Houston Attorney and Others Charged with Tax Crimes (8/21/19)

The USAO for SD Texas announced issued a press release titled "Houston Personal Injury Attorneys and Case Runners Indicted," here.  I don't know that there is anything exceptional about the case, but being from Houston this caught my attention.  I don't know any of the players mentioned in the press release.

Here are the key excerpts:

The charges against Stern and his alleged co-conspirators stem from a long-running criminal scheme to evade taxes. Stern also allegedly obtained his personal injury cases through barratry - the illegal practice of soliciting law firm clients by paying kickbacks to middlemen known as “case runners.”  

Stern and his co-conspirators sought to enrich themselves by illegally recruiting clients through the payment and receipt of illegal kickbacks in order to generate personal injury cases and legal fees, according to the charges. They allegedly worked to conceal and disguise the payments and hide their resulting income from the IRS by filing false documents with them. These allegedly included tax returns, 1099 forms and an offer in compromise that falsely reported material information including amounts of income, expenses and taxes due and owing. 

Once Stern became aware of the investigation, he allegedly worked to obstruct justice by ordering others to destroy subpoenaed documents and instructing co-conspirators not to cooperate. 

According to the indictment, Stern employed multiple devices to disguise his illegal kickback payments to case runners as legitimate referral fees paid to attorneys or as other types of legitimate payments that would be deductible under the tax laws. Stern allegedly funneled kickback payments to case runners Ratcliff and Marcus Esquivel (charged in a separate case) through the accounts of Bradley and Plezia. The charges allege Stern claimed the payments were legitimate referral fees to Bradley and Plezia rather than illegal kickbacks to Ratcliff and Esquivel. 

The indictment also alleges Stern wrote referral fee checks in the names of attorneys who never received the checks. Instead, Morris would allegedly cash the checks with forged endorsements at check-cashing locations and use the funds to pay illegal kickbacks owed to himself and other case runners for Stern’s referrals.    

Stern allegedly also filed 1099 forms that falsely reported to the IRS the nature of the payments and to whom they were made. On his tax returns, Stern falsely reported the illegal, non-deductible kickback payments as legitimate, deductible business expenses, which greatly reduced his tax burden, according to the charges. 

Bradley and Plezia allegedly filed false tax returns to facilitate the scheme.  Ratcliff failed to report many of the kickback payments he received as income on his company’s tax returns, according to the charges. Stern and Morris also allegedly caused another attorney to file false tax returns and a false offer in compromise with the IRS to help cover-up the scheme. 

All defendants are charged with conspiracy to defraud the United States. If convicted, they each face up to five years in prison. For willfully filing a false tax return, Stern, Ratcliff and Bradley face another three years of imprisonment. Aiding and assisting in the preparation and presentation of false tax returns carries another potential three-year-term, for which Stern and Morris are charged. If convicted of witness tampering or obstruction of justice, Stern could be sentenced up to 20 and 10 years, respectively.
The press release has the standard disclaimer: 

* * * * 

An indictment is a formal accusation of criminal conduct, not evidence.
A defendant is presumed innocent unless convicted through due process of law.

Obstruction Conviction Affirmed for Presentation of False Documents to AUSA Serving as Attorney for Government for Grand Jury (4/26/19)

In United States v. Sutherland, 921 F.3d 421 (4th Cir. 2019), here, Sutherland was convicted of "three false tax returns and obstructing a grand jury proceeding."  The obstruction charge was under 18 U.S.C. § 1512(c)(2).  On the obstruction charge, the facts were that, through his lawyer, he submitted false documents to the AUSA who was the attorney for the government for the grand jury proceeding.  E.g., FRCrP 6(d)(1). Sutherland's argument was that the crime required a nexus to the grand jury investigation but the documents were not presented to the grand jury.  The Court easily handled the nexus argument under the key authority -- United States v. Aguilar, 515 U.S. 593 (1995) and Marinello v. United States, 584 U.S. 1 (2018).  Marinello was a tax obstruction case, but dealt with Title 18 obstruction concepts, particularly the nexus to a pending proceeding.

The Court offers an interesting discussion, probably digression, about some distinction between the AUSA's role as attorney assistant to the grand jury.  The Court starts with the proposition that an FBI investigation is not an official proceeding subject to obstruction.  A grand jury investigation is an official proceeding.  The Court said (cleaned up):

A.

Sutherland contends that the government failed to prove a nexus between his conduct and an official proceeding. He was, he says, only "attempting to influence the U.S. Attorney's Office," not the grand jury. He correctly notes—and the government does not contest—that the U.S. Attorney's investigation is not by itself an official proceeding. The term "official proceeding" is defined by 18 U.S.C. § 1515(a)(1) to include, inter alia, "a Federal grand jury" or "a proceeding before a Federal Government agency which is authorized by law." FBI investigations, for example, are not official proceedings because the statutory language including "a proceeding before a Federal Government agency which is authorized by law," § 1515(a)(1)(C), implies 'some formal convocation of the agency in which parties are directed to appear, instead of any informal investigation conducted by any member of the agency. The same logic equally applies to the investigation by the U.S. Attorney's office in this case, meaning that its investigation was not an official proceeding. 

