Mens Rea in Tax Crimes and Acceptance of Responsibility (5/11/21)

In United States v. Roskovski, 2021 U.S. Dist. LEXIS 84379 (W.D. Pa. May 3, 2021), here, the Court denied (again) Roskovski’s attempt to withdraw his guilty plea for violations of 18 U.S.C. § 1014 (False Statements in a Loan Application) and 26 U.S.C. § 7206(1) (Filing a False Tax Return).  The Counts involved in the plea were Courts 36 and 42; apparently, a lot of counts were dropped in return for the guilty plea to the two counts.  Roskovski claimed that he did not understand the plea as it relates the required mens rea that the Government must prove at trial for the two counts.  Roskovski claimed innocence because “he lacked the necessary intent.”  Among his claims were:

As to the charge of filing a false income tax return, Mr. Roskovski was under the mistaken impression that the mere underreporting of income was sufficient to establish his guilt at trial. [ ] Mr. Roskovski misunderstood from his discussions with prior counsel that preponderance of evidence was not the standard on the intent element to be applied if he were to go to trial. [ ]

As to the charge of making a false statement in connection with a loan application, Mr. Roskovski mistakenly believed that falsity, without the required element of intent proved beyond a reasonable doubt, was also sufficient to establish his guilt at trial. [ ] Mr. Roskovski misunderstood from his discussions with prior counsel the correct burden to be applied at trial, and, as a result, he believed that the mere inclination that he should have known of the falsity was sufficient to prove his guilt at trial. [ ] Mr. Roskovski had a genuine misunderstanding as to the standard for intent for both charges for which he pleaded guilty.

With regard to each, Roskovski alleged "the complex interplay between the burdens of proof required at the conviction versus the sentencing phases in federal fraud cases is a difficult field even for experienced federal legal practitioners, much less laymen."

The Court did not accept the claims and denied the Motion to Withdraw.  The Court thought that Roskovski could just not accept the potential sentencing in the case, particularly after  the Presentence Investigation Report was filed where the potential sentence was forced on his consciousness.

I don’t think there is anything particularly noteworthy about the case except that it raises the mens rea required, particularly for tax crimes with the Cheek definition of willfulness – intentional violation of a known legal duty.  The prosecution must prove that level of mens rea beyond a reasonable doubt.  Roskovski claimed, in effect, that he had not been adequately counseled about the proof required for the mens rea element of the crimes to which he pled and therefore that his plea should not stand because he could not admit the crime with the mens rea element properly understood.

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

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

Relevant excerpts from the press release are:

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

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

* * * *

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

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

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

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

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

JAT Comments:

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

NYT Article on Positive Benefits of Remorse and Contrition at Federal White Collar Sentencing (11/17/16)

I have written about Judge Jed S. Rakoff, a district judge in SDNY (Wikipedia here).  Judge Rakoff is again in the news in this article:  Peter J. Henning, Determining a Punishment that Fits the Crime (NYT Dealbook 11/7/16), here.  The general context is how federal judges calibrate a sentence under the advisory Sentencing Guidelines and their Booker discretion to vary from the Guidelines calculations.  One of the major points is the positive sentencing benefit that be gained by sincere shows of remorse and contrition.  The cases discussed are prominent white collar crime cases, but not involving taxes.  Still tax crimes are a subset of white collar crimes, so the article should be of interest to readers of this blog.

Here are some key excerpts which focus on the none-too-subtle bias in the guidelines and in judges' sentencing attitudes for pleading guilty rather than going to trial:

What judges really want to hear is an expression of contrition, word that the defendant is sorry for any harm caused while promising never to engage in such misconduct again. For those who plead guilty, like Mr. Caspersen and Mr. Thompson, the acknowledgment of guilt puts them in a much better position with the court because they can avoid the perception of trying to get away with something or planning the next crime. 

Bridget Anne Kelly and Bill Baroni, former aides to Governor Chris Christie of New Jersey who were convicted last Friday for their role in shutting access lanes to the George Washington Bridge as political payback for a New Jersey mayor who did not endorse the governor’s re-election effort in 2013, are in a difficult position when their sentencing occurs next year. By testifying that they did nothing wrong and continuing to proclaim their innocence, they are now locked into a position that prevents them from acknowledging that their conduct was illegal and asking for leniency. 

