. In the course of this discussion, the Court noted in a footnote:

During oral argument, government counsel provided an illustrative example of the type of conduct that falls within the scope of § 7206(5), but is not covered by § 7201. A drug dealer may have an outstanding tax obligation and decide to submit an offer-in-compromise. On the Form 656, the drug dealer may falsely state that the "source of funds" is legitimate business activity, but otherwise fill out the forms accurately and correctly. Under those circumstances, the drug dealer could not be prosecuted for tax evasion under § 7201 because there is no affirmative act of evasion or an intent to evade the payment of taxes. Yet, the drug dealer could be prosecuted under § 7206(5) for lying about the "source of funds" because that statute punishes any person who falsifies any document relating to the financial condition of the taxpayer submitted in connection with an offer-in-compromise. See Tr. of 9/17/10 Hr'g at 47-48.

The example is a good one. The same example is often used to describe the difference between § 7201 and § 7206(1), tax perjury. If the drug-dealing taxpayer misdescribed his or her business on Schedule C but otherwise correctly reported his or her tax liability, that person could be charged with tax perjury but not tax evasion.