The term "official proceeding" thus implies something more formal than a mere investigation. That limiting term prevents a statutory sprawl in which the countless communications of citizens with one agency or another of the federal government lay the groundwork for a potential obstruction prosecution. See Marinello, 138 S. Ct. at 1109-10 (reading tax obstruction statute not to extend to "routine, day-to-day work carried out in the ordinary course by the IRS," id. at 1110). This back and forth between citizens and government works as a general matter to the benefit of both. Much of this activity is a wholly legitimate effort to "influence" the government. See 18 U.S.C. § 1512(c)(2). And indeed it is not far-fetched to think that an obstruction statute encroaching too aggressively on innocent citizen/agency interactions would infringe the basic right to petition guaranteed by the First Amendment of our Constitution. See U.S. Const. amend. I ("Congress shall make no law . . . abridging . . . the right of the people . . . to petition the Government for a redress of grievances."). Then, too, a statute that chills or burdens excessively the right of persons to protest or prove their innocence in the face of a government investigation would run counter to the operation of criminal justice as we have known it. 

There are thus important safeguards to prevent the abuse of § 1512(c)(2). As the Court held in Aguilar, "it is not enough that there be an intent to influence some ancillary proceeding, such as an investigation independent of the court's or grand jury's authority." Providing materially false documents with an intent only to influence the U.S. Attorney's investigation, therefore, would not amount to a violation of § 1512(c)(2). See Young, 916 F.3d at 387 ("[T]he Government has similarly failed to provide evidence demonstrating that Young . . . designed his conduct to thwart [the grand jury] investigation, rather than designing his conduct to obstruct an FBI inquiry . . . ."). To be clear, knowingly giving false documents to a prosecutor without the intent to obstruct a grand jury may violate other federal statutes. E.g., 18 U.S.C. §§ 1001(a), 1519. Just not § 1512(c)(2). 

Section 1512(c)(2) also requires proof that a particular grand jury proceeding was "reasonably foreseeable" to a defendant who has been charged with obstructing that proceeding. While the grand jury does not yet have to be convened, it is not enough for the government to argue that a defendant could have speculated that some official proceeding lies somewhere in the offing. The Young case illustrates the point. In that case, the defendant had intentionally misled FBI agents. But this court vacated defendant's conviction because "the only way the jury could have concluded he foresaw a particular grand jury investigation would be through speculation."  

As so often in law, there is a balance to be struck. Though obstruction statutes are susceptible to abuse, they also exist for good reason. Official proceedings are crucial to the conduct of government. They are entitled to go forward free of corrupting influences that not only delay them but increase the chances of false and unjust outcomes. The federal grand jury investigation in this case is but one example of such an "official proceeding." See J.A. 1066 (jury instruction that the grand jury was an "official proceeding"). The government has every right to prosecute those who would corrupt it. Compromised proceedings in turn diminish public confidence in the workings of government and lead to the sort of creeping cynicism toward it that affects so many nations. Section 1512(c)(2) and other like statutes help to protect against that eventuality here. 

B. 

Sixth Circuit Rejects Argument that False Statement to CI Agent Should be Sentenced as Obstruction Rather than Tax Offense (3/9/17; 3/10/17)

In United States v. Ballard, ___ F.3d ___, 2017 U.S. App. LEXIS 3832, 2017 FED App. 0051P (6th Cir. 2017), here, the taxpayer lied to an IRS CI special agent about his employment and the timing of his income (attributing it to prior years).  The taxpayer was charged for tax obstruction, § 7212(a), here.  He pled guilty to that charge.  The issue was the appropriate Sentencing Guideline to apply -- the tax Guideline under § 2T.1 or the obstruction of justice Guideline under § 2J1.2.

Where two possible Guidelines can apply, the Guidelines instruct that the "most appropriate" Guideline to the conduct applies.  U.S.S.G. App. A, Introductory cmt.  The taxpayer preferred the obstruction Guideline because it produced the lower sentencing range.  The sentencing court held that the tax Guideline applied.  Given the tax context, that holding does not seem unexceptional.  But, one has to give the taxpayer some credit for trying.

What was his argument?  He urged that he really did not have an intent to evade tax, because all he was doing was trying to delay payment of the tax.  Ergo, he alleged, the crime was obstruction rather than a tax crime.

Here is how the sentencing court framed the taxpayer's argument in rejecting it:  "he never intended to evade paying his taxes but was merely delaying the payments (merely obstructing justice in other words) until he made real money—apparently more than $500,000 a year."

The Court of Appeals dispatched the argument as follows:

The district court thought the most appropriate guideline for Ballard's crime was § 2T1.1, and so do we. Consider the description of his offense conduct, as outlined in the indictment:  that he "falsely stat[ed] to an Internal Revenue Service—Criminal Investigations Special Agent investigating [Ballard's] outstanding debt for taxes due . . . that commission checks [Ballard] received from NFP Securities, Inc. in January 2009, April 2009, May 2009, June 2009, August 2009, and December 2009 were for work done at an earlier date, and that he was not working in 2009, whereas in truth and in fact [Ballard] then well knew that these commission checks were for work done" in the months the checks issued. R. 1 at 1. 