Under the sentencing guidelines, the two defendants could easily face a recommended prison term of more than four years for the corruption charges. Prosecutors may ask the court to find they committed perjury by testifying that they were unaware of any scheme to engage in misconduct on behalf of the governor, which could push the potential punishment even higher. 

They have suffered the same loss of their career and social status as Mr. Caspersen and Mr. Thompson, but by going to trial, any claim they might make that they have “suffered enough already” is likely to fall on deaf ears. 

Sentencing is certainly an art, not a science, despite the attempt at precision in the loss calculations in the sentencing guidelines. Judges are left with making a decision based on what they see in the defendant in front of them, in the hope that the punishment will be perceived as fair. Like it or not, that is the system we have, even if it leaves the public unsatisfied with a penalty that can be considered too lenient — or too harsh. 

Obviously, the Guidelines offer a 2 or, usually, 3 level reduction for acceptance of responsibility.  But, once the Guidelines calculations are made, the judge can determine the sentence based on sentencing factors not adequately addressed in the advisory Guidelines.  This is called Booker discretion, named for the case, United States v. Booker, 543 U. S. 220 (2005), which untethered sentencing judges from the principal constraints of the Guidelines calculations.  So, not only will a guilty plea get the Guidelines calculation starting point reduced, the contrition and remorse evidenced with the guilty plea can lead to a further Booker variance downward.

Significant prior blog entries on Judge Rakoff, in reverse chronological order, are:

Second Circuit Rejects Aberrational Sixth Circuit Opinion in Kassouf on Requirements for § 7212(a) Tax Obstruction (10/15/16)

In United States v. Marinello, 839 F.3d 209 ((2d Cir. 2016), here, the Second Circuit held, as it states in its summary at the beginning of the opinion:

Defendant-appellant Carlo J. Marinello, II appeals from an amended judgment of conviction entered against him on July 14, 2015 by the United States District Court for the Western District of New York (William M. Skretny, J.). One of the counts of conviction alleged a violation of 26 U.S.C. § 7212(a)'s "omnibus clause," which criminally penalizes one who "corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration of" the Internal Revenue Code in ways not addressed by other specific provisions of the statute. The district court denied Marinello's motion for an acquittal or a new trial on this count, concluding that the government was not required to establish a pending Internal Revenue Service action and a defendant's knowledge thereof as part of its burden of proof. We agree and conclude that these criteria are not offense elements under the omnibus clause. We further conclude that a violation of this provision may be predicated on an omission, and that the district court did not procedurally err in determining Marinello's sentence. The judgment of the district court is therefore.

The opinion is a worthy read.  I will just provide a few comments that may help the reader decide whether to read the entire opinion (44 pages in the slip opinion format):

1. In terms of federal tax crimes, the principal issue resolved in the case is that United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998) is not binding or, more importantly, even persuasive authority for its holding that the actor's obstruction of an active IRS investigation is required.  The issue exists only because of the common statutory language in 26 USC 7212(a), the tax obstructions statute, here, and 18 USC 1503, here, the obstruction statute titled "Influencing or injuring officer or juror generally."  The issue arises because the language of the two statutory provisions is very similar; indeed, it is fair to say that the language of the tax obstruction statute was drawn from or, at least inspired, by the obstruction statute in 18 USC § 1503.

I think that presenting the statutory text will be helpful in developing the principal issue (I present the portions of the text or the relevant statutes I think relevant to the issue):

§ 7212(a) provides (in relevant part):

Whoever corruptly * * * * endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly * * * obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be [punished].  

18 USC § 1503 provides (in relevant part):

Whoever corruptly, or by threats or force, * * * * endeavors to influence, intimidate, or impede any grand or petit juror, or officer in or of any court of the United States * * * in the discharge of his duty * * * or corruptly or by threats or force, * * * * obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be punished * * *.

