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

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

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

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

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

Eighth Circuit Affirms Adult Entertainer's Conviction for Tax Perjury and Sentencing for Unreported Income for Sexual Services (3/20/16)

In United States v. Fairchild, ___ F.3d ___, 2016 U.S. App. LEXIS 4858 (8th Cir. 2016), here, the Court opens the drama:

A jury found Veronica J. Fairchild guilty on four counts of making and subscribing a false tax return, in violation of 26 U.S.C. § 7206(1). The district court n1 sentenced Fairchild to 33 months' imprisonment. On appeal, Fairchild argues that (1) insufficient evidence supports the jury's finding that Fairchild knowingly and willfully underreported her income; (2) the district court abused its discretion in failing to instruct the jury that it was required to unanimously agree on which source of income that Fairchild failed to report on her income tax return; and (3) the district court improperly calculated Fairchild's Guidelines range and imposed a substantively unreasonable sentence. We affirm.

Highly summarized, the facts are:  Fairchild was a female adult entertainer who received large sums of money (over $1,000,000) from one of her customers and smaller significant sums from another.  She failed to file timely income tax returns during the years in which she received the income but subsequently filed delinquent tax returns for the years "apparently unaware of the ongoing IRS investigation."  (The delinquent returns were apparently needed in order to obtain financing for a real estate purchase.)  In those delinquent returns, she reported about 1/2 the amount that the two customers had given her and probably most of that was from sources other than the two customers.  Fairchild claimed that the transfers from her two customers to her were gifts rather than compensation for services.

She claimed that when she met with her accountant in 2010 to prepare her tax returns, she decided to claim some of the gifts from Karlen as income to benefit him, so that he did not have to pay the taxes on all of it. To determine her income over the four years, she "decided that any time [she] spent with David [Karlen], anything that could be construed as income or considered a gray area at a thousand dollars an hour." She testified that she spent an average of two times per month with Karlen over the 48-month period, and she estimated that she spent approximately four or five hours with Karlen during each "session." She stated that she also included going out to eat with Karlen as part of the billable time. Fairchild calculated that she had earned "about $120,000 a year" for each of the four years for services that she provided to Karlen. She testified that, at the time that she filed the tax returns, she believed that the money in excess of what she reported as income was "[g]ifts." But Fairchild admitted that "Karlen never used the word 'gift' with [her]."

I am leaving out some of the details from the opinion.  I think most readers can project the general nature of the details or can read the opinion to get them from the court.

1. Sufficiency of the Evidence.

Fairchild and her customers testified differently at trial as to what the payments were for.  There was sufficient evidence that the jury could determine that she underreported her income on the delinquent returns.  The Court then rejected Fairchild's claim that the nature of the payments was sufficiently unclear that she was not willful in underreporting the income.  Arguing lack of proof of willfulness beyond a reasonable doubt is often the only ultimate defense in criminal tax cases.  Here is what the Court says:

Is Jury Unanimity Required as to at Least One Obstructive Act for Tax Obstruction? (11/16/15)

It is a truism that jury unanimity is required for the conviction of a crime.  In the Chapter I prepared in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, at ¶ 12.03[1][c][vi][A] General conspiracy statute, I ask the following (footnotes omitted):

What does it mean to say that an overt act is required for conviction of a general conspiracy (including a Klein conspiracy)? Certainly, the indictment must plead the overt act element and the jury must find the existence of the element in order to convict. But many indictments merely plead generally the existence of at least one overt act in furtherance of the conspiracy, without specifying the overt act itself; the jury then finds in a general guilty verdict that at least one unspecified overt act occurred. Must the indictment be more specific as to the precise overt act or acts alleged to support conviction? Must the jury specifically find and reach unanimity as to one or more overt acts that support the general verdict of conviction? The sparse authority addressing the issue directly seems to support the proposition that the jury need not be unanimous as to any overt act.

In United States v. Molen, 2015 U.S. App. LEXIS 19614 (9th Cir. 2015), unpublished, here, the Ninth Circuit addressed much the same question in the tax obstruction statute, § 7212(a), here.

3. We need not address whether the 26 U.S.C. § 7212(a) charge required a specific unanimity instruction because Molen's substantial rights were not violated. See United States v. Pelisamen, 641 F.3d 399, 404 (9th Cir. 2011) (explaining that, where defendant does not object to jury instructions at trial, relief is unwarranted unless there has been plain error that affects the defendant's substantial rights and the fairness or integrity of the proceedings). The jury's guilty verdict on counts one and two, the § 1521 charges, established a unanimous finding that Molen filed a false lien against IRS officers, one of the obstructive means alleged in the indictment. See United States v. Chen Chian Liu, 631 F.3d 993, 1000-01 (9th Cir. 2011). Moreover, overwhelming evidence demonstrated that Molen filed the lien with an intent to secure an unlawful benefit, satisfying the requirement under § 7212(a) that the obstructive means were undertaken "corruptly." See United States v. Massey, 419 F.3d 1008, 1010-11 (9th Cir. 2005).

The tax obstruction statute has been described as a one-person Klein / defraud conspiracy. See CTM 17.02 (2001 ed.) where DOJ Tax asserted that tax obstruction may be charged where the Klein conspiracy is “unavailable due to insufficient evidence of conspiracy,” although that statement is omitted from the 2008 ed.); see also David F. Axelrod, Larry A. Campagna, James A. Bruton III, The “New” Tax Laws - 26 U.S.C. Section 7212(a) and the One-Person Conspiracy (Paper prepared for ABA National Institute on Criminal Tax Fraud in 1999).  So, the learning from the overt act requirement appears relevant.  Keep in mind that the Ninth Circuit's resolution of the issue in Molen was under the stringent plain error standard -- it might have been error if properly and timely raised; it was just not plain error.