This is just the sort of "Willful Failure to . . . Supply Information[] or Pay Tax" that § 2T1.1 is built for. He lied to an IRS agent. Why? To throw off the investigation of his "outstanding debt for taxes." R. 1 at 1. That offense conduct could have been charged under other statutes punishable under § 2T1.1. See, e.g., 26 U.S.C. §§ 7201 (tax evasion), 7203 (willfully failing to supply required information). And the government would have incurred a tax loss of over $800,000 if that lie, in conjunction with his many other uncharged evasions, had succeeded. Even if Ballard is telling the truth about always intending to pay his tax bill once he hit it big—even indeed if he had already started repaying his outstanding taxes—§ 2T1.1 has a provision explaining how to account for that circumstance: Change nothing about the tax loss calculation. All of that points to § 2T1.1 as the right guideline. Yes, § 2J1.2 covers a broad genus of obstruction offenses, including Ballard's. But when another possible guideline explicitly includes the offense conduct, in addition to covering offenses that are close cousins of that conduct, that's where the offense belongs. See Neilson, 721 F.3d at 1188-89. 

Ballard objects. Because he always admitted he owed taxes, because he had always intended to pay them one day, and because the only charged conduct was one false statement, he claims that his offense is more like obstruction of an investigation than tax evasion. Like the district court, we think these points are fair. But like the district court, we think they are unpersuasive in the end. Ballard's promise about intending to eventually pay his taxes is irrelevant to our determination of which guideline is the right one; the only facts that matter are the ones in the criminal information. See U.S.S.G. § 1B1.2; United States v. Malki, 609 F.3d 503, 510 (2d Cir. 2010). Ballard stipulated that he lied to IRS investigators in order to avoid having to pay taxes at that time and that he failed to pay the debt even though he earned a significant income in 2009, conduct quite similar to tax evasion. But even if we looked outside the charges, we have nothing but Ballard's word to indicate that he was going to pay one day. His promise is less than credible, we think, in context—particularly in the context of his efforts to outmaneuver the IRS over a dozen years and the sudden appearance of his noble intentions only after being caught. 

Nor are we swayed by the fact that the charged conduct was just one lie. The egregiousness of the offense does not determine which of these two sections is appropriate (though it can, and here did, drive the district court to vary below the guidelines range). What matters in the choice between two guidelines sections is which section is more precisely tailored to reflect offense characteristics—like tax evasion and tax loss—and which section covers a more closely related group of crimes. What Ballard did, and what the government charged, was a lie to the tax collector about his earnings. The district court sentenced Ballard accordingly.

Addendum 3/10/17:

Former IRS CI Special Agent Indicted for Tax Perjury and Other Crimes, Including Obstruction (10/20/16)

The DOJ announced, here, an indictment (actually superseding indictment), here, of a former IRS criminal investigation agent (excerpted):

A federal grand jury in Sacramento, California returned an indictment [superseding indictment, here] today charging a former Internal Revenue Service–Criminal Investigation (IRS-CI) special agent with six counts of filing false income tax returns, one count of corruptly endeavoring to obstruct the internal revenue laws, one count of theft of government money and one count of destroying records during a federal investigation * * * *.   

According to the allegations in the indictment, Alena Aleykina, of Sacramento, a certified public accountant and former IRS-CI special agent, filed false individual income tax returns for the years 2009, 2010 and 2011, on which she claimed false filing statutes, dependents, deductions and losses and tax returns on behalf of two trusts.  The indictment further alleges that, between 2008 and 2013, Aleykina attempted to obstruct the IRS by preparing false tax returns for herself, family members, trusts and partnerships and by making false statements to representatives of the Department of the Treasury and attempted to obstruct a federal investigation by destroying evidence on a government computer.  Aleykina is also charged with fraudulently causing the IRS to issue IRS Tuition Assistance Reimbursement payments to her. 

If convicted, Aleykina faces a statutory maximum sentence of three years in prison on each count of filing a false tax return and corruptly endeavoring to obstruct the internal revenue laws, 10 years in prison for the charge of theft of government money and 20 years in prison for the destruction of evidence charge, as well as a period of supervised release and monetary penalties.

JAT Comments:

1. The indictment was filed in the Eastern District of California but only the U.S. Attorney for ND CA is on the press release.  The Superseding Indictment identifies several Government attorneys other than the USA.  The lead government attorney (per the docket sheet) is Thomas Newton, described on the indictment as "Special Attorney to the United States Attorney General"  In the docket sheet, he is identified as Thomas M. Newton with the U.S. Attorney's office in San Jose, CA.  I did some quick Google searches on "Special Attorney to the United States Attorney General," but could not discern from hurried reading of the hits precisely what that means.  I presume that the use of out of district U.S. Attorney and other attorneys is because the defendant may have worked with AUSAs in ED CA as a special agent assigned to grand jury investigations or in other capacities.