In United States v. Aguilar, 515 U.S. 593 (1995), the Supreme Court interpreted § 1503 to require that the actor, the defendant in the case, know of a pending grand jury or other investigation that his actions obstructed.  In United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998), interpreting from the common language in the two provisions (§ 7212(a) was drawn from 18 USC § 1503), the Sixth Circuit interpreted § 7212(a) to require that the defendant know of a pending IRS investigation that his actions were intended to obstruct.  If there were no pending IRS investigation, the taxpayer could not have requisite intent to obstruct.

Hawaii Businessman Sentenced to 46 Months (1/7/16)

I have written before on the conviction of Hawaii businessman, Albert S.N. Hee.  See After Guilty Verdict, District Court Denies Motions for Dismissal and New Trial in Tax Crimes Case (Federal Tax Crimes Blog 11/13 /15; 11/15/15), here, and Court Holds that Civil Agent Did Not Continue Investigation Too Long and Even If Deceptive Did Not Prejudice Defendant (Federal Tax Crimes Blog 5/2/15), here.  As I noted in one of the blogs, the jury convicted Hee of one count of tax obstruction, § 7212(a), here, and 6 counts of tax perjury, § 7206(1), here.

DOJ Tax has announced here his sentencing to 46 months in prison.  The actual sentence served will be subject to mitigation under the good time credit (about 15%).

It is not clear what the guidelines calculation was.  It is interesting that, based on a rough and ready guidelines calculation assuming restitution equal to the tax loss (the primary driver of the guidelines calculations), the Base Offense Level would be 18 and, even with some adjustments, it is not likely the offense level for applying the sentencing table was in excess of 23.  An offense level of 23 has a sentencing range of 46-57 months.  So, it is possible that the judge could have given a bottom of the range guidelines sentence.  (Readers will note that there is considerable uncertainty in this calculation, particularly the assumption that the restitution amount equaled the tax loss used in the calculations, and thus the conclusion.)

It is interesting to note that, had he pled rather than go to trial, he could have certainly pled to only one or two felony counts and, assuming 23 was his final offense level as speculated in the prior paragraph, with the acceptance of responsibility 3-level downward adjustment, his offense level would have been 30 with an indicated guidelines range of 33-41 and with a good shot at a Booker downward variance.  (The variance too is speculation but a good acceptance of responsibility often sets the judge up to make a downward variance in tax convictions; again speculating, a plea might have result in a sentence less than half that given after trial.)

The links guidelines tables are:  §2T4.1.Tax Table, here, and 5A Sentencing Table here.

More on Light Sentencing for Offshore Account Tax Crimes (3/5/15)

I wrote yesterday on an offshore conviction (Another UBS Client Sentenced Lightly (Federal Tax Crimes 3/4/15), here).  I commented that offshore tax crimes get punished lighter than ordinary tax crimes.  Today, I was going through some cases I had shelved and found one recent case that offers a contrast.

In United States v. Jones, ___  F.3d ___, 2015 U.S. App. LEXIS 3263 (8th Cir. 2015), here. the defendant was an ordinary tax cheat convicted under Section 7201, here, of evasion of payment.  Owing tax, he took numerous acts to avoid the IRS learning of and seizing his assets to pay the tax liability.  He was indicted for tax evasion.  He pled guilty.  His base offense level was 20 which means that the tax loss was more than $400,000.  See SG §2T4.1. Tax Table, here.   He received the sophisticated means 2 level increase.  See SG §2T1.1.(b)(2), here.  He then received the 3 level reduction for acceptance of responsibility.  See SG §3E1.1, here.   His offense level for the range calculations in the SG 5, Part A, here, was 19, producing a sentencing range of 30-37 months.  The sentencing judge used his Booker variance discretion to vary downward to 24 months imprisonment.  That sentence is 80% of the bottom of the Guidelines range.

Yesterday, I blogged on the sentencing of Gregg A. Kaminsky, an offshore tax evader.  Another UBS Client Sentenced Lightly (Federal Tax Crimes 3/4/15), here.  Although, I have not reviewed the underlying sentencing documents, I can construct his Guidelines calculations from the press release. Prior to doing so, I note that he pled guilty to an FBAR crime but the FBAR crime related to tax evasion.  Hence, his Sentencing Guideline calculations were apparently determined under the tax Guidelines.  I am not sure that this is correct for FBAR violations, but that seems to be the mainstream way of calculating the Guidelines for FBAR violations.  According to the press release, the tax loss was approximately $125,000, thus making his base offense level 16 under §2T4.1, here.  He would be subject to the sophisticated means enhancement under SG §2T1.1.(b)(2), here,  thus making  his offense level 18.  He would then qualify for the acceptance of responsibility 3 level reduction.  See SG §3E1.1, here.  His offense level for the sentencing table was thus 15, making his Guidelines range 18-24 months.  See SG 5, Part A, here.  The sentencing judge sentenced Kaminsky to 4 months in prison.  That sentence is about 22% of the bottom of the Guidelines range.

