Questions for Tax Crimes and Tax Procedure Students on Trump's "Settlement" in Trump v. IRS (8/6/26)

 I have posted my Federal Tax Procedure Book to SSRN, see here. Since it is timely, although a moving target that we sure have not heard the last of yet, I thought I would post the concluding paragraphs of my discussion of Trump v. IRS that Trump and his buddies at DOJ (most notably Blanch, but not only Blanche) tried to use as a pretext to raid the Treasury.

In my opinion, Trump and his buddies new they would draw flack on that package, so they must have realized that the Anti-Weaponization Fund was just a ploy, a stalking horse. The real goal was tax audit immunity which for now has not been taken off the table. I discuss that in the Federal Tax Procedure Book (Student Edition pp.  802-805; Practitioner Edition pp. 1118-1192). I conclude that discussion with some further discussion questions for students of tax crimes and tax procedure:

Exercise for Students: Readers of Chapter Six discussing tax and tax-related crimes should be able easily to spot several tax and tax-related crimes that this conduct might implicate, particularly the ubiquitous defraud conspiracy. One possibility is that anyone participating materially in the audit immunity could be an affirmative act of evasion with respect to the taxes covered or an overt act of conspiracy (offense or defraud). In theory, if that were viable, all of the key players in this drama stand exposed to criminal prosecution. Of course, the prosecutions, if any, will have to be brought by DOJ which Trump can prevent while he is President but can then be brought in the next Administration unless Trump gives sweeping pardons to all who were involved. (I suspect and have read that those actors are counting on such pardons.) One final question worth asking is whether Trump’s control of DOJ and IRS could implicate some conduct for which the Supreme Court has given full or qualified immunity in Trump v. United States, 603 U.S. 593 (2024).

Another Exercise for Students: Tax procedure students should think about the settlement authorities discussed earlier in this text. Thus, generally, only the IRS has settlement authority for cases that it has not yet referred to DOJ. DOJ has settlement authority only for cases that the IRS referred. Facially, it appeared in Trump v. IRS that the IRS had only transferred authority to DOJ over the § 7431 wrongful disclosure suit. There is no indication that the IRS referred all of the matters sweepingly released in the Release Order to DOJ, and there is no indication that the IRS “settled” those claims.

Concluding thoughts: If nothing else, Trump v. IRS and its resulting commotions will occupy tax procedure and tax crimes enthusiasts for a long time.

 This blog entry is cross-posted on the Federal Tax Procedure Blog here.

FTPB 2016 Editions Discussion of Trump v. IRS and Its Resulting Machinations (8/3/26)

I am trying to wrap up the 2026 Editions of my Federal Tax Procedure Book but the ongoing drama by DOJ’s $2.77 billion Anti-Weaponization Fund and Trump and related party tax immunity does not permit an easy stopping point. But I have to stop and have just concluded all that will be in the 2026 Editions that I hope to publish later this week. I thought I would post the discussion below (the Student Edition version without footnotes by copy and paste into the blog below) and the Practitioner Edition version with footnotes that can be downloaded here.

                   2.     Examples (Including Trump v. IRS).

          A prominent example of this remedy is a suit brought by a Kenneth Griffin, a hedge fund billionaire. An employee of a third party contractor to the IRS, Booz Allen Hamilton, Inc., illegally accessed and disclosed the tax return information of Griffin and others to a news organization, ProPublica, which in turn published some of the tax return information. Griffin sued the IRS under (i) § 7431, alleging violation of § 6103, and (ii) the Privacy Act. The employee was prosecuted and pled guilty, receiving a five-year sentence. Griffin and the IRS settled the civil action resulting in a dismissal with prejudice. All of the terms of the settlement are not available, but apparently there was no monetary consideration and the IRS agreed to and did issue a public apology. Another reputed billionaire brought related action against the employee’s employer, Booz Allen Hamilton, Inc.

          A more prominent example arising from the same mass disclosures is a 2026 suit Donald J. Trump filed in his nominal personal capacity for $10 billion damages (asserting both the minimum $1,000 per disclosure with disclosures at $1,000 justifying $10 billion or actual damages of $10 billion) and for punitive damages in an amount not stated. The Plaintiffs included Trump’s sons and The Trump Organization, LLC. (referred to collectively as the Trump Plaintiffs). Before the DOJ filed an answer, the Judge asked the parties to brief whether, given President Trump’s control over the Government parties (IRS and DOJ) and personal interest as Plaintiff, the case met the required Article III case or controversy requirement. The Court also appointed amici to provide independent briefing on that issue. Before the parties presented their briefing but after the amici provided its initial brief, the Trump Plaintiffs moved to dismiss with prejudice under FRCP Rule 41(a)(1)(A)(i) which requires dismissal with prejudice. On May 18, 2026, the Court dismissed with prejudice, noting:

10th Circuit Reverses on Defraud/Klein conspiracy instruction and Advice of Counsel Instruction, with Reminder on Limitations of Pattern Jury Instructions (9/4/25; 9/7/25)

See discussion added at end on 9/5/25 @ 11:30 am.

In United States v. Kearney, ___ F.4th ___ (10th Cir. 9/2/25), CA10 here and GS here [to come], the Court held that the trial court erred in two jury instructions: (i) the trial court instructed the jury on the uncharged offense conspiracy rather than the charged defraud conspiracy; and (ii) the trial court did not include the conspiracy charge in the advice-of-counsel defense instruction. Both errors required a remand for further proceedings.

Both holdings are not particularly exceptional. The first holding does offer an opportunity to remind readers of the difference between the two types of conspiracy criminalized by 18 USC § 371, here, helpfully titled “Conspiracy to commit offense or to defraud United States.” The two types of conspiracy are thus often identified as the offense conspiracy and the defraud conspiracy. The offense conspiracy is a conspiracy to commit a specific offense. The defraud conspiracy is a conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” But defraud, as interpreted, has a special meaning for the defraud conspiracy. The word “fraud” and its counterpart “defraud” normally requires an object to obtain money or property by fraudulent means. Fraud for purposes of the defraud conspiracy includes that object but also includes an object to impair or impede the lawful functioning of a government agency, here the IRS. (When charged with the latter object (impair or impede), the defraud conspiracy is often referred to as a Klein conspiracy, named after United States v. Klein, 247 F.2d 908 (2d Cir. 1957).) I have written on the defraud/Klein Conspiracy and its textual problem. The following is my most recent foray into the subject: Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (Federal Tax Crimes Blog 8/3/24; 8/6/24), here (citing a prior article and blogs).

But, for this blog, accept the defraud conspiracy as it is now; it does not require what we normally think of as fraud with a monetary or property object but can include an object “to interfere with or obstruct one of its lawful governmental functions by deceit, craft[,] or trickery, or at least by means that are dishonest.” Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), quoted in Kearney at Slip Op. 8.

