More on the Goldstein Trial; Herein of Lying and Cheating, Good Guys and Bad Guys (1/10/26)

I have written about the Tom Goldstein prosecution. Tom Goldstein--SCOTUSblog founder, Prominent Supreme Court Advocate, and High-Stakes Gambler--Indicted for Tax and Related Crimes and False Statements to Mortgage Lenders (Federal Tax Crimes Blog 1/17/25; 1/19/25), here; Two Recent Tax Crimes Cases Involving Bitcoin (Federal Tax Crimes Blog 1/19/25; 2/9/25), here; Free CourtListener Docket Sheet and Documents for Major Tax Crimes Case (Also Major White Collar Crimes Case) (Federal Tax Crimes Blog 7/3/25), here.

I offer a new article and some comments. The article is Holly Barker, Tom Goldstein’s Defense Hinges on Giving the Jury Good Guy Vibes (BloombergLaw 1/10/26), here. Key excerpts for purposes of this blog relate to the general tax crimes element of willfulness, which per Cheek is the voluntary intentional violation of a known legal duty.

          Tom Goldstein—the former US Supreme Court advocate and blogger with a years-long ultra-high-stakes gambling habit—heads to trial Monday in a case that may turn on whether the jury thinks he’s “a good guy or a bad guy.”

          That’s from Goldstein himself.

          The government rejected that framing at Friday’s final pretrial conference: What the jury will decide is whether Goldstein is guilty of tax evasion and making false statements, prosecutor Sean Beatty said. But there might be something to Goldstein’s point.

          Tax cases generally require a showing of willfulness—the knowing and intentional violation of an understood legal duty. In theory, proving that willfulness or an absence of good faith can be difficult due to the confusing nature of the tax code. But the precise standard might not make a practical difference, said Jeff Neiman, a former Assistant US Attorney and founder of Neiman Mays Floch & Almeida.

          “The jury will either conclude that Mr. Goldstein is a liar and a cheater, or that he simply made mistakes that led to erroneous filings,” he said.

Taxpayer Liable for Willful FBAR Penalties Despite Alleged ADHD, Stress, Depression, and Stage 3 Prostrate Cancer (8/10/24)

In United States v. Rund (E.D. Va. No. 1:23-cv-00549 Memo Opinion & Order 8/6/24), CL here and GS here, the Court granted the Government summary judgment on Rund’s liability for FBAR willful penalties and ordered judgment for “$2,915,663 as of April 30, 2021, consisting of an assessment against him under 31 U.S.C. § 5321(a)(5), plus pre- and post-judgment interest and penalties accruing on that assessment in accordance with 31 U.S.C. § 3717.”

Significant features of the opinion:

1. Rund “participated in OVDP from 2010 through 2016” and apparently either withdrew or was terminated. (Slip Op. 6.) While in OVDP he apparently did not fully disclose offshore accounts and even failed to file FBARs as due. (Id.) He alleged as a defense “improper termination and/or denial of entry from the OVDP program.” (Slip Op. 7 n6.) There is no further discussion of that adventure, and  Rund apparently failed to address the defense in his motion for summary judgment. (Id.)

2. More significantly, Rund claimed certain personal characteristics that he felt negated willfulness. The Court addressed that claim as follows (Slip Op. 13-14):

Court of Appeals Rejects Lawyer Defendant's Proffered Instruction that Cheek Requires Knowledge that Conduct Is Criminal (12/7/20)

In United States v. Gilmore, 2020 U.S. App. LEXIS 37861 (3rd Cir. 2020), here, a nonprecedential opinion, the Court affirmed the convictions of Gilmore, a lawyer, for tax and financial crimes.  The Court rejected Gilmore’s claims that (i) the trial court erred in excluding expert testimony as to a mental-health disorder with respect to willfulness; (ii) the trial court erred in stating in the jury instruction that willfulness require only that the defendant know the conduct was unlawful rather than criminal; and (iii) the evidence was sufficient to support the convictions.

I focus only on the second holding – regarding the jury instruction.  The Court’s discussion is brief, I include it all:

Gilmore next challenges the District Court's jury instructions on willfulness. The Court instructed that willfulness could not be found if Gilmore believed in good faith that "the tax laws did not make his conduct unlawful." App. 2412. Gilmore requested the word "criminal" be used instead of "unlawful." App. 335. Gilmore claims the instruction was legally erroneous because it equated belief of "unlawful" action with belief of "criminal" action. Gilmore Br. 43.

Contrary to Gilmore's claims, willfulness in the context of tax crimes merely requires knowledge and violation of a duty. It does not require knowledge that one is committing a criminal act. As the Supreme Court has made clear, "the standard for the statutory willfulness requirement is the voluntary, intentional violation of a known legal duty." Cheek v. United States, 498 U.S. 192, 201 (1991) (internal quotation marks omitted). Thus, to prove willfulness, the Government had to show "that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty." Cheek, 498 U.S. at 201 (emphasis added). There is no requirement that a person must be aware that the conduct is criminal. It is enough that he knew he had a legal duty and violated it-in other words, that he acted unlawfully.

For these reasons, we hold the District Court did not err in instructing the jury on the willfulness requirement.

JAT Comments:

1. I don’t think it is uncommon for persons to transmute the Cheek willfulness requirement of intentional violation of a known legal duty to requiring that the defendant know that the conduct (violating a known legal duty) is criminal (or a crime).  For example, take the simple case of failure to file which is a crime under § 7203.  The law requires a taxpayer to file a return, assuming the predicate requirements specified in § 6012 are met.  For conviction, all that the Government must show is that the defendant knew of the obligation to file and the defendant chose not to file.  There is no requirement that the defendant know that failure to file is a crime.

In FBAR Collection Case, NYT and WSJ Articles on U.S. Offshore Efforts Admissible Against Avid Reader of the Publications (12/4/20)

In United States v. Briguet, 2020 U.S. Dist. LEXIS 221467 (E.D. N.Y. 2020), CL here, in an FBAR collection suit, the Court denied Briguet’s motion in limine to exclude certain New York Times and Wall Street Journal articles published prior to the FBAR filing date.  The Court describe the articles (Slip op. p. 1):  “The 96 newspaper articles in question discuss the Government's efforts to identify U.S. taxpayers with offshore bank accounts and UBS's agreement to provide the Government with account holder information.” The Government sought to introduce the evidence to show that Briguet knew (or should have known in the acting recklessly sense) of the FBAR filing requirements because of the articles in conjunction with Briguet’s testimony that he reads the financial pages of these two publications every day.