I am not sure that the conduct each undertook to effect their objective of tax evasion is materially different to explain the differences in their sentences.  Both behaved very badly.  Yet, the offshore tax evader got a relatively lighter sentence compare to their respect Guidelines ranges.

Many offshore violators receive no incarceration.  One explanation for some of the light sentences could be demographics.  Persons who amass the type of wealth that is likely to draw prosecutorial discretion to prosecute are older and thus not ideal candidates for incarceration.  See also §5H1.1. Age (Policy Statement), here, providing that " may be relevant in determining whether a departure is warranted, if considerations based on age, individually or in combination with other offender characteristics, are present to an unusual degree and distinguish the case from the typical cases covered by the guidelines."  Since age is recognized for potential departure in the Guidelines, I am sure it is considered also in exercise Booker discretion.  But, of course, that does not explain Kaminsky's light sentence and its seeming discrepancy compared to Jones' relatively heavier sentence.

Finally, these two instances are anecdotal.  Standing alone, they are not the basis for conclusions as to the universe of tax crimes sentenced.  Nevertheless, there is sufficient data from which a fair inference can be drawn that offshore tax cheating  is the preferred tax cheating based on sentences imposed.  (See my spreadsheet here which is long overdue for an update.)  Lighter sentencing for offshore tax crimes is the fact.  I ask whether that is right.

An Example of the Difference Between Pleading and Not Pleading (10/14/14)

Over 95% of federal criminal cases are resolved by plea agreement.  One of the reasons is that, in the Sentencing Guidelines calculations, defendants who plead will usually qualify by the plea for the acceptance of responsibility two or three level decrease in the Guidelines calculation.  Moreover, by pleading, the defendant may make himself or herself more attractive for a Booker downward variance from the reduced Guidelines range already reduced for acceptance of responsibility.  Conversely, by going to trial, a defendant generally forgoes any realistic hope of an acceptance of responsibility adjustment or any favorable Booker downward adjustment and may behave at trial in a way that will not endear the sentencing judge to the defendant.

These dynamics played out in United States v. Morgan, 2014 U.S. App. LEXIS 19025 (11th Cir. 2014), here.  There the appellant, Morgan, and three others -- one her husband -- were indicted for one count of conspiracy (18 USC § 371), seven counts of funds taken by fraud (18 USC § 2314), six counts of money laundering (18 USC § 1957), and three counts of tax perjury (26 USC § 7206(1)).  Two of the other defendants each pled guilty to two nontax counts (one conspiracy count and one other); one was sentenced to 51 months and the other -- her husband -- was sentenced to 121 months.  There is no explanation for the differences in these two sentencings.  The third of the other indicted defendants resides in Denmark, has not been extradited and presumably is a fugitive from justice.

Morgan did not plead.  There is no indication that she was offered a plea, but defendants are usually offered a plea of some sort.  Sometimes the central person in a large crime with several counts will not be offered a plea, except on onerous terms.  At any rate, she went to trial.  Moreover, when she went to trial, she waived her Fifth Amendment privilege and testified.  That's bad enough, for the resulting cross-examination can make the defendant look very bad.  But, not only did she open herself to cross, she lied in her testimony.  Not good.  She was convicted on all counts.  The maximum possible punishment for the counts of conviction (stacked) was 264 years imprisonment.  The advisory calculated Guidelines range exceeded that maximum, so the Guidelines range became that maximum.  The judge sentenced her to 420 months (35 years), thus making a major Booker downward variance.  The sentencing was reversed on appeal.

