Justice Thomas' Misleading Statement in Solo Dissent about Maximum Exposure Considered in a Plea Agreement (6/20/26; 6/21/26)

In Hunter v. United States, 608 U. S. ____ (2026), SC here and GS  here [to come], the Court held (from syllabus):

An agreement [plea agreement] not to appeal a sentence is unenforceable when it would result in a miscarriage of justice—meaning, when it would leave in place the kind of egregious error that would bring the judicial system into disrepute.

That’s a broadly stated general rule that will be fleshed out in its application. However, I will not discuss the holding further. Rather, I focus on a misleading statement made by Justice Thomas in his solo dissent that states a common misconception about plea bargaining.

Justice Thomas states (Slip Op. 39 of pdf, indicating p. 1 of dissent here, emphasis supplied by JAT):

Thanks to the [plea] agreement, Hunter received a 51-month prison term, followed by three years of supervised release, less than 2% of the prison time to which the indictment exposed him.

Added 6/21/26 2:30pm: Justice Thomas makes the statement to explain what the benefit of the bargain was for Hunter in order to support his [Thomas'] claim that the agreement appeal waiver should be binding.

No competent lawyer negotiating the plea would have negotiated against the maximum suggested in Justice Thomas’ statement; rather they would have negotiated against the sentence ranges provided by the Guidelines. I demonstrate with a simple example:

Assume that a taxpayer is convicted of 3 counts of tax evasion, with each count carrying a 5-year maximum sentence. In theory, that might permit "stacking" to reach the maximum sentence of 15 years if convicted of all counts. In fact, the Guidelines Offense Level maximums range from 6 months for tax losses from $2,500 or less to 36 for more than $550 million. Assuming no other adjustments (such as criminal history, etc.), looking at the maximum Offense Level of 36, the Guidelines Sentencing Table maximum  range is 188-185 months (about 16 years). Most tax evasion convictions involve tax loss far less than $550 million, so the realistic range is far less than 25 years.

I illustrate with a more realistic tax loss example: Assume tax evasion loss of, say, $20 million (aggregate on 3 counts) producing a Guidelines Offense Level of 26 and Sentencing Table range of 63-78 months (about 5-6 years), again assuming no other adjustments.

The Open Plea And Ineffective Assistance of Counsel (6/5/15)

In United States v. Wilson, 2015 U.S. Dist. LEXIS 70679 (E.D. Cal. May 29, 2015), here, the defendant was initially charged "with multiple counts arising out of his operation of a Ponzi scheme known as CIC Investment Fund."  The defendant "pled guilty to one count of wire fraud (Count 14) and one count of making and subscribing a false income tax return (Count 31) pursuant to a written plea agreement."   The defendant "was sentenced 236 months imprisonment in the custody of the U.S. Bureau of Prisons as to the wire fraud charge and 36 months imprisonment on the false tax return charge with those sentences to run concurrently,"  The defendant appealed.  The Court of Appeals remanded for resentencing.  On remand, after additional findings, the sentencing court "re-imposed the same sentence that had originally been imposed, including the 236-month prison term."  The defendant again appealed.  The Court of Appeals affirmed the sentence.  Later, while serving his time, the defendant filed this action under 18 USC § 2255, here, alleging ineffective assistance of counsel.  Since, the defendant was the moving party in the § 2255 collateral review case, the court refers to him as movant and I shall also in the balance of the discussion of the case.  The movant's claim was then heard by a Magistrate Judge who entered the order in this case.

The movant's claim is that in advising defendant to sign the plea agreement resulting in his conviction and incarceration, the trial counsel had rendered ineffective assistance of counsel, thus requiring overturning his conviction.  The claim is that, despite the Guidelines' calculations contained in the plea agreement movant was offered (151-188 months), his counsel in the case in chief had assured him that the Guidelines calculations were "immaterial" and that he would be sentenced to "'three to five years' 'regardless of how the guidelines are calculated.'"  Based on this advice and related erroneous Guidelines advice, movant entered an "open plea" -- just a plea to all counts without any stipulation as to the Guidelines calculations.  The related advice was:

Movant also alleges that his trial counsel gave him "grossly incompetent" advice about the applicability of the Sentencing Guidelines to his case. According to movant, this incompetent advice included inaccurate assertions that: (1) the government would have to prove that movant was a registered investment advisor in order to increase the offense level for "Abuse of Position of Trust or Use of Special Skill" under USSG § 3B1.3; (2) the increase in the offense level based upon "sophisticated means" set forth in USSG § 2B1.1(b) (10) would not apply to movant; (3) the increase in the offense level for being a "leader/organizer" set forth in USSG § 3B1.1(c) was not applicable to movant unless other people were indicted; (4) movant would be sentenced "regardless of how the probation officer scores the guidelines" and "regardless of what the Sentencing Guidelines say;" and (5) movant would "come out as a criminal history [category] three," even though his criminal background actually "mandated a criminal history category IV." (ECF No. 188 at 14, 18.) n1 Movant contends that his trial counsel's erroneous advice in these areas made it impossible for him to make an intelligent decision as to whether to enter an "open" plea of guilty, and caused him to reject the government's first, more favorable, plea offer and to plead "open with no protection." (ECF No. 200 at 10, 25.) 

In sum, movant claims that his retained trial counsel induced him to plead guilty with: (1) false promises and guarantees, both to him and to his family, that he would receive a sentence in the 3-5 year range; (2) threats to withdraw from the case if he was not paid additional fees; (3) a "threat" that movant should not mention any promises made by counsel about his sentence to the trial judge; and (4) erroneous legal advice about the Sentencing Guidelines and the applicability of certain guideline provisions, described above. (Id. at 16, 18-19.) Movant argues,[b]ased on [counsel's] threat to quit my case, his faulty explanation of how the sentencing guidelines worked, his misguided legal advice that the enhancements (sophisticated means, abuse of trust, organizer) did not apply (openly misstating the law on particular enhancements), his mischaracterization of Judge Karlton and his view of the sentencing guidelines, his erroneous guidance of my criminal history category, and his directing me to reject the Government's plea offer . . . to sign an open plea in order to receive a sentence of three (3) to five (5) years, I was coerced, pressured, and deceived into relinquishing my trial rights, rejecting the government's plea offer, and entering an open plea.

The claim of ineffective assistance of counsel after conviction is not uncommon.  Many convicted defendants think it is worth a shot.

The movant offered some nominal proof that the claims were made, including affidavits of he and family members and some alleged transcripts of telephone conversations.  The magistrate judge thought that the claims were sufficient to warrant a hearing and appointed the Federal Defender to represent the movant.

I thought I would digress for a bit on the "open plea."  Actually, an open plea can mean various things.  Most commonly, I think it means where a defendant and  the prosecutor simply cannot reach a plea agreement, as in Wilson.  If the guilty defendant then wants avoid trial, he must without a plea agreement.  Such a plea will usually assure the defendant of the acceptance of responsibility 2 level reduction, but may forego the additional 1 level reduction which requires  that the Government make the motion.  S.G. §3E1.1.Acceptance of Responsibility, here.  Without a plea agreement, the Government will likely not drop counts, so the defendant must plead to all counts.  In many tax cases, the number of counts will not affect sentencing, so if all the defendant achieves from reaching a plea agreement with the Government is the dropping of counts, the sentence may not be affected at all.  (Indeed, with a plea dropping counts in tax cases, a not uncommon statement in the PSR is that the sentencing calculations are recommended sentencing range are not affected by the dropping of counts.)  So, except for the 1-level AOR reduction, the defendant may not actually lose anything material by doing an open plea to all charged counts rather than reaching a plea agreement that only reduces the number of counts.  But, the defendant will not gain anything by doing an open plea as opposed to a plea agreement.  And a plea agreement can often include favorable agreements as to other sentencing factors.

The Honorable Jed Rakoff on Why Innocent People Plead Guilty (11/3/14)

Judge Jed Rakoff, a pre-eminent jurist (Wikipedia entry here), has this great article in the New York Review of Books.  Jed S. Rakoff, Why Innocent People Plead Guilty (New York Review of Books 11/20/14 Issue), here.  I would not even attempt to try to summarize Judge Rakoff's powerful development of the thesis presented here.  I can only present some excerpts that, I hope, will encourage practitioners and students to read and fully digest the whole article.

The criminal justice system in the United States today bears little relationship to what the Founding Fathers contemplated, what the movies and television portray, or what the average American believes. 

To the Founding Fathers, the critical element in the system was the jury trial, which served not only as a truth-seeking mechanism and a means of achieving fairness, but also as a shield against tyranny. As Thomas Jefferson famously said, “I consider [trial by jury] as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution.” 

* * * *  

In 2013, while 8 percent of all federal criminal charges were dismissed (either because of a mistake in fact or law or because the defendant had decided to cooperate), more than 97 percent of the remainder were resolved through plea bargains, and fewer than 3 percent went to trial. The plea bargains largely determined the sentences imposed.' 