In a very short opinion, the Court holds:  (i) the articles are not hearsay because introduced as circumstantial evidence of Briguet’s state of mind and not for the truth of the content of the articles; (ii) the articles are relevant because of Briguet’s testimony except possibly for articles after the FBAR filing deadline; and (iii) the articles would not unduly prejudice the jury’s deliberations reasoning (Slip Op.3)

Defendant argues that if the articles are admitted "the jury may be left with the impression that the UBS case, DOJ's Swiss bank crackdown, and the IRS's offshore voluntary disclosure program were 'hot issues' to investors who read the New York Times and Wall Street Journal and . . . infer . . . that Mr. Briguet probably read some of the articles at issue." Def. Mot., ECF No. 44 at 4-5. Although somewhat overstated, Defendant's observation is valid but in fact supports the admissibility of the news articles. There is nothing unduly prejudicial about the articles. Evidence is prejudicial, but in this instance any prejudicial effect is entirely coextensive with the probative value of the articles and therefore not unduly prejudicial. That said, there may be other valid Rule 403 considerations with regard to the articles published after the filing deadline in question. For that reason, the Court defers ruling on that portion of the defense motion.

In this case, Briguet demanded a jury trial which will, presumably, address the issue of willfulness.

Fifth Circuit Affirms Republican Congressman Conviction for Crimes Including Tax Perjury (1/14/20)

In United States v. Stockman, ___ F.3d ___, 2020 U.S. App. LEXIS 851 (5th Cir. 2020), here, the Fifth Circuit affirmed Stockman’s convictions of four counts of mail fraud, three counts of wire fraud, two counts of making false statements in FEC filings, eleven counts of money laundering, one count of conspiracy to make conduit campaign contributions and false statements, one count of causing an excessive campaign contribution, and one count of filing a false tax return.  Stockman was a former congressman (Republican).

The only item that I found interesting, more as a reminder rather than as new to readers of this blog, was the rejection of Stockman’s complaint that he should have received a “good faith” instruction for crimes (including the tax crime) with willful conduct as an element of the crime.  Stockman alleged his “good faith” reliance on his tax professional.  The relevant discussion from the Fifth Circuit opinion is (Slip Op. at 17-19 (cleaned up)) :

We next consider Stockman's argument that his tax and campaign finance convictions under Counts 10, 11, 12, and 28 of the indictment were tainted by the district court's refusal to instruct on "good faith." Stockman points to evidence that he relied on an accountant who "wrongly advised him that having aides contribute money to his congressional campaign in the name of their parents was permissible." He also points to evidence that Stockman and Posey intentionally omitted words of express advocacy from The Conservative News in order to comply with FECA. He asserts that in this context and where willfulness is required, a good faith instruction should have been given. 

Again, we disagree. Although the parties dispute the standard of review applicable to the district court's refusal to instruct on good faith, decisions of this court and the Supreme Court show that the refusal was not erroneous, whether reviewed de novo or for plain error. See United States v. Pomponio, 429 U.S. 10, 11-12 (1976); United States v. Simkanin, 420 F.3d 397, 409-11 (5th Cir. 2005). Stockman argues that a good faith instruction should have been issued because the tax and campaign finance offenses [*18]  in question all require a showing of "willfulness." 

But it is precisely that requirement that renders any such instruction unnecessary. The Supreme Court held in Pomponio that an additional good faith instruction is not required when the charge already requires proof of "willfulness," properly cabined to cover only voluntary, intentional violations of known legal duties. In so holding, the Court gave its approval to a charge that did not instruct on good faith but did instruct on the need for proof of a "willful" act, meaning an act done voluntarily and intentionally and with the specific intent to do something which the law forbids, that is to say with the bad purpose either to disobey or disregard the law.  Drawing from Pomponio, we held in Simkanin that a "specific instruction" on good faith is not required when the concept is sufficiently subsumed by a general instruction on "willfulness." Simkanin, like Pomponio, approved of instructions alerting the jury to the fact that a "willful" act is done voluntarily and deliberately, with the intention of violating a known legal duty. 

Here, the district court's instructions [*19]  mirrored those in Pomponio and Simkanin. With respect to Counts 10, 11, and 12, the district court instructed the jury that to act "willfully," the defendant must act "voluntarily and purposely, with the specific intent to do something the law forbids, that is, with the bad purpose either to disobey or disregard the law." With respect to Count 28 [the tax perjury count], the district court instructed the jury that it could not convict unless it found that Stockman acted "with intent to violate a known legal duty." We find no merit in Stockman's "good faith" argument.

JAT Comments:

Interesting Retrial After Cheek Defense Based on Religious Objection to Use of Tax Collections (12/11/19)

I picked up this article: After mistrial, judge says he made mistake in allowing man to argue religious objection to filing tax returns (The Oregonian 12/10/19), here.  Basically, it reports that the defendant in a failure to file tax case, Michael Bowman, was permitted in the first trial to assert this defense: “he believed the government had to accommodate his religious objection to funding Planned Parenthood and abortions before he filed the returns.”  The jury hung, so the judge declared a mistrial.  Facing retrial, the judge determined that the defense could not be asserted.  So, it looks like the defendant may not have a viable defense, but he is still entitled to have the government prove his guilt beyond a reasonable doubt.

But, in that retrial, the parties apparently agreed to unusual procedures described in the article:

The extremely rare trial will have no witnesses and no jury and will take place before Chief U.S. District Judge Michael W. Mosman, the same judge who presided over the first trial. Mosman will make a decision based on a set of facts agreed upon ahead of time by the prosecutor and the defense lawyer. 

Bowman, 55, of Columbia City, doesn’t even plan to show up but instead will listen to the proceeding by phone, calling the latest legal twist an “abortion of justice’’ in an email to the judge. Stripped of his defense, he expects Mosman to convict him on all four counts of willful failure to file tax returns. 

Then he plans to appeal.

The trajectory in the first trial has become something of a cause celebre among tax protesters with some misleading claims about what happened.  Here is a good factcheck on those claims (Saranac Hale Spencer, Old Decision in Tax Lawsuit Gets New Spin (FactCheck.org 4/9/19), here) where the quick take is:

A website known for spreading misinformation writes that a man who cited religious reasons for not paying his income taxes “has won an historic lawsuit against the IRS.” That’s misleading. One charge was dropped, but four others have yet to be determined.

JAT Comment:

A Reminder on the Cheek Good Faith Defense -- It Usually Does Not Work (10/12/19)

The United States Attorney for Nevada announced here the sentencing of William Waller Jr., a Las Vegas real estate broker and the owner of Burbank Holdings or Platinum Properties for convictions of tax evasion and willful failure to file.  His sentence was 78 months and restitution imposed is $1,459,535.70.  Key excerpts are:

According to court pleadings and evidence presented at trial, Waller sought to evade taxes by incorporating a shell entity, opening bank accounts in its name, and directing his income into those accounts rather than accounts in his own name.  He also dealt extensively in cash and reduced his equity in his home, the only asset he held in his own name, thereby making it an unattractive asset for the IRS to seize.  

Waller testified at trial that he believed that he was not required to file tax returns or pay taxes, but acknowledged that he was influenced by the teachings of several prominent tax defiers. These included one, who had been convicted three times of tax fraud, and another, who had been stripped of his CPA license. Waller also admitted to purchasing and watching tax defier courses, including one on how to beat criminal tax charges.  Following the defendant’s testimony and the conclusion of the trial, the jury returned guilty verdicts on March 18, 2019.