On remand for sentencing, the sentencing judge "subtracted two levels from Morgan's offense level for the erroneous abuse-of-trust enhancement and determined Morgan's correct Guidelines range was 324 to 405 months of imprisonment."  The judge then sentenced her to 405 months imprisonment, stating that "nothing had changed in the case other than the enhancement for abuse of a position of trust."  (The judge could therefore have left the sentencing at 420 months, but did give her a 15 month lesser sentence.)  The judge stated that Morgan had not accepted responsibility and that "a 405-month sentence was appropriate, regardless of Morgan's life expectancy."

Court of Appeals Reverses Acceptance of Responsibility Downward Adjustment After Trial (10/23/13)

In United States v. Melot, 732 F.3d 1234 (10th Cir. 2013), here:

After a jury trial, appellant Bill Melot was convicted of one count of corruptly endeavoring to impede the administration of the Internal Revenue Code, one count of attempting to evade or defeat tax, six counts of willful failure to file, and seven counts of making false statements to the Department of Agriculture. Melot was sentenced to a term of sixty months' imprisonment, a significant downward variance from the advisory guidelines range of 210-262 months. He was also ordered to pay $18,493,098.51 in restitution to the Internal Revenue  Service.

His underlying misconduct, he claimed, arose from his belief in various tax protestor positions that he was not subject to tax.  The jury did not believe him and convicted.  On appeal:

His appellate argument is confined to an assertion the Government failed to prove he did so willfully. He argues he had a good-faith belief he was not violating the law. See Cheek v. United States, 498 U.S. 192, 201-02 (1991).

The Court of Appeals rejected the argument summarizing:

In sum, the Government's evidence showed Melot routinely concealed income and assets from the IRS; used cash extensively, informing others that this was a means to avoid the payment of income taxes; and acted in a manner inconsistent with his asserted belief he is not subject to federal income taxes because he is not a citizen of the United States. All of the Government's evidence, together with the reasonable inferences that can be drawn from it, is amply sufficient to support the jury's finding that Melot was aware of his obligation to file returns and pay federal taxes and negates any inference Melot acted in good faith. n9
   n9 Melot points to his own testimony that (1) he genuinely believed the information presented in the "tax protestor snake oil" documents he read, (2) did not read the disclaimers associated with that literature, and (3) did not understand the Internal Revenue Code because it was "too complex" for him, as support for his assertion he held a good-faith belief that he was not violating the law. Based on its verdict, however, the jury clearly disbelieved Melot's testimony. To the extent Melot also relies on the testimony of Dr. Samuel Roll, that reliance is misplaced. Dr. Roll, a psychologist, testified  at the sentencing hearing, not the trial.

The defendant also argued that his sentencing Guidelines calculation was incorrect because the tax loss should not have included federal and state fuel excise taxes.  Those taxes were included as relevant conduct.  The Court of Appeals affirmed their inclusion.  From my perspective, the opinion offers nothing really new on relevant conduct, so I do not discuss that aspect of the Tenth Circuit opinion.

The Government cross-appealed the sentencing calculation.  That cross-appeal is the focus of this blog on acceptance of responsibility.  I quote this portion of the opinion in full:

Relevant Conduct and Acceptance of Responsibility (9/18/13)

In some criminal tax cases, the Sentencing Guidelines calculations are simple.  The Base Offense Level is determined under the tax loss table.  S.G. § 2T1.1, here, and § 2T4.1, here.  If there are specific offense characteristics, under S.G. §2T1.1, they are applied (upward adjustments).  The only other adjustment is often the acceptance of responsibility adjustment in §  3E1.1, here, which is usually the incentive to plead rather than go to trial.  (Note that, because of the relevant conduct inclusion in the tax loss, it is often no incentive to get counts dropped via the plea agreement.)  Usually, in tax cases, the defendant will not be able to qualify for the § 5K1.1, here, downward adjustment for substantial assistance.  So, setting aside § 5K1.1, qualifying for the acceptance of responsibility adjustment is very important, otherwise the defendant might as well go to trial in which, even with low odds, he or she may still win.