* * * * 

The practice of plea bargaining never really took hold in most other countries, where it was viewed as a kind of “devil’s pact” that allowed guilty defendants to avoid the full force of the law. But in the United States it became commonplace. And while the Supreme Court initially expressed reservations about the system of plea bargaining, eventually the Court came to approve of it, as an exercise in contractual negotiation between independent agents (the prosecutor and the defense counsel) that was helpful in making the system work. Similarly, academics, though somewhat bothered by the reduced role of judges, came to approve of plea bargaining as a system somewhat akin to a regulatory regime. 

* * * *

In addition to mandatory minimums, Congress in 1984 introduced—with bipartisan support—a regime of mandatory sentencing guidelines designed to avoid “irrational” sentencing disparities. Since these guidelines were not as draconian as the mandatory minimum sentences, and since they left judges with some limited discretion, it was not perceived at first how, perhaps even more than mandatory minimums, such a guidelines regime (which was enacted in many states as well) transferred power over sentencing away from judges and into the hands of prosecutors. 

One thing that did become quickly apparent, however, was that these guidelines, along with mandatory minimums, were causing the virtual extinction of jury trials in federal criminal cases. Thus, whereas in 1980, 19 percent of all federal defendants went to trial, by 2000 the number had decreased to less than 6 percent and by 2010 to less than 3 percent, where it has remained ever since. 

The reason for this is that the guidelines, like the mandatory minimums, provide prosecutors with weapons to bludgeon defendants into effectively coerced plea bargains. In the majority of criminal cases, a defense lawyer only meets her client when or shortly after the client is arrested, so that, at the outset, she is at a considerable informational disadvantage to the prosecutor. If, as is very often the case (despite the constitutional prohibition of “excessive bail”), bail is set so high that the client is detained, the defense lawyer has only modest opportunities, within the limited visiting hours and other arduous restrictions imposed by most jails, to interview her client and find out his version of the facts. 

Court Rejects Ineffective Assistance of Counsel in Tax Preparer Case (8/20/13)

In United States v. Mobley, 2013 U.S. Dist. LEXIS 115392 (SD AL 2013), here, the defendant, a return preparer brought a 2255 proceeding to overturn her conviction by plea.  The defendant had been charged with a 99-count Second Superseding Indictment with preparing false and fraudulent returns.  The defendant pled to 4 counts:  (1) conspiracy count, (2) aiding and assisting, (3) wire fraud, and (4) aggravated identity theft.

The defendant was sentenced to 51 months, at the low-end of the guidelines sentencing range.  That calculation was made using a 21 base offense level, driven by a stipulated estimated tax loss between $400,000 and $1,000,000.  With other adjustments, the guidelines range was 51 to 63 months.

In the 2255 proceeding, the defendant sought to avoid the conviction based on the usual claim in such proceedings -- ineffective assistance of counsel.  The claims came in several flavors, all based upon her factual assertion that her counsel was conflicted because, among the false returns defendant allegedly prepared, were returns for her counsel's father and stepmother.  One of the variations was a claim that, "unconflicted counsel could have negotiated a better plea agreement."  The reason, counsel was reluctant to take the case to trial if., by doing so, he would or might have to cross-examine his own relations.  The Court rejected the claim, finding that counsel had not been negatively influenced.  The court then held (focus particularly on footnote 5):