The first two sentences of the second paragraph describe, somewhat cryptically, his Cheek good faith defense.  That defense is that, in effect, he, in good faith, did not intend to violate a known legal duty.  See Cheek v. United States, 498 U.S. 192 (1991), here, defining willfulness (an element of most Internal Revenue Code (Title 26) tax crimes) as voluntary, intentional violation of a known legal duty.  United States v. Pomponio, 429 U.S. 10, 13 (1976), here.  As I have conceptualized that element of the crime, (i) the duty must be knowable (the law must be clear and not ambiguous, per the line of cases going back to James v. United States, 366 U.S. 213 (1961), here) and (ii) the defendant must have known the knowable duty.  A defendant's good faith belief that he is not violating the law is a defense.  In other words, real, good faith ignorance of the law (but not feigned ignorance) is a defense.

In Cheek, the defendant was successful in establishing that he was entitled to an instruction properly advising the jury of the defense, thus entitling him to retrial where the Government must prove that he intended to violate a known legal duty.  The defendant lost on retrial.  United States v. Cheek, 3 F.3d 1057 (7th Cir. 1993), cert. denied, 510 U.S. 1112 (1994), here.

I don't have statistics on how many cases in which this defense has been raised on trial it has been successful, but my sense from watching these cases over a number of years is that it is rarely successful.  It certainly did not work for Mr. Waller in the case prompting this blog.

I thought I would include some discussion of the Cheek good faith defense from Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, ¶12.05. Selected Criminal Tax Topics (of which I am the principal author):

Two New FBAR Opinions -- Nothing New Here (6/27/19)

I report two unremarkable FBAR willful civil penalty cases.  I don't provide links, but provide the court and docket numbers for those wanting to go to Pacer to get the cases.

In United States v. Schoenfeld, 2019 U.S. Dist. LEXIS 105906 (M.D. Fla. No. 3:16-cv-1248-J-34PDB 6/25/2019), an FBAR collection case, the Court denied the defendant's motion for summary judgment holding (Slip Op. pp. 20-21):

In short, none of Defendant's arguments persuade the Court that in failing to update the BSA implementing regulations after Congress's amendment to the statute in 2004, the Secretary intended to prohibit the IRS from being able to use its discretion and impose the maximum penalty allowed by the statute, "particularly given the IRS's clear statements to the contrary." Garrity, 2019 WL 1004584, at *4. Indeed, in its 2008 version of the Internal Revenue Manual (IRM), the IRS specifically recognized the conflict between the statute and the regulation, and stated that although "the regulations at 31 C.F.R. § [1010.820] have not been revised to reflect the change in the willfulness penalty ceiling . . . the statute is self-executing and the new penalty ceilings apply." See IRM § 4.26.16.4.5.1 (July 1, 2008), available at 2008 WL 5900930. Similarly, the current version of the IRM provides that "[f]or violations occurring after October 22, 2004, the statutory ceiling is the greater of $100,000 or 50% of the balance in the account at the time of the violation." See IRM § 4.26.16.4.5.1 (Nov. 6, 2015), available at 2007 WL 9418679. Although the IRM does not "have the force of law," it does provide "persuasive authority" suggesting that the Secretary did not intend to limit the willful FBAR violation penalty to $100,000. See Griswold v. United States, 59 F. 3d 1571, 1576 (11th Cir. 1995) ("While the IRS Manual does not have the force of law, . . . the manual provisions do constitute persuasive authority as to the IRS's interpretation of the statute and the regulations."); see also Romano-Murphy v. C.I.R., 816 F.3d 707, 719 (11th Cir. 2016) (same). Thus, for all of the reasons explained above, the Court declines to reduce the penalty assessed against Steven Schoenfeld for an alleged willful FBAR violation to $100,000.

I previously reported on an earlier opinion in Schoenfeld.  Court Holds That Liability for FBAR Civil Willful Penalty Survives Death (9/26/18), here.

In United States v. Dadurian, 2019 U.S. Dist. LEXIS 104683 (S.D. Fla. 9:18-cv-81276 6/24/2019), also an FBAR collection suit, the Court denied the defendant's motion for summary judgment, noting the differing definitions of willful for the FBAR civil penalty (i.e., intent to violate a known legal duty, knowing and reckless) but found that under any of these definitions the facts were sufficiently contested to reject summary judgment.  The facts that are recounted by the court do not look good for the defendant, but the court was only dealing with defendant's motion for summary judgment.

Court Finds Taxpayer Willfully Failed to File FBARs (6/25/19)

In United States v. Flume (S.D. TX No. 5:16-cv-00073 Order dated 6/11/19 Dkt. No. 86), here, the Court held Flume liable for the willful FBAR penalty.  The case continues the holdings that, even if Flume did not have the intent to violate a known legal duty, his recklessness with regard to knowledge of the duty establishes liability for the penalty.

The key points that I gathered in my quick read are:

1.  The Court found that Flume was not a credible witness.  That alone creates a huge hurdle in a case where his intent and knowledge and testimony about his intent and knowledge are at issue.

2.  Flume was a successful business man and thus, if indeed he had not reviewed the return and understood the Schedule B question, he acted with extreme recklessness.  Indeed (Slip Op. 16):

His testimony that he was simply “careless with the reading of everything on the tax return” is not credible. (RT2 5:10–11.) Moreover, Schedule B’s question about foreign bank accounts is simple and straightforward and requires no financial or legal training to understand. See McBride, 908 F. Supp. 2d at 1211 (“[B]ecause the federal tax returns contain a plain instruction regarding the disclosure of interests in foreign financial or bank accounts, the risk of failing to disclose an interest in such a foreign account is obvious.”). Even the most cursory review of his tax return would have alerted Flume to the foreign-account reporting requirement.

3.  The Court confirmed (Slip Op. 11 n. 11) its earlier rejection of a "constructive knowledge" theory that "every taxpayer, merely by signing a tax return, is presumed to know of the need to file an FBAR.”   See Robert S. Horwitz, Kimble–A New FBAR Willful Penalty Case, Some Further Thoughts on Bedrosian, Willfulness and the Overlooked Opinion in Flume (Tax Litigator Blog 1/4/19), here.

4.  The attempt to claim reliance on his tax preparers was unavailing because (i) Flume did not advise his tax preparers of the UBS account, and (ii) Flume, a successful businessman, "was reckless in failing to investigate the credentials of the people he claims to have entrusted with his tax liability."

JAT Comments:

District Court Grants Government Summary Judgment for FBAR Willfulness Civil Penalty (7/23/18)

In United States v. Markus, 2018 U.S. Dist. LEXIS 118871 (D. N.J. 7/17/18) (unpublished), here, the district court granted summary judgment for the Government on willful FBAR penalties.  The docket entries are here.

In summary, Markus was a combat engineer for the U.S. Army in Iraq and then, after leaving the Army, worked for the U.S. Corps of Engineers deployed in Iraq.  He accepted bribes and kickbacks for confidential information for an oil pipeline.  He deposited the proceeds in bank accounts in Egypt and Jordan.  He filed no FBAR at all for 2007 and 2009 and filed an incomplete FBAR for 2008.  He was convicted for the bribery and kickback claims and for failure to file an FBAR for 2009.