The problem in Kearney was that, at the Government’s invitation at trial, the court instructed the jury based on the 10^th Circuit’s pattern jury instruction describing the offense conspiracy which was not charged. Kearney was charged with and convicted for the defraud conspiracy which, the 10^th Circuit panel holds should have included the limiting language from Hammerschmidt quoted above.

The Government requested the offense conspiracy instruction based on the 10^th Circuit’s Pattern Jury Instructions. The 2025 version of the pattern jury instructions is here (see Instruction 2.19 CONSPIRACY 18 U.S.C. § 371). That pattern instruction is for the offense conspiracy without any discussion of the defraud conspiracy, a discussion which, if included, might have timely alerted the parties and the judge as to the problem with the offense conspiracy instruction. (In fairness, Kearney’s attorney realized the problem and proposed a variation instruction.)

The Court offers this helpful discussion on the limitations of pattern jury instructions (Slip Op. 12-13):

          To be sure, the district court used this circuit’s pattern instruction on § 371 conspiracies, which typically “weighs against a finding of plain error.” United States v. Kepler, 74 F.4th 1292, 1315 (10th Cir. 2023). But pattern instructions are merely a guide. See Tenth Cir. Crim. Pattern Jury Instrs. Introductory Note (“The Committee’s approach was to generate generic minimalist instructions that would be tailored to individual cases.”); United States v. Freeman, 70 F.4th 1265, 1280 n.13 (10th Cir. 2023) (noting that “pattern instructions are merely intended to serve as a guide” and suggesting that, where Tenth Circuit has not issued pattern instruction for offense, parties may need “to select alternate formulations” of offense elements). And the pattern instruction in this instance not only fails to account for the two kinds of conspiracies in § 371, it doesn’t describe the charged offense at all. See Tenth Cir. Crim. Pattern Jury Instrs. § 2.19 at 98 (2025). Given the  statute’s plain language, the error in using the pattern instruction on conspiracy to violate the law for a charge of conspiracy to defraud was also plain.

Trump Superseding Indictment: More on the Defraud / Klein Conspiracy (8/28/24)

The D.C. grand jury approved a superseding indictment against former President Trump (“Trump”). The superseding indictment is on CourtListener here. The principal purpose of the superseding indictment is to eliminate charges that might implicate the President’s immunity as stated in Trump v. United States, 603 U. S. ____, 144 S. Ct. 231 (2024).

The Introduction to the superseding indictment contains a good summary on the issue I discuss in this blog – the defraud conspiracy in 18 U.S.C. §371 (Superseding Indictment pp. 1-3, ¶¶ 1-5).

INTRODUCTION

          1. The Defendant, DONALD J. TRUMP, was a candidate for President of the United States in 2020. He lost the 2020 presidential election.

          2. Despite having lost, the Defendant-who was also the incumbent President-was determined to remain in power. So, for more than two months following election day on November 3, 2020, the Defendant spread lies that there had been outcome-determinative fraud in the election and that he had actually won. These claims were false, and the Defendant knew that they were false. But the Defendant used his Campaign to repeat and widely disseminate them anyway-to make his knowingly false claims appear legitimate, create an intense national atmosphere of mistrust and anger, and erode public faith in the administration of the election.

          3. As a candidate and a citizen, the Defendant had a right, like every American, to speak publicly about the election and even to claim, falsely, that there had been outcome determinative fraud during the election and that he had won. He was also entitled to formally challenge the results of the election through lawful and appropriate means, such as by seeking recounts or audits of the popular vote in states or filing lawsuits challenging ballots and procedures. Indeed, in many cases, the Defendant did pursue these methods of contesting the election results. His efforts to change the outcome in any state through recounts, audits, or legal challenges were uniformly unsuccessful.

          4. Shortly after election day, the Defendant also pursued unlawful means of discounting legitimate votes and subverting the election results. In so doing, the Defendant  perpetrated three criminal conspiracies:

                   a. A conspiracy to defraud the United States by using dishonesty, fraud, and deceit to impair, obstruct, and defeat the lawful federal government function by which the results of the presidential election are collected, counted, and certified by the federal government, in violation of 18 U.S.C. § 371;

                   b. A conspiracy to corruptly obstruct and impede the January 6 congressional proceeding at which the collected results of the presidential election are counted and certified ("the certification proceeding"), in violation of 18 U.S.C. § 1512(k); and

                   c. A conspiracy against the right to vote and to have one's vote counted, in violation of 18 U.S.C. § 241.

Each of these conspiracies-which built on the widespread mistrust the Defendant was creating through pervasive and destabilizing lies about election fraud-targeted a bedrock function of the United States federal government: the nation's process of collecting, counting, and certifying the results of the presidential election ("the federal government function").

Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (8/3/24; 8/6/24)

In United States v. Lingat, (S.D. N.Y. No. 1:21-cr-00573 Dkt # 191 Opinion & Order 7/30/24), CL here & GS here [to come], the court rejected the defendants’ motions for acquittal after conviction. The defendants asserted as a principal basis for the motions United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), here, cert. den. 571 U.S. 819 (2013) which questioned the Klein defraud conspiracy (the § 371 defraud conspiracy) for which the defendants were convicted. In affirming the Klein defraud conspiracy convictions, Coplan strongly questioned the validity of the Klein conspiracy but was compelled to follow Supreme Court opinions approving the broad interpretation of the defraud conspiracy. 

I believe that most readers of this blog are familiar with the Klein conspiracy and perhaps even the saga of Coplan. The Second Circuit in Coplan was concerned that, through an expansive reading of the text of § 371, the Supreme Court had judicially created the Klein conspiracy crime to include an object to impair or impede the function of Government without any fraud in its traditional meaning for criminal statutes to deprive another of money or property. In short, the defraud conspiracy does not require fraud, at least fraud as the word is used in other criminal statutes. For readers wanting a short summary, I link a section of my Federal Tax Procedure Book (Practitioner Ed. 2024), pp. 318-319, here. I have posted a number of blogs on the issue presented in Coplan, but here will just link to some of the more prominent blogs. Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here; Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here; and Oral Argument in Supreme Court Case on Trump Immunity Discussing the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 4/26/24), here.

The key troubling aspect of the Klein conspiracy is that the precedent going to Hammerschmidt v. United States, 265 U.S. 182 (1924) and even earlier is now certainly “settled law,” a refrain we have heard so much over the last few years as the Court’s current conservative super-majority court has “unsettled’ much “settled law.” I think the Court’s super-majority has been unsettling too much settled law. But, if the Court's super-majority really wants to fix something worth fixing, it could not find a more worthy issue than the proper interpretation of the defraud conspiracy. Since first wading into the issue in the late 1990s and early 2000s, I have been convinced that the Court went too far in Hammerschmidt and its ilk and now should fix the issue simply because the defraud conspiracy can sweep too broadly. For my ruminations on that concern, see John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here, and its online appendix with examples Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? Online Appendix, 9 Hous. Bus. & Tax L.J. A-1 (2009), here.

