Fourth Circuit Rejects Defendant's Collateral Attacks on Tax Perjury and Obstruction Convictions (6/8/24)

In United States v. Sutherland, 103 F.4th 200 (4th Cir. 2024), CA4 here and GS here, the Court rejects the criminal defendant’s collateral attacks on convictions for filing false tax returns and obstructing an official proceeding. (The latter conviction was for delivering false documents to the government attorney assisting the grand jury in the tax crimes investigation.) The collateral attacks were mounted by a petition under 28 USC § 2255 and a petition for the writ of coram nobis. The principal claim for both methods of collateral attack was an alleged ineffective assistance of counsel (“IAC”) at the criminal trial where the defendant was convicted. The defendant appealed the convictions, and the Fourth Circuit affirmed. United States v. Sutherland, 921 F.3d 421 (4th Cir. 2019), GS here; see also Obstruction Conviction Affirmed for Presentation of False Documents to AUSA Serving as Attorney for Government for Grand Jury (Federal Tax Crimes Blog 4/26/19), here.

I post to this blog primarily to refer readers to the excellent discussion of the collateral attack remedies under § 2255 and coram nobis. Readers wanting the nuance should read the opinion (19 pages, but worth the read). Key summary points are:

1. The principal IAC claim was that defendant’s trial counsel in the criminal trial gave inadequate representation at trial and at sentencing because of failure to present expert tax testimony that would have shown he did not owe the amount of tax claimed by the Government. The Court of Appeals describes this testimony at sentencing as (Slip op. 4-5):

Seeking to mitigate the U.S. Sentencing Guidelines loss calculation in his presentence report, Sutherland presented testimony from Jayne Frazier, a certified public accountant. Frazier reviewed Sutherland’s tax returns for the years 2007 to 2010 and testified that Sutherland had underreported his income by hundreds of thousands of dollars in the relevant timeframe. Despite that fact, she testified that Sutherland’s total tax liability for that period was less than the Government alleged because Sutherland failed to claim various business-expense deductions in 2008, 2009, and 2010, which, if claimed, would have reduced his taxable income for those years. Notably, however, Frazier did not independently audit Sutherland’s tax returns, and her calculations were based largely on information provided by Sutherland, much of which could not be corroborated by itemized receipts or other documentation. See, e.g., J.A. 1230 (Frazier testifying that her calculations included hundreds of thousands of dollars of unclaimed business expenses that were “all cash”). She [*5] also stated that her income calculations for Sutherland excluded approximately half of the $2 million in transfers from STS to Sutherland’s companies because it was her “understanding” that those funds came from a line of credit in favor of STS and thus would be “treated as loan advances” and not “taxable income.” J.A. 1209.

          The district court overruled Sutherland’s objection to the presentence report’s loss calculation, finding that Sutherland’s “self-reported information” to Frazier “was not reliable.”

2. In February 2021, after completing the period of supervised relief on the tax convictions but before completing the period of supervised relief on the obstruction conviction (not sure why they would be different), the defendant filed (1) the “§ 2255 petition [which] targets the obstruction conviction” and (2) the coram nobis petition which “targets the tax fraud convictions.” (Actually, the convictions were for filing false tax returns, commonly called tax perjury, rather than “tax fraud” which is commonly called tax evasion.) The Court explains why defendant chose the two collateral attack procedures (Slip Op. 6 n. 1):

Seventh Circuit Holds that Attorney Advising Client to Plead Guilty Without Discovery from the Government Was Strategic Decision Rather than Ineffective Representation (3/10/18)

In United States v. Jansen, 2018 U.S. App. LEXIS 5755 (7th Cir. 3/7/l8), here, Jansen pled to "to one count of wire fraud and one count of tax evasion."  He later sought to withdraw the plea, "arguing it was not 'knowing and voluntary' because of ineffective assistance of counsel."  In the plea agreement, the Government agreed to recommend the U.S.S.G. § 5K1.1 sentence reduction but only if he provided "substantial assistance."  Thereafter, Government determined that he had not provided substantial assistance and did not recommend the reduction.  That apparently caused Jansen to seek to withdraw his plea.  The district court took testimony sporadically over a long period and then concluded that his attorney at the time of the plea agreement -- Jansen had several attorneys over the course of the relevant events -- had not given ineffective assistance.

As I read the opinion, the principal factor which caused Jensen to seek to withdraw the plea was the Government's notice that it would not recommend the 5K1.1 sentence reduction.