The IRS assessed the following FBAR willful civil penalties:

		Account	Account	Penalty
Year	Bank Account	Number	Balance	Assessed	%
2007	Banque Misr	-2393	$299,250	$100,000	33.4%
2007	Housing Bank I	-70220	$744,854	$372,427	50.0%
2007	Housing Bank II	-201	$90,000	$45,000	50.0%
2008	Banque Misr	-2393	$364,950	$100,000	27.4%
2009	Banque Misr	-2393	$400,000	$218,225	54.6%
2009	Housing Bank III	-80220	$680,000	$6,362	0.9%
				$842,014

The Government filed suit within 2 years of assessment.  Markus represents himself in the case.

The Court held that the assessments and the civil suit were made and instituted, respectively, within the applicable the statutes of limitations and that Markus' prior criminal conviction not involving FBARs (years 2007 and 2008) did not give rise to collateral estoppel.  The court then turned to the merits of the willful penalty assessment.

First, the Court cites the FBAR willful penalty as being the greater of $100,000 or 50% of the balance in the account at the time of the violation.  The Court does not say anything about the issue in Colliot and Wadhan that capped the FBAR willful penalty to $100,000.  See District Court Caps IRS Authority to Assess Willful FBAR Penalty at $100,000 (Federal Tax Crimes Blog 5/19/18) (on Colliot), here; and Another District Court Limits IRS Authority for FBAR Willful Penalty to $100,000 (7/18/18) (on Wadhan), here.

Second Circuit Opinion in NonTax Case on Willfulness and Willful Blindness (5/2/18)

In United States v. Henry, 888 F.3d 589 (2d Cir. 2018), here, Henry was convicted by jury of "one count of conspiracy to violate and one count of violating, attempting to violate, and aiding and abetting the violation of the Arms Export Control Act ("AECA"), 22 U.S.C. §§ 2778(b)(2), (c)."  The Court explains the AECA (footnotes omitted and "cleaned up" per the explanation here):

The AECA, in relevant part, authorizes the President in furtherance of world peace and the security and foreign policy of the United States—to compile the United States Munitions List ("USML"), which is to be comprised of goods and services that he designates as defense articles and defense services.The AECA also authorizes the President "to promulgate regulations for the import and export of such articles and services." Any good or service placed on the USML cannot be imported or exported except by license, and the statute imposes criminal penalties on violators. The President has in turn delegated the authority to compile the USML and to grant or deny applications for export licenses to the Secretary of State. 

As promulgated pursuant to this authority, the USML sets forth twenty categories of defense articles. For each category, it enumerates a list of specific defense-related materials subject to regulation under the AECA.26 The ablative materials and microwave amplifiers that Henry exported or attempted to export are among the defense articles enumerated in the USML.

WILLFULNESS

Criminal violation of the AECA required that the defendant act "knowingly and willfully."  At trial, the court gave the jury the following instruction:

The fourth and final element that the government must prove, is that the defendant acted knowingly and willfully. A person acts knowingly if he acts intentionally and voluntarily and not because of ignorance, mistake, accident, or carelessness. Willfully means to act with knowledge that one's conduct is unlawful and with the intent to do something that the law forbids. That is to say, with a bad purpose, either to disobey or disregard the law. The defendant's conduct was not willful if it was due to negligence, inadvertence, or mistake. However, it is not necessary for the government to prove that the defendant knew the precise terms of the statute or regulatory provision he is charged with violating—that is, the government is not required to prove that the defendant knew the existence or details of the Arms Export Control Act or the related regulations. All that is required is that the government prove that the defendant acted with the intent to disobey or disregard the law.

The defendant urged on appeal that this instruction incorrectly stated the law.  The Court rejected the argument as follows (footnotes omitted and cleaned up):

Willful Blindness -- Does the Concept Expand the Statutory Element of the Crime of Knowledge? (2/24/18)

In United States v. Carbins, 2018 U.S. App. LEXIS 3585 (5th Cir. 2018), here, the defendant "was convicted of one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371, seven counts of aiding and abetting theft of Government money in violation of 18 U.S.C. §§ 2 and 641, and one count of aiding and abetting aggravated identity theft in violation of 18 U.S.C. §§ 2 and 1028A."

Readers of this blog will know that I have been troubled for some time about the potential scope of the concept of willful blindness.  (See search on willful blindness here.)  The concept goes by several names other than willful blindness (e.g., willful ignorance, deliberate ignorance, conscious avoidance, etc.), but I use willful blindness because the Supreme Court did in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011), a civil patent infringement case which discussed the criminal use of the concept.  My general concern has been that, in cases requiring some knowledge as an element of the crime, deliberate ignorance can be a substitute for the required degree of knowledge even though Congress stated in the statute that knowledge was required for the crime.

Most Title 26 tax crimes required a special, higher level of knowledge -- specific intent to violate a known legal duty.  I have been particularly concerned about the use of willful blindness to satisfy that knowledge element of the crime.

In Corbins, I read the following which was, I think, directed to a nontax crime that had a knowledge element:

As the Government contends, "[t]his court has expanded the definition of knowledge to include circumstances where a defendant exhibits deliberate ignorance." n19
  n19 United States v. Churchwell, 807 F.3d 107, 117 (5th Cir. 2015) (citation omitted).

I read Churchwell, here, and, indeed, the opinion does state (pp. 116-117):  "This court has expanded the definition of knowledge to include circumstances where a defendant exhibits deliberate ignorance."

The concept that a court can expand a statutory crime element seems to me to be fundamentally wrong.  I don't have any citation authority for my concern right now, but will be looking to see if there is any such authority.  I would appreciate any reader views on this subject.

If willful blindness is not a substitute for the knowledge element of the crime but is simply a factor, like circumstantial evidence, from which the trier of fact can infer the knowledge element, then it is not an expansion of the statute and my concern is not warranted.  My concern, of course, is that some triers of fact may be tempted to use it as a substitute for the statutory knowledge element of the crime.

Opinion on Discovery in Tax Evasion Case of Reliance on Counsel Documents (1/26/18)

In United States v. Scali, 2018 U.S. Dist. LEXIS 8137 (S.D. N.Y. 2018), here, the defendant was (bold=face supplied by JAT):

charged in a ten-count indictment with (1) mail fraud in violation of 18 U.S.C. § 1341; (2) structuring to evade currency transaction reports in violation of 31 U.S.C. § 5324(a)(3); (3)—(4) false statements in violation of 18 U.S.C. § 1001; (5) corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue Laws in violation of 26 U.S.C. § 7212(a); (6) tax evasion for the year 2011 in violation of 26 U.S.C. § 7201; (7) tax evasion for the year 2012 in violation of 26 U.S.C. § 7201; (8) obstruction of justice in violation of 18 U.S.C. § 1503; (9) perjury in violation of 18 U.S.C. § 1623; and (10) mail fraud in violation of 18 U.S.C. § 1341.