In United States v. Workman, 2013 U.S. App. LEXIS 19053 (6th Cir. 2013), here, the defendant pled, securing in the plea agreement the prosecutors commitment to recommending acceptance of responsibility.and requesting a substantial assistance downward departure.  The Court granted the prosecutor's request for a 4 level downward departure, but denied the defendant the acceptance of responsibility downward departure.  The resulting Guideline offense level was 12 which, under the Sentencing Table, here, indicates a guidelines range of 10-16 months .  The Court then varied downward further (presumably under § 3553(a) / Booker) from the Guidelines range and sentenced the defendant to six months in prison.  The defendant objected to denial of acceptance of responsibility which, if he had achieved it, would seemingly have given him a pre-§ 5K1.1 downward departure offense level of 13 (3 level acceptance decrease), which in turn would have given him a post-assistance 4-level downward departure offense level of 9, with an indicated sentencing range of 4-10 months, but in Zone B rather than Zone C.  All of that is to say that the sentencing court gave this defendant a lot of breaks that probably substantially mitigated any effect of the denial of acceptance of responsibility, but still the acceptance of responsibility, if given, might have affected the sentence.

At any rate, focusing on the denial of acceptance of responsibility, what did the defendant do that screwed up that benefit of a plea?  Normally, the required statement of facts and plea allocution will assure that the defendant is accepting responsibility for the charged conduct to which he is pleading.  However, the problem that caused the judge to deny acceptance of responsibility, despite the recommendation of the prosecutor and the Probation Office, was the defendant's waffling on relevant conduct.  Relevant conduct is related criminal conduct outside the count(s) of conviction.  (Inclusion of relevant conduct in the tax loss why dropping counts often achieves no benefit in tax cases.)  The ground rules on the role of relevant conduct role in acceptance of responsibility were stated by the Court of Appeals as follows:

In determining whether a defendant has accepted responsibility, the district court may consider whether the defendant truthfully admits or does not falsely deny "any additional relevant conduct for which the defendant is accountable under § 1B1.3 (Relevant Conduct)." USSG § 3E1.1, comment. (n.1(A)). Although "a defendant is not required to volunteer, or affirmatively admit, relevant conduct beyond the offense of conviction in order to obtain a reduction . . . , a defendant who falsely denies, or frivolously contests, relevant conduct that the court determines to be true has acted in a manner inconsistent with acceptance of responsibility." Id. Because "[t]he sentencing judge is in a unique position to evaluate a defendant's acceptance of responsibility . . . , the determination of the sentencing judge is entitled to great deference on review." USSG § 3E1.1, comment. (n.5); see United States v. Webb, 335 F.3d 534, 538 (6th Cir. 2003).

Defendant Screws Up His Acceptance of Responsibility (1/15/12)

In United States v. Bigica, 2013 U.S. Dist. LEXIS 3772 (D NJ 1/10/13), an unpublished decision, the Court denied the defendant, who had pled to a tax obstruction count and an elections count, the 3 level Sentencing Guidelines downward adjustment.  The reason:  Although the defendant claimed remorse, his actions after the time of the guilty plea continued the obstructive conduct.  Hence, this defendant got no benefit from pleading guilty, and saving the Government and the court the time and expense of trial.  Not only that, his obstructive conduct convinced the judge to sentence him at the top of the unreduced Guideline range.

The opinion is quite a read, but I can summarize it here as to the tax charge -- Section 7212(a), here, criminalizing corrupt attempts to interfere with the administration of the internal revenue laws.  The defendant, although making large income over many years, failed to file tax returns and, when the IRS started inquiring into his failure to file, took a series of steps to put his assets beyond the IRS's ability to collect what he knew would be a large tax liability, all the while living a lavish lifestyle.  The problem was that, even after the plea to one tax obstruction count and one election law count, he continued to live a lavish lifestyle, secreting money, not truthfully accounting for his assets, and failing to pay the IRS.

The court first resolved a grouping issue against the defendant, requiring a 2 level increase because, the court determined, the two counts of conviction did not arise from the same harm.