Oral Argument in Supreme Court Case on Trump Immunity Discussing the Defraud / Klein Conspiracy (4/26/24)

I have written many blogs over the years on the defraud conspiracy (aka Klein conspiracy) in 18 USC § 371, here. I collect at the end of this email some of the more noteworthy (in my imagination) of those blogs on the subject I discuss today. That subject is the potential breadth of the defraud conspiracy, particularly when the Supreme Court interpreted the word “defraud” in § 371 to not be limited to fraud in the usual federal law criminal sense to require some taking or intent to take property. In Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), the Court held that the defraud conspiracy certainly means to cheat or attempt to cheat the Government out of property or money, but it also means to interfere with or obstruct lawful governmental functions “by deceit, craft or trickery, or at least by means that are dishonest” even if no fraud in its normal meaning is the object. As interpreted, that means defraud includes simply an object of the conspiracy to impair the lawful functions of Government. The Hammerschmidt interpretation of defraud was an outlier from the normal interpretation and was not based upon any objective indication that Congress meant the broader interpretation. But, as noted, Hammerschmidt is a long-ago case that is now entrenched in jurisprudence (perhaps even settled law, as some Justices used the term to get past confirmation hearings). (Note, however, that in the current Supreme Court settled law may not be settled after all.)

In yesterday’s oral argument in Trump v. United States, No. 23-939 (4/25/24) (Transcript here; and docket here), the defraud conspiracy came up at least briefly. That is perhaps not surprising because the indictment, CL here, alleged the defraud conspiracy as Count One. The oral argument focused on Presidential immunity for conduct alleged in various counts (including the defraud conspiracy and the two counts under 18 USC § §  1512 (Counts Two and Three). The focus was on presidential immunity rather than the contours of the statutes. 

I don’t propose to discuss the issue of presidential immunity here. My purpose is to relate the discussions of the potential scope of the defraud conspiracy, § 371, aka Klein conspiracy.

Justices Alito, Gorsuch, and Kavanaugh engaged at least glancingly with Michael R. Dreeben, Counselor to the Special Counsel, Jack Smith. I offer the excerpts (with some surrounding potentially relevant content; page numbers are indicated in brackets with asterisk (e.g. [*97]]):

[*97]

JUSTICE ALITO:

* * * *

MR. DREEBEN:

* * * *

[*98]

And making a mistake is not what lands you in a criminal prosecution. There's been some talk about the statutes that are at issue in this case. I think they are fairly described as malum in se statutes, engaging in conspiracies to defraud the United States with respect to one of the most important functions, namely, the certification of the next president.

JUSTICE ALITO: Well, I don't want to dispute the particular application of --of that, of 371, conspiracy to defraud the United States, to the particular facts here, but would you not agree that that is a peculiarly open-ended statutory prohibition? In that -that fraud under that provision, unlike under most other fraud provisions, does not have to do --doesn't require any impairment of a property interest.

Update on Wartime Suspension of Limitations Act ("WSLA"), 18 USC 3287, and Tax Crimes (4/1/23; 4/2/23)

Caveat: Although authored and published on 4/1/23, this blog is not an April Fool's Joke.

I have written before about the Wartime Suspension of Limitations Act ("WSLA"), 18 USC  § 3287, here, that suspends certain criminal statutes of limitations while "the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b))." The statutes of limitations are suspended in relevant part for crimes "(1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not." My blogs on this subject discussing the potential application of this WSLA suspension for tax crimes are collected by relevance here and reverse chronological order here. In those blogs, I have noted that the WSLA's literal application to certain tax crimes involving "fraud" would mean that the WSLA could have a pervasive effect permitting the charging of tax crimes far before the normal suspensions often encountered for tax crimes. See also, Michael Saltzman & Leslie Book, IRS Practice and Procedure, ¶ 12.05[9][a][iii] Suspension and tolling (discussing normal suspensions and discussing § 3287 at n. 933); and John A. Townsend, Federal Tax Procedure (2022 Practitioner Ed.) 317-387 (August 3, 2022). Available at SSRN: https://ssrn.com/abstract=4180710.

1. The blog supplements those discussions until the next revisions of those respective books (note that I am the principal author of the Saltzman and Book chapter). Since I have already brought the discussion up to date in the 2023 working draft for the Federal Tax Procedure Book (2023 Practitioner Ed.), I will just offer the following from the 2023 draft (which should be finalized by early August 2023). The last sentence in the carryover paragraph will be changed to and a footnote added as follows (note that I link the blog entries and key case entries in this blog but will not link them in the book):

This provision [WSLA] might apply to the Iraq and Afghanistan engagements, but its application to tax crimes with elements of fraud or attempted fraud is notable only because of the many cases in which it could have been applied but is rarely, very rarely, asserted where statute of limitations defenses are asserted. fn

Tax Attorneys Indicted for Fraudulent Tax Shelter and Related Conduct (11/18/22)

DOJ announced indictments in a press release, here, titled as follows: Tax Attorneys and Insurance Agent Indicted for Promoting and Selling Fraudulent Tax Shelter. The indictment is here (CL).

The charges are

• defraud conspiracy 18 USC 371 (Count One),
• aiding and assisting 7206(2) (Counts Two through Twelve and Eighteen through Twenty-two),
• tax perjury via false tax return 7206(1) (Counts Thirteen through Seventeen), and
• wire fraud 18 USC 1343 (Count Twenty-Three). 

The indictment also alleges a Notice of Forfeiture and Finding of Probable Cause.

The pattern of conduct alleged in the press release as:

According to the indictment, from 2011 to the present Michael Elliott Kohn and Catherine Elizabeth Chollet, both attorneys and residents of St. Louis, Missouri, and David Shane Simmons, a licensed insurance agent and broker based out of Jefferson, North Carolina, conspired to defraud the United States by promoting, marketing, and selling to clients a fraudulent tax scheme known as the Gain Elimination Plan (“GEP”). The defendants allegedly designed the GEP to conceal clients’ income from the IRS by fraudulently inflating business expenses through fictitious royalties and management fees. These fictitious royalties and management fees allegedly were paid, on paper, to a limited partnership largely owned by a charitable organization. In reality, Kohn and Chollet allegedly fabricated the royalties and management fees. In total, the defendants allegedly caused a tax loss to the IRS of tens of millions of dollars.

 The indictment further alleges that Kohn and Simmons engaged in a scheme to defraud an insurance company by providing false information on insurance applications on behalf of their clients. The false information allegedly included fraudulent representations concerning the clients’ financials and the purpose of the insurance policies. In total, Kohn and Simmons allegedly caused the insurance company to issue more than $200 million in insurance policies based on false application information. Simmons allegedly earned large commissions for selling the insurance policies, many of which he split with Kohn and Chollet. Simmons also allegedly filed false personal tax returns by underreporting his business income and inflating his business expenses.