The Court acted on the Government's motion in limine on a number of issues.  The only issue and its resolution that interested me is the "Advice of Counsel Defense."  The discussion is short, so I excerpt it in full:

V. Advice of Counsel Defense 

The Government's motion for an order compelling Defendant to provide prompt notice and to produce all discovery relating to any advice of counsel defense he intends to advance at trial is granted in part. The question of whether the Defendant will assert an advice of counsel defense with regards to the two tax evasion counts is moot because the Defendant unequivocally admitted to it in his pleadings. (Def. Mot. 25 ("Scali intends to demonstrate that he is not guilty of tax evasion because, for the years in question, he followed counsel's advice and provided his complete books and records to the IRS").) See Royal Park Investments SA/NV v. United States Bank National Association, 14 Civ. 2590 (VM), 2017 U.S. Dist. LEXIS 157986, 2017 WL 4174926, at *9 (S.D.N.Y. Aug. 28, 2017) ("[A] defendant must clearly elect whether it will raise an advice-of-counsel defense before the close of discovery and in time to allow for such discovery") (citation and quotations omitted). As a result, the Defendant should have made pertinent disclosures during discovery, absent special considerations. See id; see also United States v. Wells Fargo Bank, N.A., 2015 U.S. Dist. LEXIS 84602, 2015 WL 3999074, *1 (S.D.N.Y. June 30, 2015) ("[T]he burden is on the party who intends to rely at trial on a good faith defense to make a full disclosure during discovery and the failure to do so constitutes a waiver of that defense") (quotations and citations omitted); Arista Records LLC v. Lime Grp. LLC, No. 06 CV 5936(KMW), 2011 U.S. Dist. LEXIS 42881, 2011 WL 1642434, at *2 (S.D.N.Y. Apr. 20, 2011) ("[A] party who intends to rely at trial on the advice of counsel must make a full disclosure during discovery; failure to do so constitutes a waiver of the advice-of-counsel defense.") (citations and quotations omitted); United States v. Hatfield, No. 06-CR-0550 (JS), 2010 U.S. Dist. LEXIS 4026, 2010 WL 183522, *13 (E.D.N.Y. Jan. 8, 2010) ("This disclosure should include not only those documents which support [the] defense, but also all documents (including attorney-client and attorney work product documents) that might impeach or undermine such a defense"). 

The parties contest whether the Defendant made full disclosure. Therefore, the Court orders as follows: (1) the Defendant produce all discovery relating to any advice of counsel defense he intends to advance at trial by January 23rd, 2018; and (2) that the parties address whether the Defendant has proffered the factual prerequisites of an advice of counsel Defense at the scheduled status conference on January 19, 2018. n4
   n4 The Government suggests that the Defendant may be precluded from asserting an advice of counsel defense, but does not make the argument forthright. Guided by efficiency and judicial economy, it behooves the Court to address this issue before trial. See United States v. Paul, 110 F.3d 869, 871 (2d Cir. 1997) ("[I]t is appropriate for a court to hold a pretrial evidentiary hearing to determine whether a defense fails as a matter of law").

Fifth Circuit Adopts Disjunctive Reading Permitting § 7202 Conviction for Failure to Pay Over After Properly Accounting (1/12/18)

In United States v. Sertich, ___ F.3d ___, 2018 U.S. App. LEXIS 457 (5th Cir. 2018), here, the Court affirmed the convictions of Sertich, a physician, under § 7202 (failure to collect, account for and pay over trust fund tax) and § 7201(tax evasion).  The gravamen of the case, as described in the opinion, related to Sertich's pattern of conduct with respect to the trust fund tax.  He withheld the tax from the employees (including himself), accounted for withholding on the required forms and did not pay over the tax to the IRS.  Presumably, he reported the withholding to the employees (including himself) on the Form W-2 so that they (including himself) could claim the amounts withheld from them on their tax returns, Forms 1040.  (As an aside, it takes some chutzpah for a taxpayer to claim the withholding credit for his own "withheld" tax he caused not to be paid over to the IRS.) But he went beyond mere failure to pay over.  First, his accountant had told him repeatedly that he had the obligation to pay over.  Second, he resisted the IRS's attempts for years to collect the tax through avoiding IRS collection officers, filings of bankruptcy, etc.

Sertich defended his conduct by testifying at trial as follows:

He told the jury that he always intended to pay his taxes. He stated that his failure to do so was related to personal and family issues, and because he lacked the financial ability to comply. Sertich admitted he pursued bankruptcy filings to develop a payment plan, stressing that he always intended to make good on his debts. He also explained that because his accountant told him he would have to pay interest on his tax delinquency, he "assumed" the delinquency "was a loan" from the federal government.

It is not indicated whether his accountant told him that he would be subject to penalties on the failure to pay over, including the potential trust fund recovery penalty, under § 6672.

The jury convicted on all counts. 

The Court rejected Sertich's appellate argument as follows:

1.  Jury Instruction -- § 7202 Conjunctive Reading or Disjunctive Reading.

The Court lays out the law and the jury instruction as follows (italics in original):

Section 7202, titled "[w]illful failure to collect or pay over tax," provides that "[a]ny person required . . . to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall . . . be guilty of a felony." 26 U.S.C. § 7202 (emphasis added). The statute thus naturally breaks into two offenses: (1) willful failure to collect employees' taxes; or (2) willful failure to truthfully account for and pay over withheld taxes. At issue in Sertich's case is the second offense: willful failure to truthfully account for and pay over the taxes. The district court instructed the jury that as to this offense, "the government must prove that the defendant failed to comply with one of the two duties for which he was responsible," either accounting for or paying over a tax. The district court explained by example that § 7202 is violated if "a responsible person who collects taxes from his employees and files [returns] with the Internal Revenue Service . . . willfully fails to pay over the taxes to the United States."

Sertich's argument was:

Marinello Tax Obstruction 7212(a) Oral Argument is Wednesday (12/3/17)

I have previously posted on Marinello v. United States, 839 F.3d 209, 218 (2d Cir. 2016), cert. pending. Supreme Court Grants Certiorari in Marinello Involving Whether § 7212(a)'s Omnibus Clause Requires Knowledge of Pending Investigation (6/27/17), here; and On Conflicts, Certiorari and Marinello (Federal Tax Crimes Blog 7/1/17), here.  The oral argument is scheduled for Wednesday, December 6, 2017.  I thought I would offer some resources for those interested in the oral argument.

• Scotusblog docket entries, here.
• Susan C. Morse, Argument preview: What limits tax law obstruction-of-justice charges? (Scotusblog 11/28/17), here.
• Oral Argument (recorded audio only; when it is available), here. (The Supreme Court website says here that oral argument voice recordings are available by the end of the week of the oral argument.)
• Transcripts of oral argument, here. (Available now.)