In any event, the most interesting claim of ineffective assistance related to his attorney's failure to pursue discovery or other investigation before the plea agreement.  Jansen claimed that, had the attorney done so, Jansen would have had information that would have persuaded him not to plead guilty.  The larger background is that, in the course of legal representation in a criminal case, it is not uncommon for attorneys to advise clients to take certain action based on incomplete information.  Actually, that phenomenon is true of all of life.  The issue is when do we take action -- or recommend a course of action -- on the basis of information that we know is not complete?

That is what happened in the case.  To simplify the more complex facts, the attorney negotiating the plea had been substituted into the case after Jansen had decided to plead guilty and had, indeed, engaged the attorney to negotiate the plea.  That attorney apparently felt himself competent to negotiate the plea but not to handle the trial if a plea agreement were not reached.  The attorney, based on all the facts he knew and his discussions with the prosecutor, believed that Jansen was at significant risk for significant additional prosecutions and, for the wire fraud count to which he pled, a potentially higher sentence because of a change in the law.  Indeed, because of that change in the law, applicable to later years for which Jansen was at risk absent the plea, Jansen waived the statute of limitations on the fraud count year.  The attorney advised Jansen to accept the plea agreement based upon (i) the expectation that other charges which could be charged if the Government investigated would not be charged, and (ii) the Government would not assert that other conduct as relevant conduct.  Basically, the attorney felt it in Jansen's interest to truncate the Government's focus on the case, which if it continued may result in  greater damage.  In short, as the Court noted, the attorney's advice was "strategically motivated" and was not ineffective representation. 

Trial Court Rejects Ineffective Assistance Claims for Strategic Choices at Trial (11/24/16)

In Litwok v. United States, 2016 U.S. Dist. LEXIS 162715  (ED NY 2016), here, the Court denied the convicted defendants petition for relief under 28 USC 2255, here, a form of federal habeas corpus relief after conviction. Litwok had been convicted for tax evasion on retrial after her first convictions for wire fraud and tax evasion were reversed.  (I wrote on the first convictions which were reversed Second Circuit Reverses and Vacates Convictions for Wire Fraud and Tax Evasion (Federal Tax Crimes Blog 5/1/12), here.)  The conviction on retrial for one count of tax evasion was subsequently affirmed on appeal.  United States v. Litwok, 611 F. App'x 12 (2d Cir. 2015), here.  I did not write on the later affirmance but will mention  some aspects of the affirmance in this blog on the § 2255 proceeding.

In the earlier blog on the reversal of the first convictions, I dealt with the issue of charging a defendant for tax evasion -- evasion of assessment -- where the taxpayer failed to file a tax return.  It is black letter law that a failure to file alone cannot support a prosecution and conviction for tax evasion; there must be some affirmative act of evasion.  The initial prosecution charged three years of tax evasion in a context of failure to file.  The Second Circuit held in the first appeal that, for two of the three charged years, the Government had not established the required affirmative act of evasion for tax evasion.  The Court reversed the third conviction also because of the improper joinder of the wire fraud charge.  On remand and retrial, the Government charged only the tax evasion count.  The defendant was convicted.  On appeal of that conviction, the Second Circuit in a nonprecedential order held in part as follows:

1. Litwok had waived any statute of limitations defense by not raising the issue below.

2. "Based on the evidence presented, a jury could have fairly credited Testaverde's testimony and concluded that Litwok willfully committed an affirmative act with the intent to avoid paying her taxes."

3.  "Litwok's ineffective assistance claims (failure to raise statute of limitations, failure to investigate perjured testimony and object to prosecutorial misconduct, failure to call a forensic accountant, failure to present exculpatory evidence, and failure to inquire as to whistleblower status of witnesses)" are more properly raised in a § 2255 proceeding.

4.  The record did not support Litwok's claim that the accountants testimonies were false.

5.  The record did not establish Litwok's claims of prosecutorial misconduct in referring in opening and closing arguments to allegedly perjured testimony of Government witnesses.

So, after the conviction on the second trial and while the second appeal was pending, Litwok filed the instance § 2255 proceeding.  The trial court finally reached and resolved the § 2255 proceeding by denying the claims and rejecting the request for certificate of appealability.