The press release alleges sentencing matters as follows:

Court Rejects No Harm (Tax Loss) No Criminal Foul for Defraud Conspiracy in Backdating to Allocate Partnership Losses to New Partners (10/27/22)

 In an Order in United States v. Fisher (N.D. Ga. No. 1:21-cr-231-TCB dkt entry # 311 10/13/22), TN here, the Court denied motions for bills of particulars and to dismiss.  This is all fairly standard stuff in this area, so I write only to point out the portion I found interesting.

The Court addressed (Slip Op. 30-34) Fisher’s claim that the indictment’s conspiracy charge did not allege criminal conduct.  Specifically, Fisher targeted claim in the indictment that “Fisher (and others) backdated partnership documents in order to receive tax deductions for years in which the clients were not in fact partners.”    What caught my attention was this at the beginning of the discussion:

First, Fisher argues that the backdating led to no harm to the Government because the amount of deduction remained the same. In other words, whether ten or twenty partners split $1,000,000 ends in the same result to the Government; therefore, he contends, there is a lack of harm necessary to prove a Klein conspiracy.

Of course, everyone (at least those everyones practicing tax law or white collar crime law) would recognize as suspect on its face (although Fisher and presumably his lawyer(s) did not recognize it).  More importantly for tax crimes geeks, actual pecuniary loss is not required for the conspiracy alleged–to defraud the IRS.  (See Count One of the Superseding Indictment, here.)  All that is required is a conspiracy to interfere with the lawful functioning of the IRS; allocating losses inappropriately can do that. 

Still the rest of the Court’s discussion on this claim might be useful for  students and even some practitioners:

            But as the Government notes, backdating partnership documents does lead to harm. This is because Fisher’s actions “caused clients to file [*31] false tax returns that claimed fraudulent deductions based upon backdated documents.” [276] at 23. The United States Code explicitly criminalizes this behavior in 26 U.S.C. § 7206, which forms the basis for many counts in the indictment. To argue that causing clients to file false tax returns is not a harm for purposes of the conspiracy charge, when the act itself is criminalized, is simply wrong. Accord, e.g., United States v. Daugerdas, 837 F.3d 212 (2d Cir. 2016) (affirming conviction for conspiracy in tax shelter case involving backdated documents).

District Court Concludes More Likely Than Not that President Trump and John Eastman Committed the Defraud Conspiracy (4/4/22)

 Readers of this blog will recall that I have written often about the defraud conspiracy and its interpretation in  Hammerschmidt v. United States, 265 U.S. 182, 188 (1924).  That interpretation, which I sometimes call the Hammerschmidt spin, provides a definition for defraud that expands beyond the definition of fraud in the criminal law and is thus a judicial expansion.  I and others have expressed concern about that expansion.  See e.g., my most recent offering which summarizes the concern. District Court Rejects Claim That Supreme Court Expansion of Defraud Conspiracy Is In Error (3/24/22; 3/27/22), here.   I usually address the concern in a tax setting where the Hammerschmidt spin is referred to as a Klein conspiracy.

Those who have been watching the news may have picked up that a federal district judge in California recently deployed the Hammerschmidt spin in determining whether certain communications by John Eastman, Trump’s putative attorney for attempting to prevent the certification of Biden as President, including the events surrounding the siege and breach of the Capitol  on January 6.  See Eastman v. Thompson  (C.D. Cal. Dkt # 8:22-cv-00099-DOC-DFM 3/8/22), CL here and GS here [to come].  In rejecting various claims of privilege or right to withhold  documents, the Court concluded inter alia (pp. 36-39) that Eastman and Trump likely committed the defraud conspiracy crime.   I thought readers interested in this issue may like the analysis which I copy and paste here (I leave the footnote numbers in the text but omit the footnotes except for the footnote citation to Hammerschmidt.):

ii. Conspiracy to Defraud the United States

            The Select Committee also alleges that President Trump, Dr. Eastman, and others conspired to defraud the United States by disrupting the electoral count, in violation of 18 U.S.C. § 371.242 That crime requires that (1) at least two people entered into an agreement to obstruct a lawful function of the government (2) by deceitful or dishonest means, and (3) that a [*37] member of the conspiracy engaged in at least one overt act in furtherance of the agreement.243

            As the Court discussed at length above,244 the evidence demonstrates that President Trump likely attempted to obstruct the Joint Session of Congress on January 6, 2021. While the Court earlier analyzed those actions as attempts to obstruct an “official proceeding,” Congress convening to count electoral votes is also a “lawful function of government” within the meaning of 18 U.S.C. § 371, which Dr. Eastman does not dispute. An “agreement” between co-conspirators need not be express and can be inferred from the conspirators’ conduct.245 There is strong circumstantial evidence to show that there was likely an agreement between President Trump and Dr. Eastman to enact the plan articulated in Dr. Eastman’s memo. In the days leading up to January 6, Dr. Eastman and President Trump had two meetings with high-ranking officials to advance the plan. On January 4, President Trump and Dr. Eastman hosted a meeting in the Oval Office to persuade Vice President Pence to carry out the plan. The next day, President Trump sent Dr. Eastman to continue discussions with the Vice President’s staff, in which Vice President Pence’s counsel perceived Dr. Eastman as the President’s representative.246 Leading small meetings in the heart of the White House implies an agreement between the President and Dr. Eastman and a shared goal of advancing the electoral count plan. The strength of this agreement was evident from President Trump’s praise for Dr. Eastman and his plan in his January 6 speech on the Ellipse: “John is one of the most brilliant lawyers in the country, and he looked at this and he said, ‘What an absolute disgrace that this can be happening to our Constitution.’”247 Based on these repeated meetings and statements, the evidence shows that an agreement to enact the electoral count plan likely existed between President Trump and Dr. Eastman.

            Deceitful or dishonest means Obstruction of a lawful government function violates § 371 when it is carried out “by [*38] deceit, craft or trickery, or at least by means that are dishonest.”248 While acting on a “good faith misunderstanding” of the law is not dishonest, “merely disagreeing with the law does not constitute a good faith misunderstanding . . . because all persons have a duty to obey the law whether or not they agree with it.”249
    n248 Hammerschmidt v. United States, 265 U.S. 182, 188 (1924).

District Court Rejects Claim That Supreme Court Expansion of Defraud Conspiracy Is In Error (3/24/22; 3/27/22)

In United States v. Lucidonio,   (ED PA Criminal NO. 20-211 3/9/22), GS here and CL here and g, Lucidonio was charged with the Klein / defraud conspiracy (18 USC §371) counts of aiding and assisting (§ 7206(2)). The Court denied his motion to dismiss those counts. The denial addresses some major themes in tax crimes, and it is short. I recommend that tax crimes fans read the opinion. Perhaps read even more than once.