Furthermore, there is no indication that any "better plea agreement" could have been obtained, irrespective of who was representing Mobley. n5 Petitioner offers no specifics as to what sort of deal she thinks conflict-free counsel might have procured. There is no evidence or reason to believe that a more favorable deal could have been available to her under any circumstances. More fundamentally, Mobley steadfastly admits to this day, "I do not seek to vacate my conviction because I am guilty of the crimes to which I pled guilty." (Id. at 1.) Even in her objections to the Report and Recommendation, petitioner reiterates that "Mobley has not challenged her guilty plea." (Doc. 173, at 2.) In light of these admissions, her apparent suggestion that Attorney McCord betrayed her by not negotiating a plea deal that would have excused her from pleading guilty to those crimes (of which she is admittedly guilty and which plea she does not now challenge) borders on the absurd. Simply put, petitioner has not shown that there was any viable alternative strategy Attorney McCord could have utilized with respect to plea negotiations, but that she failed to follow because of the purported conflict. n6 For all of these reasons, Mobley's objection that she suffered an "adverse effect" from Attorney McCord's conflict because conflict-free counsel could have negotiated a better plea agreement is overruled.
   n5 In her objections, defendant suggests that she was induced to plead guilty "without obvious benefits." (Doc. 173, at 3.) This statement is demonstrably incorrect. The benefits to Mobley for executing this plea agreement were numerous and tangible, to-wit: (i) the Government agreed to dismiss 95 counts against her and to refrain from bringing any additional related charges against her; (ii) the Government agreed to cap the monetary loss for sentencing purposes at $1 million, while preserving Mobley's opportunity to object to that amount; (iii) the Government agreed to recommend a low-end sentence; and (iv) by executing the plea agreement and timely changing her plea, Mobley availed herself of a full three-level reduction for acceptance of responsibility, which had the effect of lowering the bottom end of her guideline range from 70 months to 51 months (a 27% reduction). To the extent that Mobley persists in arguing that her sentence "would have been the same if the [other 95] counts had not been dismissed" (doc. 164), she is wrong. The Court was not bound to adhere to the low-end recommendation, and would have been less likely to do so had Mobley pled guilty to 99 counts rather than just four. More importantly, recall that the Indictment included 12 counts of aggravated identity theft, in violation of 18 U.S.C. § 1028A(a)(1). (See doc. 70, at Counts 88 - 99.) Eleven of those counts were dismissed pursuant to the plea agreement. Each of those counts carried the very real possibility of a two-year consecutive sentence pursuant to § 1028A(b)(2), although this Court would have had discretion under the statute to run them concurrently. Thus, the plea agreement removed the potential for Mobley to face an additional 22 years' worth of consecutive sentences on top of the low-end guideline sentence the Government had agreed to recommend. This is, indeed, an "obvious benefit" to the plea, even if Mobley does not appreciate it.
   n6 In another objection, Mobley maintains that the plausible alternative strategy to her guilty plea was going to trial. On that point, Mobley reasons that "[i]f unconflicted counsel had been able to challenge the Government's case as relates to the alleged victims (McCord's parents), it is plausible that other challenges could have been made to the Government's case in total" and "it could have cast doubt in the jury's mind as to whether other alleged victims were actually participants." (Doc. 173, at 3.) With this argument, petitioner endeavors to have her cake and eat it too. One the one hand, she has repeatedly averred that she is not challenging or seeking to overturn her guilty plea. On the other hand, she seeks to establish a Sixth Amendment violation because her conflicted counsel persuaded her to plead guilty instead of going to trial. A § 2255 petitioner does not get to have it both ways. Besides, petitioner's argument does not establish the "reasonable alternative strategy" under the Reynolds line of cases. For Mobley to proceed to trial and attack D.B. [father] and E.B.[step-mother] as not being "victims" would have been foolish because, as discussed infra, the Government never, ever suggested that they were victims. The Indictment identifies numerous individuals on whose behalf Mobley prepared false/fraudulent tax returns, some of whom were aware of and participated in the fraud and some of whom did not know she was preparing tax returns for them at all. By the clear wording of the Indictment, D.B. and E.B. fell within the first category, not the second. In other words, it would not have been a reasonable alternative strategy for Mobley to go to trial to try to persuade the jury that D.B. and E.B. were not really victims, and that the Government's entire case was therefore of dubious worth, for the simple and obvious reason that the Government never contended that D.B. and E.B. were victims. Whatever else can be said, such an irrational trial strategy was not a viable alternative to a guilty plea that resulted in dismissal of 95 of the 99 counts against Mobley, leaving only four charges to which she even now concedes guilt.

Supreme Court Reminds that Judges Should Not Participate in Plea Negotiations (6/14/13)

In United States v. Davila, ___ U.S. ___, 2013 U.S. LEXIS 4541 (2013), a criminal tax case, here, decided yesterday, the defendant was charged with multiple counts of tax fraud and conspiracy.  As is typical, the Government indicated a willingness to accept a plea for one count of conspiracy (referred to by the DOJ CTM as the major count) and dismiss the remaining counts.  As I have noted before, achieving a dismissal of such remaining counts upon plea often achieves nothing practical for the defendant because of the operating of the Sentencing Guidelines, but the plea agreement itself can be rewarded under the Sentencing Guidelines by downward adjustment for Acceptance of Responsibility.  The defendant finally did accept a plea, but not before he initially resisted and received some inappropriate advice to plead from the Magistrate Judge.