The Court then turned to acceptance of responsibility which the defendant hoped to achieve by virtue of his guilty plea.  The probation officer gave a marginal recommendation for the 3-level downward adjustment.  But, the Court rejected the adjustment because the defendant had continued his obstructive conduct even after the plea and while dealing with the Probation Office.  The Court details the defendants obstructive behavior.  Key quotes (one footnote omitted):

This Court has not had another defendant in over a dozen years on the bench who has shown this level of continued financial evasion in his representations to the United States Probation Department. Defendant was untruthful, cavalier and evasive to the United States Probation Office regarding his financial status and his ability to pay restitution. In addition, while Defendant stated in his plea agreement his intention to make "full restitution," he failed to pay anything toward restitution during the long interval between the plea and sentencing, despite earning nearly $1,000,000.00 in 2011 and more than $40,000.00 per month for each of the first six months of 2012. And, while earning such huge sums, Defendant continued to pay for lavish luxury expenses of others, including, but not limited to, a monthly mortgage payment of $19,563.00 ($234,756.00 annually) for a mortgage on a home he insists is not his own asset.  * * * *

Acceptance of Responsibility, Relevant Conduct and the Fifth Amendment (7/23/11)

Tax crimes fans know the critical role that acceptance of responsibility plays in the tax enforcement system. A very high number of criminal tax indictments are resolved by plea agreement. The plea agreement has two salutary effects based on acceptance of responsibility. First, S.G. 3E1.1 gives a reduction for acceptance of responsibility. Second, acceptance of responsibility, when credible, puts the sentencing judge in the right frame for the exercise of Booker discretion.

Acceptance of responsibility requires that the defendant admit at least the criminal conduct related to the offense of conviction. This can be a delicate exercise if, in the course of providing a full admission of the offense of conviction, the defendant must disclose information that could potentially convict him or her of another as yet uncharged crime. Perhaps the most commonly encountered situation is with regards to relevant conduct which, as readers will recall, is uncharged criminal conduct related to the offense(s) of conviction. Relevant conduct, a key concept in the Guidelines, can be used to increase the Guidelines range but does not allow incarceration beyond that allowed by the offense(s) of conviction. For example, in tax cases, tax losses in years other than the year(s) of conviction can increase the base offense level and thus increase the Guidelines range. While the defendant must be forthcoming to the Probation Office and the Court about the conduct underlying the offense of conviction, what about the relevant conduct? Must the defendant be forthcoming and admit relevant conduct which, after all, is conduct for which he is not convicted?

Sentencing Case on Emphasis on Restitution Rather than Incarceration in Financial Crimes Cases (11/10/10)

In United States v. Ciccolini, 2010 U.S. Dist. LEXIS 120292 (N.D. OH 11/11/10), here, a sentencing opinion, the defendant pled guilty to two felony counts -- 1 each of structuring transactions and tax perjury (Section 7206(1)). The defendant, a 68 year old ordained priest, embezzled substantial monies from a residential drug and rehabilitation center. The following are some key points of the decision:

1. The counts were grouped under S.G. 3D1.4. The structuring count produced that highest offense level (22), so 4 levels were added for the tax count, producing an offense level of 26, The offense level of 26 produced a Guidelines sentencing range of 63 - 87 months incarceration.

2. In reaching the offense level of 26, the court rejected an acceptance of responsibility downward adjustment. Although Ciccolini pled guilty, he equivocated about his guilt and some elements (amounts involved, etc.).

3. The Court then moved to a consideration which it labeled "3553(a) Factors and Payment of Restitution." Under Booker and progeny, the Guidelines calculation of a sentencing range is only advisory. The court noted that the defendant had repaid the charity the $1,288,263 he admitted embezzling (although the court noted earlier in the opinion that he had embezzled substantially more) and that he had made substantial payments toward the tax liability. Nevertheless, the Court moved to a philosophical discussion of the interplay between sentencing and restitution in financial crime cases, reasoning:

Sometimes the Guilty are Really Guilty, But Not These If You Believe Their Lawyer (Whom the Jury Did Not)

Yesterday, two defendants caught up in the foreign bank account initiative were convicted in the Southern District of Florida, which seems to be the center of the center of activity in this initiative. The Bloomberg report is here, and is reasonably comprehensive for a quick report of the conviction yesterday.