The opinion addresses two contexts tax crimes targets should consider the potential sweep of conduct subject to the crimes. First, there is the conspiracy charge in 18 USC 371. That statute includes two types of conspiracies:

(i)                The offense conspiracy to commit a specific statutory offense. The offense conspiracy requires the Government to prove that the object was to commit the conduct that meets each element of the offense. For example, for conspiracy to commit tax evasion, the Government must prove an intent to commit each element of the crime of tax evasion. The elements are of tax evasion are:  (i) substantial tax due and owing; (ii) an affirmative attempt to evade; and a willful attempt to evade.  Sometimes proving the elements of the conspiratorial object offense can be a burden, hence we turn to the other conspiracy in § 371.

(ii)              The defraud conspiracy (often called a Klein conspiracy in a tax setting). On the face of the statute, the object of the defraud conspiracy must be “to defraud the United States.”  Defraud normally in the criminal law means to take something of value from its rightful owner (or some variation). There is no reason to believe that, upon the original enactment of the predecessor of § 371 this crime in these words, Congress had any other definition of defraud for this element of the defraud conspiracy. Yet, as interpreted by the Supreme Court, the defraud conspiracy certainly means to cheat or attempt to cheat the Government out of property or money, but it also means to interfere with or obstruct lawful governmental functions “by deceit, craft or trickery, or at least by means that are dishonest” even if no fraud is the object. Hammerschmidt v. United States, 265 U.S. 182, 188 (1924).  Through interpretation, Hammerschmidt effectively grafted into the defraud conspiracy criminalization of conduct beyond fraud onto the defraud conspiracy. For treatments showing Hammerschmidt’s embrace of a formulation of the crime beyond the normal meaning of defraud, see United States v. Coplan, 703 F.3d 46, 66 (2d Cir. 2012), cert. denied, 571 U.S. 819 (2013); John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here; see also United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993) (opening with the question: “We consider whether conspiring to make the government's job harder is, without more, a federal crime.”)  [Note: The defraud conspiracy as spun by Hammerschmidt may apply in other agency contexts, but its specific application in a tax context is usually referred to as a Klein conspiracy after the leading tax case apply the defraud conspiracy after Hammerschmidt.  See DOJ CTM 23.07[2][a] Generally.)] In short, the defraud conspiracy as currently interpreted, goes beyond the original meaning of the statutory text because the word defraud in the criminal statutes did not have that meaning until spun by the Supreme Court culminating in Hammerschmidt. 

In every practical sense, the Supreme Court added to the conduct that Congress required for the defraud conspiracy. Just stating that concept seems contrary to the oft-made statement that only Congress can create the elements of criminal statutes. Of course, it has always been the law that courts can spin the elements of criminal statutes, but just how much spinning is allowable. How far can courts wander from the statutory text?

That was the claim Lucidonio and others before him have unsuccessfully sought for the Hammerschmidt spin. The most prominent attack came in United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), cert. denied, 571 U.S. 819 (2013). The Second Circuit questioned the Hammerschmidt spin on the defraud conspiracy but felt obligated to apply because it was the higher court’s spin; the Supreme Court denied cert thus carrying forward the Hammerschmidt spin as law. Coplan, 703 F.3d at 62. Recognizing that reality, Lucidonio made the argument to preserve the possibility that either his case or some other case while his was still alive might get the Supreme Court to reverse the Hammerschmidt spin. (See Slip Op. p.  6 n. 2).

Lucidonio claimed that the Hammerschmidt spin was inconsistent with United States v. Davis, ___ U.S. ___, 139 S. Ct. 2319 (2019), SC here & GS here, and the concepts discussed and applied there. I urge readers considering this issue to review that case carefully because the conclusion of the Davis majority outside the context of tax crimes seems inconsistent with the Hammerschmidt spin on the defraud conspiracy.

For those interested in the issue of how far a court, even the Supreme Court can wander from the text of the criminal law elements, I recommend careful reading of Davis. This is a teaser from the introduction of the opinion (authored by Justice Gorsuch or his clerks (I have an anecdote on that at the end of this blog entry):

S.G. Files Brief in Opp to Petition for Certiorari in Flynn (5/19/21; 6/17/21)

I noted previously that a petition for certiorari was filed in United States v. Flynn, 969 F.3d 873 (8th Cir. 2020), cert. docketed, 20-1129 (Feb. 17, 2021) and that the Government was to file an answer on May 19, 2021.  See Fifth Circuit Holds that the Defraud/Klein Conspiracy Does Not Have Pending Proceeding Element; Update on Cert Petition in Related Case (Federal Tax Crimes 5/8/21), here.  The Solicitor General filed the answer today, a Brief in Opposition, here.

Just to review the bidding as of today, the following key documents are on file per the docket entries, here (where the various documents can be reviewed and downloaded).

• The petition was filed 2/11/12.
• An amicus brief in support of the petition was filed by the New York Council of Defense Lawyers on 5/2/21. 
• The S.G. Brief in Opp was filed on 5/19/21.
• Flynn's Reply Brief filed on 6/7/21.  (Added to Blog 6/17/21)

The Brief in Opp is 26 pages long (substantially longer than the Briefs in Opp I drafted while with DOJ Tax Appellate, but word inflation has crept into my writings since then).  The key issue that I think readers of this blog would be most interest is (p. (I), p. 2 of the pdf):

2. Whether a charge of conspiring to defraud the United States in violation of 18 U.S.C. 371 is void for vagueness absent a requirement that the government prove a nexus between a defendant’s conduct and a particular administrative proceeding.

This issue is basically the Marinello issue I mentioned in my earlier blog.

Flynn, in the petition for certiorari, stated the issue as follows (p. i, p. 2 of the pdf):

II. Whether the requirement for a nexus between a particular administrative proceeding and a taxpayer’s conduct is necessary to save the constitutionality of a conviction under an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) after this Court’s decision in Marinello v. United States, 138 S. Ct. 1101 (2018).

The Government states it arguments on pp. 15-23 (pp. 22-30 of the pdf).  Basically, the arguments are:

Fifth Circuit Holds that the Defraud/Klein Conspiracy Does Not Have Pending Proceeding Element; Update on Cert Petition in Related Case (5/8/21)

In United States v. Herman, 997 F. 3d 251, 273 (5th Cir. 2021), CA5 here & GS here, the Court affirmed the convictions of husband and wife, restaurant owners and operators for the defraud/Klein conspiracy and willfully filing false tax returns. 

The noteworthy holding in the opinion is that the Klein conspiracy in § 371 does not import the holding in Marinello v. United States, 584 U.S. ___, 138 S. Ct. 1101 (2018), that the tax obstruction crime (§ 7212(a)) requires a nexus to an administrative proceeding.  (See Slip Op. 25-29.) 

As the Fifth Circuit panel notes, its holding is consistent with the two other circuits’ holdings, the only circuit court cases addressing the issue.