By way of background, most criminal tax cases, as most criminal cases generally, are resolved by plea agreement.  (See the addendum below on a recent article on statistics dealing with the role of pleas in the federal criminal system.)  For example, assume that potential client A comes into your office the day after he was indicted for several tax crimes.  A announces that he came to you because you had the reputation of being the best criminal tax lawyer in the universe (you modestly but not totally candidly disavow that reputation).  A then outlines his cryptic view of why he is innocent.  He then asks what are the chances of you obtaining an acquittal for him.  All you know is his cryptic account which or may not  be a fair representation or summary of the facts, but that cryptic account proclaims his complete innocence, at least on the willfulness element of the tax crimes charged because he says he is innocent.  So, you remind him that he is asking you to state conclusions based on cryptic facts which may or may not be true and which you have not investigated.  On that basis, you advise first that, if the cryptic statement is a fair representation of the case that will be presented at trial, then he has a very good chance of being acquitted.  You then state that your experience is that such cryptic initial accounts generally are too cryptic for anyone to feel comfortable that that is the way it will play out at trial.  You then state that, given the highly selective systemic selection of criminal tax cases, culminating in DOJ Tax and AUSA review before indictment, the facts may well not play out that nicely at trial.  You then tell him, that given that selectivity, the posted rates of conviction in tax cases are very high -- exceeding 90% (maybe, see my several other postings on the conviction rates in tax cases).  You then tell him, based on that statistic alone, and discounting his cryptic proclamation of innocence, there is a 90+% chance he will be convicted.  You finally tell him there is a systemic preference in the federal criminal system generally and in the tax crimes subset of that system to resolve cases by plea -- indeed a defendant is given a substantial benefit in the Sentencing Guidelines by resolving the case by plea.  The combination of likely conviction and the benefit of pleading for a reduced sentence is a powerful incentive to plead. (Indeed as others have noted, it may be so powerful in some cases that the innocent plead, provided that they can clear the hurdle of allocution of guilt.)

Now, with that background, the defendant in Davila was unhappy with his attorney who, apparently with more facts in hand as to how the trial would play out, advised the Davila to accept  the plea proffered by the prosecutor.  Davila interpreted that recommendation as being a reflection of the fact that the attorney had no defensive strategy.  That is probably a fair lay interpretation, but criminal defense lawyer would characterize the recommendation as a conclusion that the defendant almost certainly would be convicted.  Davila's strategy then was to request new counsel.  An ex parte hearing or meeting on that request was held with the U.S. Magistrate Judge.  The prosecutor was not present (not clear why, but that was a no-no.).  During the course of the hearing or meeting, the Magistrate Judge advised that defendant that he would not get another court-appointed attorney and that his best course, given the strength of the Government's case, was to accept the plea.  Davila was not convinced.  Time passed.  Finally, he became convinced and pled with a full allocution saying that he was guilty of the crime to which he pled and that nothing had been promised him in return, etc., etc.

Statistics on Tax Prosecutions - A New Article Offers Some Insight (12/11/12)

Readers interested in the broader role of plea agreements in the Federal criminal universe, should read a new article, Kyle Graham, Crimes, Widgets, and Plea Bargaining: An Analysis of Charge Content, Pleas and Trials, 100 Calif. L. Rev. 1572 (2012), here.

The author bases the article on a lot of statistics that he has combined into a database useful for the subject of the article.  The sources of the database are summarized at p. 1574 n. 2.  The author concludes the article as follows (pp. 1629-30):

In the final analysis, this Article argues that in at least one important way, crimes should be treated more like widgets, or at least more like "normal" products. Just as corporations engage in market studies prior to a product launch, they also will periodically assess whether their existing products have generated substantial profits, or are leading to losses. Congress and state legislatures have manufactured thousands of crimes. It is difficult to believe that all of these crimes have produced the "profits" - social gains - that legislators believed they would. Close review of crime-specific data would allow states and the federal government to shut down poor-performing product lines, streamline others, and perhaps even add a few new models. Crimes may  [*1630]  not represent widgets, but that does not mean we cannot take an inventory of our previous orders.

The author makes some interesting comments in the body of the article about criminal tax prosecutions are follows:

Plea Bargains Generally and in Tax Cases; Moneyball (3/24/12)

In two cases, the Supreme Court has recognized the central role of plea bargaining in the criminal system and held the the right to effective assistance of counsel extends to advising the client in plea negotiations.  Missouri v. Frye, ___ U.S. ___, 2012 U.S. LEXIS 2321 (2012), here (failure to advise the defendant of a time-limited plea offer by the prosecutor); and Lafler v. Cooper, ___ U.S. ___, 2012 U.S. LEXIS 2322 (2012), here (providing the defendant highly questionable advice to reject a proffered plea and go to trial instead).  In an earlier case, the Court had anticipated this broader holding the context of a plea agreement where the attorney failed to advise the defendant of the collateral immigration consequences of the plea.  Padilla v. Kentucky, 559 U. S. ___, ___ (2010), here.