Although every attorney practicing in the criminal tax area will find some of the issues particularly interesting, the one I do not find the direct issue in the case -- whether the omnibus clause of § 7212(a) requires a known pending IRS investigation that the person's conduct is intended to obstruct -- particularly interesting.  Rather, I find the supporting issue of the mens rea requirement in § 7212(a) more interesting.  Most crimes in the Internal Revenue Code require that the conduct (the actus reus) be willful.  Section 7212(a)'s omnibus clause does not have a willful element but does have an element requiring that the defendant have acted corruptly.

Marinello argues that there is no limiting principle to the corruptly mens rea requirement, so that it is appropriate to constrict the scope of § 7212(a) to conduct intended to obstruct a pending investigation.  That is a simplified version of the argument as I understand it.  The Government argues in its brief, here, as follows.

From Summary of the Argument:

II.

* * * * 

C. A defendant’s endeavor does not violate Section 7212(a) unless he acts “corruptly” and intends to obstruct the due administration of the tax code. Those mens rea requirements ensure that a defendant is aware that his obstructive acts are directed at the IRS’s administration of the tax code, that he intends to obstruct those functions, and that he does so with the specific intent of obtaining a benefit or advantage that he knows to be illegal. The mens rea elements of Section 7212(a) readily distinguish purposeful tax violators from those who lack a culpable intent to obstruct and ensure that the provision is not a trap for the unwary.  

From the Argument (pp. 18-21):

Does the False Claims Crime (18 USC § 287) Require Willfulness (or Something Like It) (11/20/17)

In United States v. Gasich, 2017 U.S. App. LEXIS 22696 (7th Cir. 2017), nonprecedential, here, the Seventh Circuit affirmed the taxpayer's conviction based on their plea of guilty to one count of false claims under 18 USC § 287, here.  Before sentencing, they sought to withdraw their pleas.  They had other bases for error in not allowing them to withdraw the plea, but I focus on only the mens rea requirement in § 287.

The relevant text of § 287 is:

Whoever makes or presents to * * * any department or agency [of the United States] * * *, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years * * * *. 

The key facts on this issue:

• "The Gasiches are tax protestors who have been warring with the IRS for roughly twenty years."
• They attempted the OID scam, falsely reporting that various institutions had withheld tax allowing them $475,000 in refunds.
• They were indicted.
• The proceeded pro se at trial.
• Before trial, each of them decided to plead to one § 2877 count.  The explained that they had come to understand that § 287 was a "strict liability" offense.  The court appointed standby counsel for them and scheduled plea colloquies.
• At the plea colloquies, they repeated their understanding that § 287 was a strict liability offense.  The trial court advised them that the understanding was not correct as summarized:

The court flagged this as a misconception and listed the three elements of § 287-(1) that the Gasiches made a claim; (2) that the claim was false, fictitious, or fraudulent; and (3) that they knew that the claim was false, fictitious, or fraudulent at the time they made it. Though the [Gasiches readily agreed that they understood these elements, the court continued to clarify the point in a methodical dialogue with Barbara that defined the phrases "strict liability" and "mens rea" and explained how those definitions did or did not apply to their case. After this explanation of the law, the Gasiches agreed with the government's statement of the facts: they knowingly had claimed they were entitled to funds that were not withheld in order to get the IRS off their backs for their longstanding tax liabilities. The court then accepted their pleas.

• The Gasiches then filed a number of motions as tax protestors are wont to do.  The trial court treated them as a motion to withdraw their plea.  The trial court denied the motion.
• The trial court sentenced each to 3 years.
• The Gasiches appealed.

Among their arguments was that they could not have given a knowing plea when the trial court failed to advise them of a potential conflict among the Circuits as to the mens rea element.  The Seventh Circuit's resolution of their mens rea argument:

The Gasiches next argue that their guilty pleas were invalid because they did not understand the elements of § 287 when they pleaded guilty. The record contradicts this contention. The Gasiches came in with a misunderstanding that the court quickly recognized and patiently corrected. Even if the Gasiches began their colloquies not fully grasping the elements of the crime, including the required state of mind, there is no reason to suspect that the confusion persisted after the district court's extensive explanations. That is the point of the colloquy. Their statements that they understood the charge and agreed to the factual basis offered by the government are subject to a "presumption of verity" and are "not a meaningless act." United States v. Collins, 796 F.3d 829, 834 (7th Cir. 2015). 

The Gasiches also insist on appeal that they could not knowingly and voluntarily plead guilty without a full understanding of a circuit split about whether 18 U.S.C. § 287 includes an element of willfulness beyond the knowledge requirement. Compare United States v. Clarke, 801 F.3d 824, 827 (7th Cir. 2015) ("[T]he government need not prove willfulness in a § 287 case."), with United States v. Nash, 175 F.3d 429, 437 (6th Cir. 1999) (finding harmless error in district court's refusal to instruct on a willfulness element in § 287). But the district court had no duty to inform the Gasiches of the split before accepting their pleas. A plea colloquy need not seek "conscious waiver" of every potential defense. United States v. Broce, 488 U.S. 563, 573 (1989). And lack of willfulness is no defense at all in this circuit. Cf. United States v. Ranum, 96 F.3d 1020, 1025 (7th Cir. 1996) ("[T]he failure to be informed of a non-existent legal defense could not, under any circumstances, represent a fair and just reason for withdrawing the plea."). Our determination that § 287 has no willfulness element is as old as the Gasiches' twenty years of quarrels with the United States taxing authority, see United States v. Catton, 89 F.3d 387, 392 (7th Cir. 1996) (clarifying that § 287 violation does not require willfulness), and their contention that the district court was required to apprise them of the possibility of changing our position is just as meritless.

JAT Comments:

Ninth Circuit NonTax Case on Good Faith Defense and Objective Reasonableness (11/6/17)

Federal tax crimes usually require that the defendant have acted willfully, with intent to violate a known legal duty.  Cheek v. United States, 498 U.S. 192 (1991).  A good faith subjective belief that there is no legal duty is a defense, because, by definition, such a belief, if found to exist, means the Government has not establish that the defendant intended to violate a known legal duty.  The good faith belief need not be objectively reasonable, but the objective reasonableness of the belief can be considered by the factfinder in determining whether the defendant had the subjective belief.  This is all well-known law in the tax context.

I recently read United States v. Wallen, 2017 U.S. App. LEXIS 21173 (9th Cir. 2017), here, an appeal from a conviction for "killing three grizzly bears in violation of the Endangered Species Act."  The elements of the crime, as recounted by the Court, are:

(1) the defendant knowingly killed a bear; (2) the bear was a grizzly; (3) the defendant did not have permission to kill the bear; and (4) the defendant did not act in self-defense or in the defense of others.

With respect to the fourth element, the statute, 16 U.S.C. § 1540(b)(3), says:

Notwithstanding any other provision of this chapter, it shall be a defense to prosecution under this subsection if the defendant committed the offense based on a good faith belief that he was acting to protect himself or herself, a member of his or her family, or any other individual, from bodily harm from any endangered or threatened species.