One of the other circuit court cases was United States v. Flynn, 969 F.3d 873 (8th Cir. 2020), cert. docketed, 20-1129 (Feb. 17, 2021).  I previously wrote on the petition for cert in Flynn.  See Defendant Petitions for Cert on Relationship of Defraud Conspiracy and Marinello Interpretation of Tax Obstruction (2/22/21), here.  I thought readers might want an update on the status of the pending petition for cert in Flynn.

The Supreme Court docket entries in Flynn, here, indicate that the following key entries:

• The petition was filed 2/11/12, 
• The Government’s response is due 5/19/21 (after some extensions) 
• An amicus brief in support of the petition was filed by the New York Council of Defense Lawyers on 5/2/21.  

Defendant Petitions for Cert on Relationship of Defraud Conspiracy and Marinello Interpretation of Tax Obstruction (2/22/21)

I have previously blogged on the plea and resulting conviction of Scott Flynn for the defraud / Klein conspiracy.  See Eighth Circuit Holds that Marinello Pending Proceeding Nexus in § 7212(a) Does Not Apply to Defraud / Klein Conspiracy (Federal Tax Crimes Blog 8/17/20), here; and Two Cases Involving Marinello (Federal Tax Crimes Blog 1/15/19), here.  Flynn has filed a petition for certiorari (S.Ct. pdf here pdf and TN text here) presenting the following issues (Pet. p. 1):

I. Whether the due process clause of the United States Constitution, as discussed in McCarthy v. United States, 394 U.S. 459 (1969) and more recent decisions of this Court, requires discussion in open court of the elements of an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) offense to advise the defendant of the nature of the charges against him before a guilty plea is accepted.

II. Whether the requirement for a nexus between a particular administrative proceeding and a taxpayer's conduct is necessary to save the constitutionality of a conviction under an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) after this Court's decision in Marinello v. United States, 138 S. Ct. 1101 (2018).

III. Whether a criminal defendant is entitled to a jury trial to determine the amount of restitution under either the Sixth or Seventh Amendments to the United States Constitution.

All of the issues are important, but only the Supreme Court will determine whether they are “cert-worthy.”  

I address one issue that I have written on before – whether Marinello’s interpretation of the tax obstruction, § 7212(a), offense can or should apply to the defraud / Klein conspiracy?  See e.g., What Are the Implications for Marinello on the Defraud / Klein Conspiracy? (Federal Tax Crimes Blog 3/24/18), here; see also Great Second Circuit Dissent on Potential Overreach in Tax Obstruction (Federal Tax Crimes Blog 2/28/17), here.  Flynn argues that the defraud / Klein conspiracy is unconstitutional and can be saved by importing the Marinello analysis into the defraud / Klein conspiracy.  See pp. 20, here – 30.  I need not go over the nuance of the argument since the petition presents the position well and I have previously addressed the issue in the various Federal Tax Crimes Blog links above.  Here (p. 4), though is the fairly cryptic summary of the argument:

The charging document for the 18 U.S.C. § 371 (Klein Conspiracy) charge used all but identical language to a tax obstruction charge, 26 U.S.C. § 7212(a), that was limited by this Court in Marinello v. United States, 138 S. Ct. 1101 (2018). The same nexus limitation should have been applied here or the statute should be declared unconstitutional.

JAT Comment (added 2/22/21 at 9:00pm:

First Criminal Cases from Abusive Syndicated Conservation Easements (12/23/20; 12/29/20)

Abusive conservation easements have been a topic on this blog for some time now.  See here.  DOJ and the IRS have noised about criminal prosecutions, but until this past week none have surfaced.  Now, we have two criminal cases with a pre-wired plea on the filing of the criminal informations.  See DOJ Press Release: Atlanta Tax Professionals Plead Guilty to Promoting Syndicated Conservation Easement Tax Scheme Involving More Than $1.2 Billion in Fraudulent Charitable Deductions (12/21/20), here. 

Relevant excerpts from the press release are:

According to court documents, from at least 2013 through 2019, S. Agee and C. Agee, then partners at an Atlanta accounting firm, marketed, promoted, and sold together with co-conspirators,  investments in fraudulent syndicated conservation easement (SCE) tax shelters. The SCE tax shelters were designed to produce tax deductions for high-income taxpayers through partnerships that purported to make “real estate investments.” In truth, the partnerships were a sham, lacking economic substance and serving no legitimate business purpose. The placement of conservation easements over the real estate was a foregone conclusion, which fraudulently enabled the investors to shelter their income from the IRS with no economic risk and to claim substantial tax deductions to which they were not entitled. S. Agee, C. Agee, and their co-conspirators marketed the SCE tax shelters by promising investors that for every $1 invested in the partnership, the investor would receive more than $4 in charitable tax deductions. 

“The defendants’ and their co-conspirators' criminal conduct enabled their clients to claim more than $1.2 billion in fraudulent tax deductions and generated hundreds of millions of dollars of tax loss to the United States,” said Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department's Tax Division.

* * * *

Conservation easements were created by Congress to be a key tool used for protecting environmentally and historically important land. The donated conservation easement typically restricts the use or development of land in order to protect its conservation value. When legitimately created and used in compliance with the Internal Revenue Code, the conservation easement can both protect the environment and provide tax incentives. By contrast, abusive SCEs are designed to game the system and generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of legitimate business purpose.

According to court documents, S. Agee and C. Agee additionally solicited investors after the end of the tax year and advised them to backdate payments and documents to make it appear that the “investments” were timely made before the end of the tax year. S. Agee and C. Agee also prepared and assisted in the preparation of false tax returns for clients who agreed to invest in the SCE shelters. In exchange for their promotion of the abusive SCE tax shelters, between 2013 and 2019, S. Agee and C. Agee each received more than $1.7 million in commissions.

S. Agee and C. Agee both pleaded guilty to one count of conspiracy to defraud the United States which carries a maximum penalty of five years in prison. They also face a period of supervised release, restitution, and monetary penalties.

The CourtListener dockets for these cases are:  Stein Agee, here, and Corey Agee, here.

Details are set forth in the Stein Agee Criminal Information and Factual Basis available at CourtListener here and here.  I have not attempted to determine if there are material differences in the fact patterns for Stein and Corey Agee, but have instead focused generally on Stein Agee.  As with conspiracy charges generally, the details are summarized in cascading fashion in the Manner and Means and Overt Acts paragraphs of the Criminal Information (pars. 103 and 104, pp. 21-30 (repeated in the Factual Basis, pars. 101 and 102, pp. 22-31)).  Those wanting to know at least the summary details should focus on those paragraphs.

JAT Comments:

Note:  I have substantially revised the Comments portion to present the materials in a way that I think will be helpful to Tax Crimes students, focusing on the potential sentencing considerations indicated by the Agee pleas.