2. The original indictment, here, charging only theft of public money relating to the fraudulently causing the IRS to issue an IRS Tuition Assistance Reimbursement payment was filed on 7/28/16.  The original indictment was sealed and unsealed today, along with the filing of the superseding indictment.

3.  According to the superseding indictment, Aleykina "worked for Internal Revenue Service Criminal Investigation ("IRS-CI") as a Special Agent from approximately 2006 to 2014."

4.  The allegations are:

• Counts One through Six  - tax perjury, subscribing to a false return (§ 7206(1), here)
• Count Seven - tax obstruction (§ 7212(a), here)
• Count Eight - theft of public money or property (18 USC § 641, here)
• Count Nine - destruction alteration or falsification of records in Federal Investigation (18 USC § 1519, here)

Four Family Members Sentenced for Tax Fraud (7/23/15)

DOJ Tax announced here the sentencing of four family members for tax fraud.  Key excerpts are (bold-face supplied by JAT):

In October 2010, following a three-week jury trial, Chester A. Bitterman Jr. and his sons, Craig L. Bitterman, C. Grant Bitterman and Curtis L. Bitterman, were convicted of conspiracy to defraud the United States.  Craig Bitterman was additionally convicted of obstruction of justice.  Prior to sentencing, the defendants paid $437,000 in restitution to the Internal Revenue Service (IRS). 

At sentencing hearings held on July 15, 17 and 22, U.S. District Court Judge James Knoll Gardner imposed the following sentences and stated that the offense was serious and the conspiracy was a long-term, complex and concerted effort by a family to avoid taxation: 

Chester A. Bitterman Jr., 81, was sentenced to serve three years’ probation to include six months of home confinement, due in part to his age and ailing spouse confined to hospice care, and was ordered to pay a $5,000 fine; 

Craig L. Bitterman, 55, was sentenced to serve three years in prison and three years of supervised release with 1,000 hours of community service at a rate of at least 30 hours of service per week, and was ordered to pay a $10,000 fine; 

C. Grant Bitterman, 53, was sentenced to serve 21 months in prison and three years of supervised release with 1,000 hours of community service at a rate of at least 30 hours of service per week, and was ordered to pay a $7,500 fine; and 

Curtis L. Bitterman, 61, was sentenced to serve 21 months in prison and three years of supervised release with 1,000 hours of community service at a rate of at least 30 hours of service per week, and was ordered to pay a $7,500 fine. 

According to the evidence at trial, from 1996 to 2005, the Bittermans owned and operated the Bitterman Scale Company, which now operates as Bitterman Scales LLC.  To conceal their income and assets from the IRS, the Bittermans used aliases, offshore bank accounts and a complex series of sham paper transactions to disguise the income.  The defendants transferred their personal and business assets to sham trusts purchased from the Commonwealth Trust Company, a tax protester organization that marketed trust products to clients for the purpose of avoiding federal income tax payment.  The trusts were used to make it appear as though the defendants had little or no assets or income.  In reality, the defendants retained complete access and control over their funds.  In January 2008, the principal owners of the Commonwealth Trust Company were convicted at trial in the Eastern District of Pennsylvania of tax crimes for causing losses of over $17 million and were sentenced to prison. 

The defendants paid themselves in cash and arranged bogus payments between the numerous trusts that they had created.  These bogus payments were purported to be leases, management fees and fiduciary fees.  The defendants submitted trust tax returns for their business and took fraudulent deductions for these payments to create the appearance of minimal or no taxable business income.  After the IRS levied the business bank account and receivables, the defendants instructed their customers to pay another trust to thwart IRS collection efforts.  The defendants also placed bogus liens and mortgages on their assets to make it appear to the IRS that the defendants had no assets that could be levied or seized as part of the tax collection process.  Some of the defendants used aliases and bank accounts in the names of trusts to make school tuition payments for their children appear as if they were scholarships from third parties.  In addition, to further conceal their assets from the IRS, at least one defendant used offshore bank accounts in the British Virgin Islands and three of the defendants arranged for sham transfers of real estate to their children. 

During the investigation, after Craig Bitterman was served with federal grand jury subpoenas requiring the production of trust records, he failed to produce the records to the grand jury and instead shipped those trust records to Texas and New Mexico in an attempt to conceal them.

I don't yet know how to account for this in my offshore account spreadsheet.  I gather from the wording that there may have been more than one of the defendants who had offshore accounts to conceal assets.  Moreover, I don't know which of the defendants had the one offshore account apparently identified.  If anyone has that information, I would appreciate receiving it.

Guilty Plea for a U.S. Offshore Account Enabler (5/26/15; 5/27/15)

DOJ Tax has announced, here, a perjury conviction for an Indiana resident, Alexander Krivosuz.  The offense is described cryptically as follows:

According to the indictment, court documents and statements made at the court proceeding, Alexander Krivozus committed perjury by testifying falsely during the course of a federal grand jury investigation of Cleveland resident, Edward Gurary, who ultimately pleaded guilty in March 2011 to one count of filing a false income tax return on which he wilfully failed to report his Swiss bank accounts.  As part of the investigation, bank records indicated that Gurary directed UBS AG to wire funds from his undeclared Swiss bank account, which was held in the name of a nominee Bahamian entity, and requested that confirmations of the transfers be sent to a U.S. fax number in the (317) area code.  The investigation established that the fax number was associated with Krivozus.  He was subpoenaed to testify before the federal grand jury and testified falsely. 