As narrated in the Bloomberg article, the defendants' lawyer proclaimed their innocence. (The article says that the lawyer was "their defense lawyer;" it is unclear to me how any judge would permit one lawyer to represent more than one defendant in a criminal trial.) Thus, it would seem, the defense presentation foreclosed any possibility of seeking a downward adjustment for acceptance of responsibility. As I note in my book:

In tax cases, this adjustment is generally achieved by a plea agreement and acceptance of responsibility sufficiently before the trial date that significant resources are avoided. The Application Note [to SG 3.1.1 provides (and cautions):

3. Entry of a plea of guilty prior to the commencement of trial combined with truthfully admitting the conduct comprising the offense of conviction, and truthfully admitting or not falsely denying any additional relevant conduct for which he is accountable under §1B1.3 (Relevant Conduct) (see Application Note 1(a)), will constitute significant evidence of acceptance of responsibility for the purposes of subsection (a). However, this evidence may be outweighed by conduct of the defendant that is inconsistent with such acceptance of responsibility. A defendant who enters a guilty plea is not entitled to an adjustment under this section as a matter of right.

By the same token, the Guidelines recognize the possibility that a defendant may qualify for this favorable acceptance of responsibility downward adjustment even though not pleading guilty. In “rare situations” a defendant may demonstrate acceptance of responsibility “even though he exercises his constitutional right to a trial,” as “where a defendant goes to trial to assert and preserve issues that do not relate to factual guilt.” [SG 3E1.1, cmt. Note 2.]

Convicted Tax Evader Complains About His Enabler

Ok, I will get to the really big news about the SDNY indictment of Paul Daugerdas and his some of his alleged co-conspirators, but first I thought I would offer a light moment -- at least a light moment for tax crimes geeks.

Bloomberg reports here that convicted tax felon Igor Olenicoff -- the mega-millionaire -- who pled guilty to massive tax fraud via his friendly UBS banker (who also pled guilty) is complaining that the devil -- aka UBS -- made him do it. The article has a good summary of the twisted background of UBS's activity generally and in relation to Mr. Olenicoff. Perhaps UBS really is the devil; that could explain, perhaps, why the judge was so lenient at sentencing -- 2 years probation, 150 hours of community service, and paying what he already owed of $52 million in taxes, penalties and interest.

It is a substantial article and good reading. I pick some of the snipetts I think are choice:

Snippet #1

The judge asked Olenicoff why he had failed to fill in a box on his tax returns asking if ye controlled foreign bank accounts. “It’s not crystal clear to me why someone of Mr. Olenicoff’s intelligence would answer a question that seems to be so easily proved to be false,” the judge said. He praised Olenicoff’s business success and charitable work for eastern European orphans.

“You are an incredible man,” the judge said. “When I find out that people of your stature and standing lie on your tax returns, it frustrates me, saddens me.”

Olenicoff told Carney that bankers gave him bad advice.

“Should I have known that that income should have been reported here probably two years into it?” Olenicoff said. “Yes, your honor. I probably should have checked the box, but I didn’t.”

Does he equivocate as to his responsibility? Sure the bankers gave him bad advice. He is not guilty of anything for receiving bad advice. He is guilty for his own actions which, after all, required willfulness, an intentional violation of a known legal duty.

Snippet #2:

“I would have clearly gotten my ears boxed in by the Justice Department,” Olenicoff says at his Newport Beach office, which is filled with paintings, sculptures and artifacts from Russia and his travels to Latin America and Greece. “Once you do something wrong, you fess up to it and you pay for it.”

Well, the lesson is that you fess up when you know you are going to get your ears boxed in. Isn't that why most defendants plead?

Snippet #3:

Still, he believes UBS hasn’t been sufficiently penalized for aiding tax evasion over seven years.

“They pay $780 million,” Olenicoff says. “That’s lunch money for them, right? But there’s nobody being penalized for this. I have been -- and I paid. There will be 52,000 Americans that will be somehow affected by their fraud. The bank needs to be exposed and needs to pay for its wrongdoing.”

How about his payment of the $152 million in tax, penalties and interest that he already owed. Isn't that lunch money for him? Did he refuse to pay the cost of the society that had earned him so much for mere lunch money?

Snippet #4:

Olenicoff says no one at UBS told him about the qualified intermediary accord.

“Had somebody said, ‘Igor, we have this QI agreement, right, and so we have to report it or you have to report it,’ the answer would have been real simple: ‘Sure,’” he says.

No comment.