Tenth Circuit Affirms a Tax Obstruction Charge (9/15/15)

In United States v. Sorensen, 801 F.3d 1217, 2015 U.S. App. LEXIS 16362 (10th Cir. 2015), here, the Tenth Circuit affirmed a conviction for tax obstruction, § 7212(a), here.  The opinion addresses a lot of issues.  I address only a few here.  The Court's introduction sets up the issues I want to discuss:

From 2002 to 2007, Jerold Sorensen, an oral surgeon in California, concealed his income from the Internal Revenue Service ("IRS") and underpaid his income taxes by more than $1.5 million. He did so by using a "pure trust" scheme, peddled by Financial Fortress Associates ("FFA"), an entity he found on the Internet. After attending an FFA seminar and consulting with its representatives, he began depositing his dental income into these trusts without reporting all of it to the IRS as income. Over the years, he also retitled valuable assets in the trusts' names. In 2013, after a series of proffers, the government charged him with violating 26 U.S.C. § 7212(a) for corruptly endeavoring to obstruct and impede the due administration of the internal-revenue laws. A jury convicted him of the charged offense. 

On appeal, Sorensen raises seven arguments: (1) his conduct amounts to evading taxes so it is exclusively punishable under 26 U.S.C. § 7201, and not under § 7212(a); (2) the district court erred by refusing his offered instruction requiring knowledge of illegality; (3) the district court erred by giving the government's deliberate-ignorance instruction; (4) the district court erred by instructing the jury that it could convict on any one means alleged in the indictment; (5) the district court erred by refusing to allow him to provide certain testimony from a witness in surrebuttal; (6) the prosecution misstated evidence in its closing rebuttal argument; and (7) cumulative error. Exercising jurisdiction under 28 U.S.C. § 1291, we conclude that none of Sorensen's arguments merit relief. We affirm his conviction.

Is § 7212(a) Properly Charged in a Case Where § 7201 Could Have Been Charged.

Sorenson argued that, since the facts made out a case of tax evasion, he should have been charged with tax evasion and not with tax obstruction.  The Court easily handled that by holding that the two are separate crimes and the Government has discretion as to which crimes to charge.  In so holding the Court said:

We now turn to why tax evasion and tax obstruction are not identical crimes. In Williamson, we rejected the argument that "corruptly" has the same meaning as "willfully" as used to prove tax evasion under 26 U.S.C. § 7201—the "voluntary, intentional violation of a known legal duty." 746 F.3d at 991 (emphasis in original) (quoting Cheek v. United States, 498 U.S. 192, 201 (1991)). Further, we noted that Congress chose to use two different elements—corruptly versus willfully—to define the separate mens-rea requirements in defining the separate tax crimes. Id. at 991-92. 

In addition to these differences, it is also important to consider that the two statutes provide different penalties. Willfully evading taxes is the more serious crime, punishable by up to five years of imprisonment, while corruptly obstructing or impeding the due administration of the tax laws is punishable by up to three years. The difference in penalties suggests that a violation of § 7212(a) requires different culpability and wrongdoing than a violation of § 7201.

The Court of Appeals also rejected the argument that the CTM mandates or suggests that the more appropriate charge is evasion rather than obstruction if evasion is readily provable.  The Court noted that it depends upon what is readily provable and that it is interesting that, in making the argument, Sorenson was conceding that evasion was readily provable.  In any event, compliance with such departmental guidelines is not for the courts to police, particularly when charging decisions are relegated to the Government.

Juror Unanimity and Predicate Facts (7/29/13)

Jury unanimity is required as to the elements of an offense.  Thus, if the crime requires elements 1, 2 and 3 and the jury reaches unanimity only as to elements 1 and 2, then the jury cannot -- well, should not -- convict.  But, I have just given you the easy case as to jury unanimity.  What if element 3 had some subsidiary facts required to constitute element 3.  Must the jury be unanimous as to the same subsidiary facts constituting element 3?

Consider this from Eric S. Miller, Compund-Complex Criminal Statutes and the Constitution:  Demanding Unanimity as to Predicate Acts, 104 Yale L.J. 2277 (1995) (footnotes omitted):

In his first judicial act, Daniel, who would become one of the Hebrew Bible's most respected judges, saved an innocent woman from a death sentence.  Susanna, wife of the wealthy and respected Joakim, went to her garden to bathe. In the garden, two lecherous elders trapped her alone and demanded that she have sex with them. If she refused, they threatened to accuse her publicly of having sex with a man other than her husband, a crime whose punishment was death. Susanna did refuse, and the next day the elders accused her of adultery, telling the judges that they saw a young man lying with her in her garden. The judges believed the elders and sentenced Susanna to death. 

As Susanna was being led to her execution, Daniel cried out, "Are you such fools, O Israelites! To condemn a woman of Israel without. . . clear evidence?"  Questioning the elders separately, Daniel asked each, "[U]nder which tree did you see them together?"  One elder answered, "Under a mastic tree";  the other answered, "Under an oak."  On the basis of this lack of agreement, Susanna was freed. "Thus was innocent blood spared that day . . . And from that day onward Daniel was greatly esteemed by the people." 

In modern criminal procedure terminology, Daniel was confronted with a problem of verdict specificity. To Daniel, a determination that the accused was guilty of the crime charged was not enough. Instead, he demanded "clear evidence" of how the crime was committed. Without such evidence, Daniel said, the judges were "passing unjust sentences" and "condemning the innocent."  

Like Daniel, the United States Constitution demands a certain level of verdict specificity. The Sixth Amendment requires that convicting jurors in federal criminal trials be unanimous not solely as to the ultimate question of guilt or innocence, but also as to the principal factual elements of the crime charged. 

The question is one of specificity.