The crux of the holdings is (Missouri v. Frye):

The State's contentions are neither illogical nor without some persuasive force, yet they do not suffice to overcome a simple reality. Ninety-seven percent of federal convictions and ninety-four percent of state convictions are the result of guilty pleas. See Dept. of Justice, Bureau of Justice Statistics, Sourcebook of Criminal Justice Statistics Online, Table 5.22.2009, http://www.albany.edu/ sourcebook/pdf/t5222009.pdf (all Internet materials as visited Mar. 1, 2012, and available in Clerk of Court's case file); Dept. of Justice, Bureau of Justice Statistics, S. Rosenmerkel, M. Durose, & D. Farole, Felony Sentences in State Courts, 2006-Statistical Tables, p. 1 (NCJ226846, rev. Nov. 2010), http://bjs.ojp.usdoj.gov/content/pub/pdf/fssc06st.pdf; Padilla, supra, at ___ (slip op., at 15) (recognizing pleas account for nearly 95% of all criminal convictions). The reality is that plea bargains have become so central to the administration of the criminal justice system that defense counsel have responsibilities in the plea bargain process, responsibilities that must be met to render the adequate assistance of counsel that the Sixth Amendment requires in the criminal process at critical stages. Because ours "is for the most part a system of pleas, not a system of trials," Lafler, post, at 11, it is insufficient simply to point to the guarantee of a fair trial as a backstop that inoculates any errors in the pretrial process. "To a large extent . . . horse trading [between prosecutor and defense counsel] determines who goes to jail and for how long. That is what plea bargaining is. It is not some adjunct to the criminal justice system; it is the criminal justice system."  Scott & Stuntz, Plea Bargaining as Contract, 101 Yale L. J. 1909, 1912 (1992). See also Barkow, Separation of Powers and the Criminal Law, 58 Stan. L. Rev. 989, 1034 (2006) ("[Defendants] who do take their case to trial and lose receive longer sentences than even Congress or the prosecutor might think appropriate, because the longer sentences exist on the books largely for bargaining purposes. This often results in individuals who accept a plea bargain receiving shorter sentences than other individuals who are less morally culpable but take a chance and go to trial" (footnote omitted)). In today's criminal justice system, therefore, the negotiation of a plea bargain, rather than the unfolding of a trial, is almost always the critical point for a defendant. 

To note the prevalence of plea bargaining is not to criticize it. The potential to conserve valuable prosecutorial resources and for defendants to admit their crimes and receive more favorable terms at sentencing means that a plea agreement can benefit both parties. In order that these benefits can be realized, however, criminal defendants require effective counsel during plea negotiations. "Anything less . . . might deny a defendant effective representation by counsel at the only stage when legal aid and advice would help him.'" Massiah, 377 U. S., at 204 (quoting Spano v. New York, 360 U. S. 315, 326 (1959) (Douglas, J., concurring)).

Sentencing - Plea Bargaining and the Right to Trial (9/25/11)

As tax crimes practitioners know, the vast majority of tax crimes indictments end in a plea agreement. This is true of federal crimes generally. The plea agreement the prosecutor offers usually materially raises the risks of going to trial as opposed copping a plea. We also know that the inducements can include the obvious -- acceptance of responsibility 2 or 3 level downward adjustment to the Guidelines offense level calculation and, where appropriate, a 5K1 departure for substantial cooperation. But the plea equation can also be manipulated in other ways probably not intended by the Guidelines. This means that the prosecutors can make the plea deal so sweet that, in many cases, a defendant cannot take the risks of exercising his or her Sixth Amendment right to go to trial.  At one level, that is the nature of the plea agreement; at another level, it can be corrosive to the system as we imagine it.

In a very thoughtful opinion in United States v. Ring, ___ S. Supp. 2d ___, 2011 U.S. Dist. LEXIS 106217 (D DC 2011), here (and with appendix here), Judge Segal Huvelle of the DC District Court addresses these manipulations of the Guidelines sentences to discourage the exercise of the Sixth Amendment right to trial. Ring was one of the lobbyists caught up in the Abramoff affair. Several, including Ring, were affiliated with the Greenberg Traurig law firm. There were others, including a congressman.  Ring was the only one of the targets to go to trial -- the others found the plea deal the prosecutors offered to be just to good to go to trial. As a result of going to trial (and perhaps in some form of perverse punishment for going to trial), the prosecutors sought to managing the sentencing to make the punishment harsh indeed compared to those who pled. I won't go into all the detail of how the prosecutors sought to mete out extra punishment through the Guidelines calculations for Ring. I cite below several articles that flesh this out. Suffice it to say, Judge Huvelle navigated the Guidelines to take away the sting the prosecutors sought to impose.  As a predicate to doing so, Judge Huvelle has a very thoughtful discussion of just how corrosive the process can be.  For that reason, I strongly recommend that the reader interested in this subject, read the opinion.