My blog entry on Gurary's plea is even more cryptic: Another Plea for Taxpayer with UBS & Credit Suisse Accounts (Federal Tax Crimes Blog 3/8/11), here.

I tried to pull down the plea agreement from the docket entries on Pacer, but the plea agreement was sealed.  That perhaps explains why the press release is so cryptic.

I was able to pull down the indictment, which is here.  The indictment states the Counts as follows:  False Statements to Law Enforcement (18 USC 1001, Two Counts),  False Declarations Before a Grand Jury (18 USC 1623(a), One Count), and Obstruction of Obstruction of an Official Proceeding (18 USC1512(c)(2), 1 Count).

Addendum 5/27/15 2:00 pm:

Ninth Circuit Reverses Barry Bonds Obstruction Conviction (4/21/15; revised 4/24/15)

The Ninth Circuit, in an en banc decision, just reversed Barry Bonds [Wikiepedia entry here] conviction for obstruction under 18 USC § 1503's omnibus clause, here, for his grand jury testimony.  United States v. Bonds, 2015 U.S. App. LEXIS 6708 (9th Cir. 2015), here. This is an important decision for tax crimes both for the grand jury context for § 1503 obstruction but also because § 7212(a), here, tax obstruction, has the same omnibus clause.  The analysis may further affect other statutory interpretations in the areas of false statements under 18 USC 1001(a), here.

When I posted on the opinion shortly after its release three days ago, I did a substantial amount of cutting and pasting because I did not have time to offer a good summary and synthesis.  So, I am revising the blog entry to delete the substantial quotations and offer more limited quotations with some of my own analysis.

First, the context.  The grand jury was investigating the use of sales enhancing drugs in sports and whether the proceeds from sales of the drugs were being laundered.  The investigation was focused on the persons providing drugs to athletes.  Athletes were not the targets of the investigation, but some were expected to testify to further the investigation.  Hence, a judicial order of immunity -- conferring use and derivative use immunity -- was given Bonds.  The grant of immunity effectively shielded Bonds from being prosecuted except for his own criminal footfaults in giving the immunized testimony.  Pursuant to the order, Bonds testified for about 3 hours.  The Government secured an indictment for false statements and obstruction based upon the testimony.  In the criminal trial, the jury acquitted on the false statement charges and convicted only for the obstruction charge.

The Q&A [referred to in the opinions as Statement C] and follow-through on which the conviction for obstruction was based (this is from Judge Kozinski's concurring opinion):

Q: Did Greg[, your trainer,] ever give you anything that required a syringe to inject yourself with?
A: I've only had one doctor touch me. And that's my only personal doctor. Greg, like I said, we don't get into each others' personal lives. We're friends, but I don't—we don't sit around and talk baseball, because he knows I don't want—don't come to my house talking baseball. If you want to come to my house and talk about fishing, some other stuff, we'll be good friends. You come around talking about baseball, you go on. I don't talk about his business. You know what I mean?
Q: Right.
A: That's what keeps our friendship. You know, I am sorry, but that—you know, that—I was a celebrity child, not just in baseball by my own instincts. I became a celebrity child with a famous father. I just don't get into other people's business because of my father's situation, you see.
Defendant was again asked about injectable steroids immediately following this exchange and a few other times during his testimony. He provided direct responses to the follow-up questions. For example, he was asked whether he ever "injected [him]self with anything that Greg . . . gave [him]." He responded [4]  "I'm not that talented, no." The government believed that those answers were false but, as noted, the jury failed to convict defendant on the false statement counts.

Bonds appealed.  The three Ninth Circuit judges originally hearing the appeal unanimously affirmed the conviction.  United States v. Bonds, 730 F.3d 890 (9th Cir. 2013), here.  The reasoning was that the testimony was evasive and misleading and thus within the scope of 18 USC 1503 even if true.

Bonds then requested en banc review.

The Ninth Circuit granted the en banc review and issued the following per curiam opinion (short enough to quote in full):

During a grand jury proceeding, defendant gave a rambling, non-responsive answer to a simple question. Because there is insufficient evidence that Statement C was material, defendant's conviction for obstruction of justice in violation of 18 U.S.C. § 1503 is not supported by the record. Whatever section 1503's scope may be in other circumstances, defendant's conviction here must be reversed. 

A reversal for insufficient evidence implicates defendant's right under the Double Jeopardy Clause. See United States v. Preston, 751 F.3d 1008, 1028 (9th Cir. 2014) (en banc) (citing Burks v. United States, 437 U.S. 1, 11, 98 S. Ct. 2141, 57 L. Ed. 2d 1 (1978)). His conviction and sentence must therefore be vacated, and he may not be tried again on that count. 

REVERSED.