Updated CTM Chapter on Tax Related Conspiracies (9/17/20)

DOJ Tax has updated its Criminal Tax Manual (“CTM”) chapter 23.00 titled Conspiracy to Commit Offense or to Defraud the United States (Revised September 2020), here.  I have reviewed the chapter very cursorily.  Although I did not compare the old and new versions, except in two instances noted below, I don’t think much has changed except to add some recent cases in chain citations or in examples.  In identifying items of interest, I leaved through the whole chapter (60 pages) and did searched for year from 2012 through 2010.  Here are my quick comments.:

1. 23.04[2][a] Limitation on Naming Unindicted Co-conspirators, p. 5.  Prosecutors should not name in the indictment unindicted co-conspirators, citing Justice Manual 9-11.30 (April 2018). “The recommended practice in such cases is to merely allege that the defendant ‘conspired with another  person or persons known’ and supply the identity, if requested, in a bill of particulars.”

2. 23.07[2][c] Overbreadth Concerns, pp. 42-43. Not sure if this is new but it is a subject I have been interested in).  Discusses the interpretation of the defraud clause which, in United States v. Coplan, 703 F.3d 46, (2d Cir. 2012), cert. denied 571 U.S. 819 (2013), the Second Circuit expressed “skepticism” about the correctness as an original matter of the Supreme Court’s statutory interpretation of the defraud clause in Haas v. Henkel, 216 U.S. 462 (1910), and Hammerschmidt v. United States, 265 U.S. 182, 188 (1924).  I discussed that aspect of Coplan in Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog12/1/12), here.

3. 23.07[2][d] Precedent Governing Different Statutes, pp. 43-44.  This is new, generated by the holding in Marinello v. United States, 138 S. Ct. 1101 (2018)  that tax obstruction, § 7212(a), requires knowledge of a pending proceeding.  Some defendants argued that, because of potential overlapping and overbreadth concerns, Marinello’s pending proceeding required should apply to the defraud / Klein conspiracy.  The position of the Government is that that element of § 7212(a) does not apply to defraud / Klein conspiracies.  The Government’s position has been sustained in the cases.  The section discusses two 2020 cases:  United States v. Atilla, 966 F. 3d 118 (2d Cir. 2020); and Marinello v. United States, 138 S. Ct. 1101 (2018).  I discussed the Flynn case Eighth Circuit Holds that Marinello Pending Proceeding Nexus in § 7212(a) Does Not Apply to Defraud / Klein Conspiracy (Federal Tax Crimes Blog 8/17/20), here. 

District Court Sustains Tax Convictions but Grants Acquittal on Wire Fraud Convictions Because No Fraud (8/26/20)

In United States v. Barringer (W.D. VA Dkt No. 1:19CR00051 Order Dated 8/21/20), CL here, Barringer “convicted by a jury of three counts of willfully failing to pay over payroll taxes, two counts of wire fraud, and three counts of making false statements to federal agents.”  Broadly speaking, the gravamen of the conduct charged was an attempt to keep a business afloat by not paying over the employee’s withheld tax.  That pattern of behavior is not uncommon.  Also, it appears that Barringer’s conduct was to help her keep a good paying job.  That pattern also is not uncommon.  The interesting twist in this case is the wire fraud counts under 18 U.S.C. § 1343, and conviction on those counts.  The district court entered judgment of acquittal on the two wire fraud counts.

The factual background for the wire fraud convictions was Barringer’s effort to withdraw funds from her 401(k) plan to use the funds, perhaps in part, to keep the employer afloat.  Barringer first asked the provider of the account, a financial company, for guidance on withdrawing funds she needed to keep the employer in operation.  The provider said that that was not a permitted reason to withdraw from the account.  Barringer then applied for the withdrawal to prevent foreclosure on her primary residence, which was among the permitted reasons to withdraw.  In fact, though, Barringer was ahead on her residence payments and was not under threat of foreclosure.  The provider made the distribution.  Barringer used some of the money to pay the employer’s creditors without paying to the IRS on the withholding tax obligations and used some for her own purposes.  Then, in an interview with the IRS she repeated the lie as to her reason for withdrawal from the 401(k) account.  These facts are the basis for the wire fraud counts and for one of the false statement counts (17 U.S.C. § 1001).

The Court held that, on the record, the Government did not prove the critical element of fraud.  Although it was clear that Barringer misrepresented her reason for the withdrawal in order to fit one of the permitted reasons for withdrawal, the question was whether she thereby sought to and did commit a fraud against another person.  She was, after all, withdrawing her own money.  Here is what the Court said about that (Slip Op. 9-:

            The defendant’s main challenge is directed towards her wire fraud convictions. I agree that the government failed to prove that the defendant’s deceit deprived another of a property interest. To obtain a conviction for wire fraud, in violation of 18 U.S.C. § 1343, the government must show that the defendant “(1) devised or intended to devise a scheme to defraud and (2) used the mail or wire communications in furtherance of the scheme.” United States v. Wynn, 684 F.3d 473, 477 (4th Cir. 2012). The element “to defraud” has “the common understanding of wronging one in his property rights by dishonest methods or schemes, and usually signify the deprivation of something of value by trick, deceit, chicane, or overreaching.” Carpenter v. United States, 484 U.S. 19, 27 (1987).

            The defendant’s sufficiency challenge is that the government did not present evidence that she deprived, or intended to deprive, another of something of value because the government did not present evidence of who or what might have been deprived of their property interest by her deception and that she believed she was the sole owner of her 401(k) plan assets. * * * *

Eighth Circuit Holds that Marinello Pending Proceeding Nexus in § 7212(a) Does Not Apply to Defraud / Klein Conspiracy (8/17/20)

In United States v. Flynn, 969 F.3d 873 (8th Cir. 2020), here, the Court opens as follows:

Scott Phillip Flynn pleaded guilty to conspiracy to defraud the United States and filing a false tax return. See 18 U.S.C. § 371; 26 U.S.C. § 7206(1). He tried to withdraw his plea before sentencing, but the district court 1  denied his motion and sentenced him to 87 months in prison—60 months for the conspiracy charge and 27 months for the false return—and ordered him to pay roughly $5.4 million in restitution. Flynn appeals, arguing that he should have been allowed to withdraw his guilty plea, his conspiracy conviction is void for vagueness, the restitution order was procedurally improper and clearly erroneous, and the district court wrongly applied an organizer or leader enhancement when it calculated his sentence. We find no error and affirm. 

The issue in the case that I think is interesting is the argument that the defraud / Klein conspiracy charge (18 USC 371) should have the same pending proceeding nexus element for tax obstruction, § 7212(a).  See Marinello v. United States, 584 U.S. ___, 138 S. Ct. 1101 (2018).  I have written on this issue before.  Basically, the issue is whether, although the defraud / Klein conspiracy statute and the tax obstruction statute are differently worded, because the interpretation of the defraud / Klein conspiracy parallels the tax obstruction statute the elements should be the same.  See What Are the Implications for Marinello on the Defraud / Klein Conspiracy? (Federal Tax Crimes Blog 3/24/18), here.  I have posted subsequent blog entries on that issue as courts have addressed the claim.  The gravamen of the case authority to date is that the tax obstruction pending proceeding nexus element does not apply to the defraud / Klein conspiracy.  The Flynn case so holds.