Golf Pro Pleads Guilty to Tax Crime

A plea announcement published in this morning’s Tax Notes Today (2009 TNT 182-26) grabbed my attention. On September 22, 2009, the U.S. Attorney for the Middle District of Florida announced a plea agreement with a professional golfer, one Jimmie L. Thorpe. The announcement has not yet been posted to the press release page of the U.S. Attorney’s web site. The press release page for September is here and presumably the posting will appear today or, at least, soon.

I am not a big golf fan, so don't know who he is and where or even if he ranks in the pantheon of golfers. His celebrity status, if any aside, the plea agreement is interesting on several points of interest to the criminal tax afficionado.

First, the plea is for two counts of failure to pay under § 7203. Failure to pay is a misdemeanor (i.e., maximum sentence of one year per count). On the facts stated in the announcement, it would appear that failure to pay and/or perhaps failure to file (also criminalized under § 7203) were the crimes in play. The plea is only to failure to pay. The facts contained in the announcement establish that three years were in play. I surmise the compromise to reach agreement was that only two years / counts would be admitted, hence capping the possible punishment to 2 years incarceration. This capping of the possible sentence was likely important to the defendant because, in his case, the tax loss numbers and other sentencing considerations could easily produce a sentence greatly in excess of 2 years. I have previously published an article addressing the use of counts to cap a sentence that could otherwise go much higher. John A. Townsend, Analysis of the Fastow Plea Agreements, 2004 TNT 44-46.

Second, a subtext in some of these cases is tax evasion through failure to file and/or failure to pay (as well as at least one other affirmative act). The Government will sometimes try to make a tax evasion case where the failure to file or failure to pay is a prominent element in the attempt to evade tax. But such cases are often more difficult for the Government to make, and the Government can fall back on the more easily proved case of failure to file or failure to pay. By charging the “lesser crime,” the Government can more easily extract a guilty plea in such cases, thus satisfying its imperative to get the maximum number of convictions and prominent publicity. Thus, had the Government pursued tax evasion (a 5 year incarceration period per count), it may have had difficult incentivizing Mr. Thorpe to plead where he faced the realistic possibility of more than 2 years incarceration.

Third, the announcement indicates that the defendant may be subject to a fine of up to $4,125,152.52. The basis for the fine is not stated in the plea agreement but can be easily derived. My students will remember that the Code provisions state a maximum fine. Section 7203 states a maximum fine of $25,000 for an individual, so that with two counts the Code maximum fine would be $50,000, far short of the fine agreed to in this case. My students will also remember, however, that the real fine provision is § 3571 which permits a maximum fine for a class A misdemeanor of $100,000 for individuals or, if greater, double the pecuniary gain to the defendant or the pecuniary loss to the victim. According to the announcement, the fine amount is just double (rounded) the stipulated tax loss amount of $2,062,576.27. So, this facially explains the large amount of the potential fine. In my experience fines do not play a significant role in tax cases because the taxpayer will often have paid the tax, penalties and interest before or during the prosecution phase or will agree to contractual restitution.

Finally, the announcement implies that defendant was a repeat offender . He had previously been investigated by IRS CI for the years 1993 and 1994. The announcement notes that he had asserted a reliance on accountants defense, although the announcement does not say that this defense is why he was not prosecuted for those years. (OK, the implication is that this defense was a material part of the reason for nonprosecution, but announcement does not say that.) But, this guy was put on notice of his tax obligations and could not have reasonably expected that type of defense to fly twice, particularly given the repeated pattern for the years involved in this prosecution.

Errata: The above discussion has been amended as of 5:20pm 9/23/05 to correct a misstatement about the fine. Before revision, the statement was that the defendant had agreed to the large fine. He had not. The accouncement merely said that the fine could be up to the amount. Thanks to the readers for tolerating my hopefully infrequent errors.

IRS Administrative Processing of Restitution Payments (8/26/09)

A recent Program Manager Technical Assistance (PMTA 2009-122, here) addresses various issues on IRS processing of restitution payments to the underlying taxes, penalties and interest. Although not addressed in this PMTA, a sentencing court cannot order restitution for tax liabilities, penalties and interest unless the defendant contractually agrees to an award of restitution. In our district, the AUSAs insist on this contractual restitution in the plea for the year of conviction plus other years involving relevant conduct. These AUSAs claim that DOJ Tax mandates this contractual restitution, but I have noticed that restitution has not been provided for in many pleas I have seen from other districts, even in cases handled by DOJ Tax personnnel. In any event, if the court does award restitution for the underlying tax, penalties and interest, the PMTA tells the Service what to do with it.