On appeal, as in Cheek, the parties "dispute whether the 'good faith belief' standard requires an objectively reasonable belief, as the government argues, or requires only a subjective belief in the need to protect oneself or others, as Wallen maintains."  The Court further explains:

Congress added the good faith belief defense in 1978, after an elderly couple was prosecuted for killing a grizzly bear that had threatened them. See 124 Cong. Rec. 21,584 (1978). But neither the statute nor the regulations say whether the requisite "good faith belief" must be objectively reasonable, see 16 U.S.C. § 1540(b)(3); 50 C.F.R. § 17.40(b)(1)(i)(B), and we are unaware of any binding case law addressing that question. We now hold that a subjective good faith belief suffices to establish self-defense under this statute.

In explaining its conclusion, the Court of course relied upon the text of the statute and cited prominently to Cheek and to Cheek's holding that, although objective reasonableness will not preclude a good faith belief, objective reasonableness or unreasonableness of the belief can be considered in determining whether the defendant in fact had a subjective good faith belief.  I  found the following a pretty good discussion of the concept:

We emphasize that, although the ultimate question is whether a defendant held a subjective good faith belief, the objective reasonableness (or unreasonableness) of a claimed belief bears directly on whether that belief was held in good faith. We and the Supreme Court have already said as much. In Cheek, 498 U.S. at 203-04, when assessing the petitioner's claimed belief that he was in compliance with the tax code, the Supreme Court explained that "the more unreasonable the asserted beliefs or misunderstandings are, the more likely the jury will consider them to be nothing more than simple disagreement with known legal duties imposed by the tax laws." Similarly, in Powell, 955 F.2d at 1212, we held the jury was "not precluded from considering the reasonableness of the interpretation of the law in weighing the credibility of the claim that the [defendants] subjectively believed that the law did not require that they file income tax returns." We have also recognized this principle in maritime cases that turn on "whether the seaman[] in good faith believed himself fit for duty when he signed aboard for duty." Burkert v. Weyerhaeuser S.S. Co., 350 F.2d 826, 831 (9th Cir. 1965). In Burkert, the "crucial fact issue before the court was whether or not there existed reasonable grounds to support [a seaman's] belief that he was fit for duty. The absence of such reasonable grounds would support a finding that [he] did not believe, in good faith, that he was fit for duty." Id. 

Under the Endangered Species Act, the reasonableness of a belief that an endangered animal posed a threat is likewise strong evidence of whether the defendant actually held that belief in good faith. Consider the example of a person who goes to the zoo, shoots all the endangered animals and then claims he believed the animals otherwise would have escaped and attacked him. The unreasonableness of the asserted belief should matter in a subsequent prosecution under the Endangered Species Act, as that unreasonableness casts significant doubt on the sincerity of the claimed belief. 

In sum, we hold the "good faith belief" defense under § 1540(b)(3) is available to defendants who, in good faith, subjectively believe they or others are in danger. A factfinder "is not precluded from considering the reasonableness" of this belief "in weighing the credibility of the claim," but that factfinder "may not substitute its own determination of objective reasonableness . . . [for] what the defendant subjectively believed." Powell, 955 F.2d at 1212. This means that traditional aspects of a self-defense claim — such as the immediacy of the threat, whether the defendant provoked the conflict or the amount of force used, see LaFave, supra, § 10:4(b), (d), (e) — may be considered for the purpose of determining whether a claimed belief was held in good faith. The standard is subjective, but the objective reasonableness of the defendant's claimed belief is relevant to the factfinder's assessment of the sincerity of that claim. 

Big Win for Taxpayer/Filer in FBAR Willful Penalty Case (9/21/17; 9/23/17)

In Bedrosian v. United States, 2017 U.S. Dist. LEXIS 154625 (E.D. Pa. 2017) (E.D. Penn. 2017), here, the District Court held that the Government had not established willfulness for the FBAR penalty and ordered refund / return of the illegal exaction the Government had collected.  I have previously written on some of the pre-trial developments in the case and provide links to those blog entries at the end of this blog.  So, I will just focus on this latest decision on the merits.  I will be rather brief since I am posting this from Dublin while on vacation (which also explains why I have been relatively silent on the blog recently).

The key points are:

1.  The trial was a one-day trial as indicated in my most recent blog (linked below).

2.  The Court found Bedrosian, presumably the principal witness for himself, credible, thus accepting some key claims he made as to his now deceased accountant's knowledge of and advice regarding the omitted foreign account. The accountant was named Handleman.  From the opinion:

Bedrosian did not tell Handelman about his Swiss account until some point in the mid-1990s, at which time Handelman advised him that he had been breaking the law every year that he did not report the account on his tax return. (Id. at 49-50.) Bedrosian asked Handleman what he recommended doing about it, and Handelman stated that he could not “unbreak the law,” and should therefore take no action. (Id. at 50-51.) Handelman assured Bedrosian that his estate could deal with it upon his death, when his money was repatriated. Heeding Handleman’s advice, Bedrosian continued to not report either Swiss account on his tax returns.

So, this is a variation of the reliance on tax professional defense to a crime or civil penalty requiring willfulness.  But, the reliance is inherently inconsistent with the ultimate holding.  Handleman, by Bedrosian's admission, told Bedrosian that he was violating the law by not reporting the account.  Hence, by his own admission, he thus knew the law and must have intended to violate it, albeit with the goal of leaving it to his estate to work out the solution.

3. Of course, Bedrosian's defense is more subtle. Bedrosian must have told his new accountant, Bransky, who started in 2007 because that accountant did check the Box yes on the Schedule B foreign account question.  The resulting FBAR, though, only included one of Bedrosian's accounts, omitting the much larger one.

4.  Then in 2008, Bedrosian began discussing this matter with his attorney.  It is not stated precisely why he began that discussion, but UBS -- the bank involved -- was then feeling the heat from the Government.  (All that is history which, although not recounted in the opinion, was very much known to the practitioner community and a number of more sophisticated lay people with an interest in knowing.)  The opinion says:  "Notably, at the time Bedrosian took these steps to rectify the issue, the government had not begun its investigation of him and he did not know that UBS had turned his information over to the IRS."  The timing here is not as detailed as I would have liked to have seen it, but it suggests that UBS had turned over information in 2008.  I thought that did not occur until 2009.  (And, my prior blog indicated that his seeking legal advice occurred in 2009.)

5.  On advice of the attorneys then consulted and without knowledge of an IRS investigation, Bedrosian amended his returns for 2004 forward and paid the resulting taxes.  As written, that appears to have been a quiet voluntary disclosure rather than OVDP.  That probably was a dicey move at the time because, on his fact pattern, I suspect that most attorneys would likely have advised the then iteration of OVDP rather than quiet disclosure.  (Remember that, at that time, the Government was asserting its right and willingness to assert multiple year FBAR willful penalties.)

6.  The Court held that the standard of review of de novo.  (Consistent with prior holding discussed in the most recent blog on the case.)

7. The Court held that the Government must prove willfulness by a preponderance of the evidence, thus falling in line with the critical mass of cases deciding that issue (either as a direct holding or as dicta).  (I have said much on that issue in prior blog entries, so won't dig into it here.)