Flynn made the Marinello argument in the context of attempting to withdraw his guilty plea (see Slip Op. 5-6) and the argument that allegedly missing element made charge void for vagueness (see Slip Op. 8 n. 4).  The Court rejected both arguments.

The briefing in the case is quite good, so I offer here a zip file with the briefs and other submissions relevant to the Marinello issue.

One point, I omitted in my earlier discussion of the issue is the following from my most recent (now discontinued) Federal Tax Crimes Book (p. 123 n. 231, here):

In a prior version of the CTM, DOJ Tax asserted that tax obstruction may be charged where the Klein conspiracy is “unavailable due to insufficient evidence of conspiracy.”  CTM 17.02 (2001 ed.).  The 2008 version of the general subject is in § 17.00 and refers to Directive 129 which superseded Directive 77. The language quoted in the text from the 2001 version incorporating Directive 77 is omitted from the superseding Directive 129. I don't think that omission is a concession of the point, however.

The point is that, at least at one time, DOJ felt that the two crimes substantially overlapped with the critical difference being that the defraud / Klein conspiracy required more than one actor / conspirator.

More on Defraud Conspiracy as Requiring Object to Obtain Money or Property (5/11/20)

On 5/11/20 at 10:00 pm EDT, I revised this post, where appropriate, to use conspiracy lingo -- object rather than intent.  I have made some other, principally editorial changes, as well (principally adding a new JAT Comment #2 and moving the later comments up one number).

I recently posted on the Supreme Court’s opinion in Kelly v. United States, 590 U.S. ___, ___ S.Ct. ___ (5/7/20), here, and potential implications for the defraud/Klein conspiracy.  Supreme Court Reverses Bridgegate Convictions, Holding that Fraud Means Fraud; Implications for Defraud/Klein Conspiracy? (Federal Tax Crimes Blog 5/7/20), here.  Briefly, my concern  expressed in that blog and previously expressed (perhaps ad nauseum) was that the term defraud in the defraud/Klein conspiracy under the conspiracy statute, 18 USC § 371, is interpreted to permit conviction in the absence of an object to commit fraud (meaning obtaining something of value by fraudulent means).  I discuss that anomaly in the criminal law in the blog and in substantially more detail in the article I link in the blog.  Today, I want to follow through that discussion with an arguably related consideration from a nontax case earlier this year.

In United States v. Miller, 953 F.3d 1095 (9th Cir. 2020), here.  To start the discussion, I offer this from the summary preceding the opinion (the footnote indicates that the summary is prepared by the staff and not part of the opinion, but I think it useful for purposes of this blog; bold-face supplied by JAT):

Overruling prior decisions of this court in light of the Supreme Court's intervening decision in Shaw v. United States, 137 S. Ct. 462, 196 L. Ed. 2d 372 (2016), the panel held that wire fraud under 18 U.S.C. § 1343 requires the intent to deceive and cheat — in other words, to deprive the victim of money or property by means of deception — and that the jury charge instructing that wire fraud requires the intent to "deceive or cheat" was therefore erroneous. The panel nevertheless held that the erroneous instruction was harmless.

The wire fraud statute in relevant part (18 USC § 1343) describes the person criminally liable:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire [etc.]”

As written, the use of "or" seems to be disjunctive but, if the word defraud is interpreted to require an intent to obtain money or property by fraud, the two seem to be parallel (perhaps one or the other redundant).

The issue then was further set up (p. 1100):

At trial, Miller requested a jury instruction stating that, to be guilty of wire fraud, he must have intended to "deceive and cheat" MWRC. The trial court, however, delivered the Ninth Circuit's model jury instruction, which states that wire fraud instead requires only the intent to "deceive or cheat" (emphasis supplied) the victim. As his first issue on this appeal, Miller argues that this jury instruction misstated the law.

The Ninth Circuit (per the opinion drafted by USDJ Jed S. Rakoff (SDNY) sitting by designation, see comment #4 below) states in pertinent part (pp. 1101-1103, footnotes omitted):

Supreme Court Reverses Bridgegate Convictions, Holding that Fraud Means Fraud; Implications for Defraud/Klein Conspiracy? (5/7/20)

In Kelly v. United States, 590 U.S. ___, ___ S.Ct. ___ (5/7/20), here, the court reversed the infamous Bridgegate convictions for “wire fraud, fraud on a federally funded program or entity (the Port Authority), and conspiracy to commit each of those crimes.”  The Court held that “Because the scheme here did not aim to obtain money or property, Baroni and Kelly could not have violated the federal-program fraud or wire fraud laws.” (From the Syllabus.)

This is perhaps not a remarkable holding (although I do remark below).  It was unanimous.  Moreover, federal crimes where fraud is an element of the crime have typically required an object to obtain money or property.  So, I think the holding is consistent with that line of cases, and the unanimous Court in Kelly so holds.

But, as I have noted elsewhere fraud or its parallel defraud in the federal criminal statutes, while normally requiring an object to obtain money or property, does not, as interpreted, so require for the defraud conspiracy, 18 U.S.C. § 371.  See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here.  Readers of this blog will know that § 371 defines two crimes – an object conspiracy and a defraud conspiracy.  The object conspiracy requires that the object of the conspiracy be the commission of a crime otherwise described in the law.  (The conspiracies charged in Kelly were object conspiracies, see Slip Op. 7 n. 1 and the case below styled United States v. Baroni, 909 F.3d 550, 556 (3rd Cir. 2018).)  Thus, for example, an object to commit tax evasion is an object conspiracy.

The defraud conspiracy, as interpreted, is more amorphous. The text of of § 371 for the defraud conspiracy is: “If two or more persons conspire * * * to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy * * *.”  Defraud normally is a verb form for fraud (a noun), particularly with respect to the focus to obtain money or property.  For example, the Merriam Webster online dictionary, here, defines “defraud” as (with examples):

transitive verb
: to deprive of something by deception or fraud
// trying to defraud the public
// Investors in the scheme were defrauded of their life savings.

And the synonyms are:

beat, bilk, bleed, cheat, chisel, chouse, con, cozen, diddle, do, do in, euchre, fiddle, fleece, flimflam, gaff, gyp, hose [slang], hustle, mulct, nobble [British slang], pluck, ream, rip off, rook, screw, shake down, short, shortchange, skin, skunk, squeeze, stick, stiff, sting, sucker, swindle, thimblerig, victimize

And the relevant definition of fraud (a noun), here, is:

1a: DECEIT, TRICKERY
specifically : intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right
// was accused of credit card fraud
b: an act of deceiving or misrepresenting : TRICK
// automobile insurance frauds

Fraud and defraud thus have similar connotations with respect to the issue addressed in Kelly–an object to obtain money or property.