Sixth Circuit Holds that § 7212(a)'s Omnibus Clause Requires Knowledge of a Pending Proceeding / Action and Intent to Obstruct (12/13/14)

Section 7212(a), here, was derived from Title 18’s obstruction provisions.  The key Title 18 obstruction provision is § 1503, here.  Both of the sections have an Omnibus Clause providing:

18 USC § 1503:

corruptly influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice.

26 USC 7212(a)

corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title.

In United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998), here,  the Sixth Circuit noted that the Omnibus Clause in § 7212(a) and the Omnibus Clause in § 1503 were virtually identical  and thus held that the Supreme Court's interpretation of § 1503 in United States v. Aguilar, 515 U.S. 593 (1995), here, to require that the defendant know of a pending investigation that he intended to obstruct applied to § 7212(a) as well.   Just as this interpretation restricts the application of the same words in the Omnibus Clause of § 1503,  so this interpretation of the same words restricts the application of the words in the Omnibus Clause of § 7212(a).  Subsequently in United States v. Bowman, 173 F.3d 595 (6th Cir. 1999),  here, the Sixth Circuit restricted Kassouf to its facts and applied § 7212(a)’s Omnibus Clause where the defendant, by filing information forms, attempted to trick the IRS into investigating his creditors.  Bowman could be read as a repudiation of Kassouf’s requirement for a pending investigation and thus giving a broader interpretation to § 7212(a)’s Omnibus Clause than to § 1503’s Omnibus Clause.  United States v. Floyd, 740 F.3d 22, 32 n4 (1st Cir. 2014); United States v. Kelly, 564 F. Supp. 2d, 843, 844-45 (N.D. Ill. 2008)}}; and United States v. Willner, 2007 U.S. Dist. LEXIS 75597 (S.D.N.Y. 2007) (finding support in the defraud conspiracy interpretation).

On December 12, 2014, the Sixth Circuit in United States v. Miner, 774 F.3d 336 (6th Cir. 2014), here, held that Bowman did not change the requirement it announced in Kassouf that the conduct must be intended to obstruct an IRS investigation.  Significant to the Court’s decision was its Circuit authority that the first decision trumps a later decision that might be viewed as in conflict.   The Court made much of the point that the Government’s sweeping claims that the Omnibus Clause untethered to a pending proceeding were expressly considered and rejected in Aguilar and Kassouf, the precedential authority in the Sixth Circuit.  The Court concluded:

In summary, post-Kassouf and post-Bowman, a defendant may not be convicted under the omnibus clause unless he is "acting in response to some pending IRS action of which [he is] aware." McBride, 362 F.3d at 372 [United States v. McBride, 362 F.3d 360 (6th Cir. 2004), here] (internal quotation marks omitted). The extension of Bowman that is urged by the government in this case does not represent a path that was unconsidered by Kassouf; it represents the path that was not taken.

Outlier Conviction for FBAR and Many Other Tax-Related Crimes (4/21/12)

DOJ Tax has announced the conviction of one Artistotle "Rick" R. Matsa, an attorney, on 22 counts "for numerous tax fraud and obstruction of justice related offenses, including witness tampering and making a false statement."  In addition, he and his mother were convicted of conspiracy to obstruct, commit perjury and make false statements.  The DOJ Tax press release is here.

The gravamen of the prosecution was for misdeeds that are atypical to the cases that DOJ Tax is prosecuting out of the current offshore account initiative.  Hence, I view the case as an outlier for many readers of this blog.  The Government's summary of the convictions in the press release is (with bold face for the FBAR information):

According to the indictment, which was returned on June 23, 2010, and the evidence admitted at trial, Rick Matsa, who in addition to being an attorney was also an architect, a real estate broker, and a licensed minister in Ohio, created and operated several nominee entities in order to disguise and conceal his income and assets from the IRS. The false trust return charges relate to filings for at least five separate trust entities during the tax years 2003 to 2005. In fact, the evidence at trial showed that the trusts had been filing similar returns dating back to 1990. Each of the trusts reported receiving significant amounts of interest income each year, generated from funds held in numerous bank accounts, yet no income tax was reported due as a result of fraudulently claimed deductions for distributions on the trust returns that were purportedly paid to a foreign beneficiary each year. However, the evidence at trial showed, instead, that Rick Matsa used funds from those trusts to purchase a 150-acre farm in Hocking County and a home in Worthington, both of which he used as a personal residence. 

The evidence at trial also showed that Rick Matsa violated FBAR, the foreign bank account reporting requirements, by failing to disclose his ownership and control over a foreign bank account held in The Netherlands. The evidence at trial was that Rick Matsa maintained more than $300,000 in funds in that undisclosed foreign bank during 2003. 

Tax Practitioner Self-help Defense Fails (3/8/12)

Criminal defense attorneys are always thinking about ways to win their cases.  Defendants also have a keen interest in winning.

One of the best defenses is to neutralize key prosecution witnesses.  But there are ways to do that and not to do that.  This blog is about a way not to do that.  It from the following article Calif. tax preparer accused of ordering hit on 2 (CBS News 3/6/12), here.  The balance of this blog reports the article.  I have no independent knowledge of the events described.

A tax practitioner -- a former IRS agent -- operated a tax preparation business for the wealthy.  In at least some instances, he had wealthy clients who were inattentive, permitting him to steal large amounts of money from them.  The article is cryptic about precisely he managed to steal the money in a tax practice, but apparently he would present a return to the clients showing a very large tax bill, convince the clients that they should deposit the tax into his account so that he could write the check to the IRS, and then file false returns showing much less liability and paying that smaller amount.  He would pocket the difference.  I am not sure that is exactly how it worked in all cases, because there is another statement in the article that he filed a return for a client reporting $ 42.1 million when the client's income was only -- get this, only -- $20.7 million.  I am not sure how he would get his money by reporting more tax than he got from the client.  Still, somehow, allegedly, he did stole from his clients.  He was indicted on multiple clients of fraud.  Not tax fraud; just fraud for defrauding clients.

So, the tax practitioner attempted some self help.  Not just neutralize, but eliminate the key witnesses against him.  According to the article, he stands "accused of ordering at least two former customers killed as they prepared to testify against him on fraud charges."

One notable quote from his attorney:  "I find it almost impossible to believe."  (I suppose this was the attorney in the pending fraud case, perhaps pressed into interim service also on the witness tampering charge (although I suspect he would be disqualified from representing him in that case.)

Lawyers and Obstruction: the Stevens Case (NonTax) Lessons for Tax Lawyers (9/5/11)

This is a guest blog by Scott Schumacher.  Scott is an Associate Professor of Law and Director of the Graduate Program in Taxation at the University of Washington School of Law in Seattle, Washington. Prior to entering academia, he was an attorney with the Department of Justice Tax Division and in private practice with the law firm of Chicoine & Hallett in Seattle. He writes frequently on criminal tax matters and is one of the authors, along with our blog host Jack Townsend, of the book Tax Crimes, here.

In May of this year, the U.S. District Court for the District of Maryland granted a motion for judgment of acquittal in the case of United States v. Stevens (No.: RWT 10 CR 0694 (D. Md. 2011), here. Lauren Stevens, former vice president and associate general counsel of pharmaceutical giant GlaxoSmithKline (GSK), had been charged with obstruction of justice and making false statements during a civil investigation by the FDA.

In a stinging rebuke of the government’s case, the court held that “only with a jaundiced eye and with an inference of guilt that's inconsistent with the presumption of innocence could a reasonable jury ever convict this defendant, and that “it would be a miscarriage of justice to permit this case to go to the jury.” The court concluded that “the defendant in this case should never have been prosecuted and she should be permitted to resume her career.”

Even though the court acquitted Stevens, as I discuss in the Tax Notes article, “Stevens: Is Zealous Advocacy Obstruction of Justice?”, 132 Tax Notes 1169 (9/12/11) here, this prosecution has implications for any lawyer, including tax lawyers, who regularly deal with the government.

Materiality and Corruptly in Tax Obstruction under Section 7212(a) (9/10/11)

In United States v. Bonds, 2011 U.S. Dist. LEXIS 96051 (ND CA 2011), the jury had found Barry Bonds guilty of obstruction of justice in violation of the so-called Omnibus Clause of 18 U.S.C. section 1503. The court rejected Bonds' Rule 29 for acquittal and Rule 33 for new trial. The Court's discussion is interesting for tax crime afficionados because the tax obstruction statute, section 7212(a), has its roots in the general obstruction statutes in 18 U.S.C., including specifically section 1503(a)'s Omnibus Clause. See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 277-314 (2009), here.

The key elements of 1503's Omnibus Clause for present purposes are: (i) the defendant must endeavor (ii) corruptly to (iii) obstruct or impede the due administration of justice. The Court has the obligatory discussion of the leading case, United States v. Aguilar, 515 U.S. 593, 598 (1995), which is fascinating but need not detain us here.

Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (5/26/11)

Today, I pick up a thought I threw out in a comment in my blog entry titled "Jury speaks in the Daugerdas Case -- Guilty! (5/24/11)" regarding the overlapping tax obstruction under Section 7212 and the Klein conspiracy crimes and convictions. Here are Judge Pauley's instructions on these crimes in Daugerdas. I present the tax obstruction charge first, although it was presented second in the charge to the jury:

Tax Obstruction Charge (Section 7212)

Counts 20 and 21: Corruptly Endeavoring to Obstruct and Impede the Functions of the IRS

Count 20 of the Indictment charges that, from in or about 1994 to in or about October 2005, defendants Guerin, Field, Brubaker, and Parse corruptly obstructed and impeded, and endeavored to obstruct and impede, the due administration of the Internal Revenue Laws.

Count 21 charges that, from in or about 1994 to in or about October 2005, defendant Daugerdas corruptly obstructed and impeded, and endeavored to obstruct and impede, the due administration of the Internal Revenue Laws.