Court Denies Cross Motions for Summary Judgment on FBAR Willful Penalty (4/13/17)

In Bedrosian v. United States, 2017 U.S. Dist. LEXIS 56535 (ED PA 2017), here, the Court denied the parties' cross-motions for summary judgment with regard to an FBAR willful penalty assessed against Bedrosian.  The order is relatively short -- 9 pages.  I will just provide (i) the key documents; (ii) a timeline mostly from the Court's Memo (referred to as Court Memo) but with some from the parties' submissions; (iii) a discussion of the issues discussed and decided in the Court Memo; and (iv) some miscellaneous comments at the end.

KEY DOCUMENTS

• Bedrosian Complaint (Dkt 01), here.
• US Answer (Dkt 05), here.
• Bedrosian Reply (Dkt 07), here.
• US Motion for Summary Judgment - Memo (Dkt 22), here.
• US Motion for Summary Judgment - Statement of Facts (Dkt 22-3), here.
• Bedrosian Motion for Summary Judgment - Memo (Dkt 25), here
• Bedrosian Motion for Summary Judgment - Statement of Facts (Dkt 25-1), here.
• Bedrosian Response to US Motion (Dkt 26), here.
• Bedrosian Response to US Motion - Statement of Facts (Dkt 26-1), here.
• US Response to Bedrosian Motion (Dkt 27), here.
• US Reply to Bedrosian Answer to US Motion (Dkt 028), here.
• Court Memo Denying Cross-Motions for Summary Judgment, here.
• Bedrosian Docket Entries (as of 4/14/17), here.

TIMELINE

1.  Bedrosian is sophisticated and successful corporate executive (CEO of generic medication manufacturer).  "In this role, Bedrosian supervises approximately 100 employees, signs contracts and financial statements on behalf of Lannett, researches FDA regulations, and decides company policy with respect to FDA filings."  (Court Memo p. 1.)

2.  Bedrosian has had at least one Swiss account -- with UBS (actually a predecessor that transitioned into UBS before the year at issue) -- since the 1970s.  At the time here relevant (as of 2005 and after), he had two UBS accounts.  "Bedrosian avers that he always considered them one account." (Court Memo p. 2.)  The description in the Government's statement of facts is as follows:  "Each account had subaccounts and contained different assets, but the client numbers for each main account ended in 6167 and 5316."  (US Stmt of Facts par. 15, p. 3.)

3.  "Bedrosian would meet with his UBS banker annually to review his accounts and how well the accounts had performed over the year."  (US Stmt of Facts par. 18, p. 3.)

4.  Bedrosian was advised by a prior accountant some years prior to 2007 that he should be reporting his income from the account(s) but, so Bedrosian alleges, that accountant advised him not to correct and the matter would be worked out upon his death when the "the assets in the Swiss accounts would be repatriated as part of Bedrosian's estate and taxes would be paid on them then."  (Court Memo 2-3.)  That accountant died sometime before Bedrosian assigned the tax return work to a new preparer for the 2007 year.

The Willful Blindness Concept -- What Does It Do? (1/23/17)

Willfulness is a statutory element of most Title 26 tax crimes.  E.g., § 7201 (tax evasion), here.  Willfulness is the "voluntary, intentional violation of a known legal duty." Cheek v. United States, 498 U.S. 192, 201 (1991).  Willfulness has been described as "specific intent to violate a known legal duty."  Safeco Ins. Company of America v. Burr, 551 U.S. 47, 58 n. 9 (2007) (citing Cheek).  For example, a typical jury instruction on the willfully element for tax evasion is (Seventh Circuit Pattern Jury Instructions, here, quoted in DOJ Tax CTM Government Proposed Jury Inst. No. 26.7201-18, here):

The term “willfully” means the voluntary and intentional violation of a known legal duty, in other words, acting with the specific intent to avoid paying a tax imposed by the income tax laws or to avoid assessment of a tax that it was the legal duty of the defendant to pay to the government, and that the defendant knew it was his/her legal duty to pay.

The question I address today is the role of the concept of willful blindness with respect to the willfulness element of tax crimes.  I have discussed this issue before and list at the bottom of this blog entry some of my more significant prior blog entries dealing with some aspect of this issue.  I want to address it again today because I continue to be concerned about the issue and would appreciate feedback from readers either by comment or by email (jack@tjtaxlaw.com).

First, readers should be aware that the willful blindness concept goes by several names -- willful ignorance, deliberate blindness, deliberate ignorance, conscious avoidance, etc.  I use the term willful blindness in the current blog.   (For more on the issue of the use of various terms and my decision to use willful blindness in this blog entry, see the note at the end of this blog entry.)  The key for present purposes to make sure that the use of the term willful blindness is not in any way conflated with the willfulness element of the tax crime.

In Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011), here, a civil patent case, the Supreme Court found support for applying a similar concept in the civil patent infringement area.  In dicta, the Court said (footnotes omitted):

The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes  by deliberately shielding themselves from clear evidence of [*2069]  critical facts that are strongly suggested by the circumstances. The traditional rationale for this doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge. Edwards, The Criminal Degrees of Knowledge, 17 Mod. L. Rev. 294, 302 (1954) (hereinafter Edwards) (observing on the basis of English authorities that “up to the present day, no real doubt has been cast on the proposition that [willful blindness] is as culpable as actual knowledge”). It is also said that persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts. See United States v. Jewell, 532 F.2d 697, 700 (CA9 1976) (en banc). 

This Court's opinion more than a century ago in Spurr v. United States,  174 U.S. 728, 19 S. Ct. 812, 43 L. Ed. 1150 (1899), while not using the term “willful blindness,” endorsed a similar concept. The case involved a criminal statute that prohibited a bank officer from “willfully” certifying a check drawn against insufficient funds. We said that a willful violation would occur “if the [bank] officer purposely keeps himself in ignorance of whether the drawer has money in the bank.” Id., at 735, 19 S. Ct. 812, 43 L. Ed. 1150. Following our decision in Spurr, several federal prosecutions in the first half of the 20th century invoked the doctrine of willful blindness. Later, a 1962 proposed draft of the Model Penal Code, which has since become official, attempted to incorporate the doctrine by defining “knowledge of the existence of a particular fact” to include a situation in which “a person is aware of a high probability of [the fact's] existence, unless he actually believes that it does not exist.” ALI, Model Penal Code § 2.02(7) (Proposed Official Draft 1962). Our Court has used the Code's definition as a guide in analyzing whether certain statutory presumptions of knowledge comported with due process. See Turner v. United States, 396 U.S. 398, 416-417, 90 S. Ct. 642, 24 L. Ed. 2d 610 (1970); Leary v. United States, 395 U.S. 6, 46-47, and n. 93, 89 S. Ct. 1532, 23 L. Ed. 2d 57 (1969). And every Court of Appeals--with the possible exception of the District of Columbia Circuit, see n. 9, infra--has fully embraced willful blindness, applying the doctrine to a wide range of criminal statutes.