You can read the PMTA, but here are the conclusions reached in the PMTA:

1. Restitution payments should be applied to the civil tax liabilities, including penalties and interest, for the year(s) involved in the criminal case. If an assessment for civil tax liabilities has not been made, the restitution payments should be held in the general fund until an assessment is made and then credited against the taxpayer's civil tax liabilities. When the restitution order does not specify how to apply payments, the Service has discretion to apply the payments to the applicable years in the order that best serves its interest.
2. The Service cannot take administrative collection action to collect the restitution ordered. The Department of Justice through its Financial Litigation Units is responsible for collection and enforcement of the restitution order. The Department of Justice may enforce a judgment imposing restitution in accordance with the practices and procedures for the enforcement of judgments under Federal and State law.
3. If the Service receives an undesignated voluntary payment or an involuntary payment for civil tax liabilities the Service may apply them in the order that best serves its interest. If some of the civil tax liabilities are for a year that was also involved in a criminal tax proceeding, the Service may decide that it is in its best interest to apply those payments first to the year(s) not involved in the criminal tax proceeding.
4. If the amount of the restitution has not been fully paid when the Service determines that the amount of the civil tax liabilities are less than the restitution, the government should notify the court and move that it make appropriate modifications to the order. If the restitution is fully paid, then the excess is an overpayment that can be applied against the taxpayer's other outstanding tax liabilities and any balance refunded, after a claim for refund is filed. If no claim for refund is filed within the applicable period of limitations, then the excess can be moved to the general fund.

A Tax Crimes Fable - Plea Dilemmas for the Innocent Defendant (3/9/09)

Once upon a time a major accounting firm looking for revenue and thus profits began a tax shelter operation. The tax shelter operation involved accounting firm personnel at the center (the designers and the decision makers that the strategy should be promoted) and personnel at the periphery in the regional offices of the firm who would market the shelter designed and approved by those at the center. Persons outside the firm were engaged to design and implement a trading strategy that would, at least facially, support the shelter. One such person was a true market expert who designed a trading program that, while independent of the tax rules play giving rise to the shelter, would be wrapped into it to supply the claimed profit motive. A lawyer with an independent law firm worked with this team to refine the program in a way that he felt would give him a basis for rendering a more likely than not tax opinion to the taxpayers buying into the shelter. The tax shelter was successfully marketed. Billions of dollars of tax liability escaped the fisc. The Government was not happy and spied a conspiracy with a cast of hundreds. In a first wave, the Government convinced the grand jury to indict the promoters. The promoters indicted included 12 of those at the center (including accounting firm personnel, the outside lawyer, and the market expert) and three of those in the field whose only role was to sell the shelter. The indictment alleged an overall conspiracy (both offense and defraud / Klein conspiracy) and 39 substantive counts of tax evasion (with perhaps overlapping Pinkerton and accomplice aiding and abetting liability for those not directly involved in some or all of the substantive counts) with respect to the shelters sold.

The Government then tried to pick off some of the vulnerable defendants to offer a plea. The plea negotiation went like this: If we are successful in prosecution, you (the defendant being solicited for the plea) are at risk of a sentence that the Guidelines (then mandatory) pegged at a low range of 25 years. The Government’s first offer to shake this defendant down was for 2 counts of tax evasion (maximum 10 year sentence). Getting a no, the Government then sweetened the pot with a 1 tax evasion count offer (maximum 5 year sentence). The defendant who has always maintained his innocence is a rational actor and is tempted by the new offer. Being a rational actor and knowing the risks that he might be tarred by being included in a conspiracy where there are some persons with less compelling objective facts than his, he perceived that a certain cap at 5 years, even with the loss of some civil liberties, would be better than the risks of going to trial – to wit up to 25 years. He wanted the 1 proffered count but he was unwilling to profess guilt in order to get the plea. The fable ends there with his dilemma.

Comments:

1. The concept of permitting a truly innocent defendant to plea to and be convicted of a crime that he did not commit is disturbing but it does illustrate a truth. In our system, the innocent are convicted because those involved in prosecuting, determining guilt and imposing punishment draw the wrong conclusion (even when that may be a – or even the – logical conclusion from the incomplete evidence).