Barry Bonds Swings at the Obstruction Charge but Doesn't Hit This Time

In United States v. Barry Lamar Bonds, 2011 U.S. Dist. LEXIS 15906 (ND CA 2011), the third superseding indictment charged four counts of false declarations before a grand jury. A fifth count charged

BARRY LAMAR BONDS,

did corruptly influence, obstruct, and impede, and endeavor to corruptly influence, obstruct, and impede, the due administration of justice, by knowingly giving material Grand Jury testimony that was intentionally evasive, false, and misleading, including but not limited to the false statements made by the defendant as charged in Counts One through Four of this Indictment. All in violation of Title 18, United States Code, Section 1503.

In order to assure that there was a unanimous verdict as to guilt, the Government agreed that the jury must be instructed "to agree unanimously as to which statement or statements constitute obstruction of justice." In other words, for example, the six members of the jury could not pick one or more statements for conviction and the other six pick other statements to use for conviction. The jurors would need to agree upon at least one or more actions -- in this case statements -- that constitute obstruction.

Corruptly in Obstruction Crimes (Including Tax Obstruction) Really Means Something

In United States v. Doss, 630 F.3d 1181 (9th Cir. 2011), a nontax case, the Ninth Circuit addressed the circuit split over the term "corruptly persuades" in 18 USC 1512(b)(1). Section 1512 is captioned "Tampering with an witness, victim or informant." The crime defined in Section 1512 is not a tax crime, nor is it a crime normally encountered in criminal tax trials. Still, as I have developed in an article, the crime's corruptly element may help define the similar element in the tax obstruction statute, 26 USC Section 7212(a). Both crimes are derived from the concepts in 18 USC Section 1503, the traditional obstruction of justice crime. See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 334-335 (2009)).

Houston Business & Tax Journal Symposium on Tax Evasion and White Collar Crime (7/6/09)

Houston Business and Tax Journal
Volume 9 Part 2

Caveat:  I previously provided links on this page but HB&TJ moved the publications to HeinOnLine (a subscription service).  I have posted my article and Appendix below to my SSRN page.

The University of Houston Business and Tax Law Journal has published papers from a symposium on Tax Evasion as White Collar Crime. 

Geraldine Szott Moohr, Introduction: Tax Evasion as White Collar Crime, 9 HOUS. BUS. & TAX L.J. 208 (2009).  Professor Moohr offers a good introduction to the series. Readers might use her article as a good introduction to the other articles in order to determine where to focus their reading. 

Stuart P. Green, What Is Wrong with Tax Evasion? 9 HOUS. BUS. & TAX L.J. 221 (2009) Professor . Professor Green is the author of a prominent book on White Collar Crime -- STUART P. GREEN, LYING, CHEATING AND STEALING: A MORAL THEORY OF WHITE COLLAR CRIME (2007). Professor Green treats tax evasion in his book and again in the article.

Robert E. Davis & Danny S. Ashby, Federal Criminal Tax Enforcement in 2009: The Role of Criminal Tax Enforcement in the Federal “Voluntary” Self-Assessment and Payment Tax System, 9 HOUS. BUS. & TAX L.J. 237 (2009).

John A. Townsend, Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?, 9 HOUS. BUS. & TAX L.J. 260 (2009) Article available here; Appendix to article available here. Jack's bio is here.

Offshore Funds - How Not to Respond to the IRS Risk

We have covered the Government's most recent initiatives involving U.S. taxpayers with offshore funds and noted that coming clean fast is the way to go, at least for most of the U.S. taxpayers at risk.

TIGTA reports a cautionary tale of a U.S. taxpayer who took another approach. That taxpayer sought to hire hit man to kill the IRS agent conducting an audit. That taxpayer also sought to have the hit man burn the IRS office. Neither of these actions would have been counseled by those who practice in this area. (Actually, that is too sweeping a statement, what I mean is that I cannot imagine that either of these actions would have been counseled by those who practice in this area.)

The full report is:

March 6, 2009
Man Sentenced in Murder for Hire Plot of IRS Revenue Officer

On March 5, 2009, U.S. District Court Judge James S. Moody, Jr., imposed a sentence of 30 years imprisonment on Florida businessman Randy Nowak. He noted that, after having listened to Nowak's recorded conversations with an undercover agent posing as a hit man, he had concluded that Nowak had "no conscience."

Nowak was convicted by a Federal jury in December 2008 of attempting to murder a U.S. officer or employee and for using a facility of interstate commerce with the intent that a murder-for-hire be committed.

According to court documents, in June 2008, Nowak, owner of RJ Nowak Enterprises, Inc., had been looking for someone to kill an Internal Revenue Service (IRS) employee who was auditing him because he stood to lose $4,000,000 that he had hidden offshore.

Nowak met with an undercover Federal Bureau of Investigation (FBI) Task Force agent who was posing as a hit man in July 2008. Nowak paid him $10,000 as a down payment to kill the IRS Revenue Officer. Nowak also asked the undercover agent if he would be willing to burn down the IRS's office in Lakeland.

Nowak was charged in a criminal complaint filed in July 2008 with attempting to kill an IRS Revenue Officer who was engaged in the performance of official duties. At that time, Nowak had an outstanding IRS liability of approximately $300,000 related to his personal income tax obligations, and he had four years of outstanding corporate tax returns for his business that he had not filed.

The case was worked jointly with the FBI.