I recommend to readers reviewing the entire opinion.  I mention here only briefly the claims addressed with some context for claims I find particularly interesting:

1.  Failure to assert the statute of limitations Defense.

Here, petitioner's trial counsel submitted a declaration attesting that a statute of limitations argument "was not a bona fide issue or defense and there was no good faith factual basis for making such a motion." (Decl. of Robert A. Chapnick, ECF No. 16-2 ("Chapnick Decl.") at ¶ 2.) Under the deferential standard outlined above, the court must presume that counsel acted within the "wide range of reasonable professional assistance," Strickland, 466 U.S. at 689, in making that determination, and the applicable precedent indicates that a limitations defense would have been fruitless. "The law is well established that the statute of limitations for tax evasion runs from the day of the last act of evasion[, which] encompasses any act of concealment . . . ." United States v. Mui, 214 F. App'x 40, 47 (2d Cir. 2007) (emphasis in original) (and citation omitted). Petitioner was charged with tax evasion by superseding indictment dated March 19, 2003, and at trial, the government introduced acts of concealment dating to at least mid-1997, which falls within the limitations period. Those incidents include the March 1, 1997 retention of another accounting firm to replace Testaverde, a relationship that lasted for approximately two months before that accountant quit (T. at 248-50); and petitioner's April 15, 1997 submission of an extension request for the filing of her tax return (T. at 193). Had petitioner's trial attorney sought dismissal on limitations grounds, the government would have argued that those events or other post-March 19, 1997 conduct constituted acts of concealment sufficient to toll the commencement of the statutory period. Given that evidence of concealment, any motion to dismiss would have lacked merit, and counsel was not ineffective for failing to raise that argument. 

Accordingly, this branch of petitioner's ineffective counsel claim fails because she has not shown that her trial attorney was deficient for declining to make a motion that had no merit.

Check the Tax Loss Numbers: A Tale of Ineffective Representation (6/10/09)

We have a cautionary tale of woe in a recent case, Baxter v. United States (E.D. Ill. 6/25/09), available here. In the opinion, the court holds that defense counsel's representation in a tax case was constitutionally ineffective where the defendant counsel failed to engage the tax expertise to verify the tax loss number in the plea agreement that was used for sentencing purposes. The tax loss number is the principal driver of the Sentencing Guidelines calculations, setting the base offense level under the Tax Table at S.G. §2T4.1. (The Baxter court said: "in tax cases the magnitude of the tax loss for which the defendant is liable is a primary factor in determining the sentencing guidelines range.") Without getting into the complexities of the Guidelines calculations, suffice it to say that the tax loss number is the principal component of those calculations in tax cases.

Baxter, a CPA, was involved with the Aegis Trust system that, subsequent to the events involved in the Baxter case, the Government has prosecuted in several high prosecutions. The Government prosecuted Baxter also, charging in the original indictment "eleven counts of criminal income tax violations." The opinion is not more specific as to the charges in the original indictment. By plea agreement, Baxter pled guilty to a single count of § 7212 (tax obstruction) in a superseding information, admitting that she had submitted a false document to an IRS agent. Baxter further agreed in the plea agreement that, for sentencing purposes, "the offense involved a tax loss of more than $ 550,000 but less than $ 950,000." Apparently at some point in the plea agreement, the specific number $576,000 was used. The Government sought then to increase the tax loss amount by supposed relevant conduct to $5.1 million, thus trying to force a sentencing range above the 3-year statutory maximum for § 7212, which would mean that the Guidelines sentence would be 3 years. The claimed relevant conduct was Baxter's overall knowing participation in the fraudulent Aegis Trust system. At the original sentencing, the sentencing court determined that the Government had failed to prove that, at the time of her conduct of conviction, Baxter knew the system was fraudulent, thus rejecting the Government's claimed $5.1 million tax loss. But, at sentencing, the Sentencing Court assumed the correctness of the $576,000 tax loss stipulated in the plea agreement.

As it turns out, however, in reaching the plea agreement, Baxter's counsel did not engage tax expertise necessary to test the $576,000 figure which he had counseled Baxter to agree to in the plea agreement. In truth, much and perhaps even all of that figure was not related to the crime of conviction and was included in the $5.1 million relevant conduct figure that the sentencing court had rejected. In short, it was clear that the actual tax loss which should have been included in the sentencing calculations was far less than the agreed $576,000.

Baxter sought post-conviction relief under 28 U.S.C. § 2255. (Section 2255 is the statutory descendant of the common law writ of habeas corpus. For a good summary, see Allan Ellis and James H. Feldman, Jr., A 2255 and 2241 Primer, 26 Champion 26 (2002).) Baxter alleged that her counsel's failure to engage the necessary tax expertise to test the amount of tax relief related to her crime of conviction only constituted ineffective representation. The court agreed. For the court's analysis, you can read the opinion. The following are the key points: