Thoughts on IRS Web Page titled "How criminal investigations are initiated" (11/13/24)

The IRS has a web page titled “How criminal investigations are initiated, here” (last reviewed or updated 8/20/24 and visited 11/13/24). It is a “lite” introduction to the topic. I found the concluding “claim” interesting: 

Conviction

The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction - either by a guilty verdict or plea. Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.

Notice how the subject shifts from the first sentence to the second. The first sentence talks about conviction (as does the heading). The second sentence talks about prosecutions which is not the same as convictions unless the implication is that there is a 100% conviction rate. (The conviction rate is not 100% which I address later in this blog post.)

The IRS offers these statistics in its annual Data Book, Table 26 currently titled “SOI Tax Stats - Criminal Investigation Program, by Status or Disposition - IRS Data Book Table 26,” here (last reviewed or updated 8/20/24; viewed 11/13/24). Here is a screenshot of the 2023 Table 26:

Note that the indictments and informations were 1,676, the total for legal source and illegal source financial crimes. The 2022 numbers were 1,670 for legal and illegal source prosecutions. So, the claim of 3,000 prosecutions is incorrect based on the IRS numbers. However, the above statistics are for prosecutions from investigations by IRS CI. Tax prosecutions may come from other sources (e.g., government investigations other than from IRS CI in which tax crimes may be added to nontax crimes for prosecution reasons). So, such nontax prosecutions may account for the difference of about 1,300.

Third Circuit Denies Post-Loper Bright Petition for Rehearing in Case Applying Auer/Kisor Deference (11/6/24)

In United States v. Chandler, 104 F.4th 445 (3rd Cir. 6/11/24), CA3 here and GS here, the Court sustained a sentence based in part on the application of Auer/Kisor deference to the Guidelines Commentary. (See Slip Op. 7, 17-19.) I refer to his panel decision as Chandler I. Chandler I preceded Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244 (2024), which rejected Chevron deference (as well as, any similar deference that preceded Chevron). But Loper Bright did not address a deference subclass for agency subregulatory interpretations of legislative regulations (such as Guidelines Commentary on Guidelines). See Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Crimes Blog 8/24/24), here; and More on United States v. Boler (Federal Tax Crimes Blog 8/25/24), here.

On petition for rehearing in Chandler, the Court entered a document titled “Sur Petition for Rehearing,” denying the panel rehearing and en banc rehearing but with dissents by Judges Bibas and Matey. United States v. Chandler, 114 F.4th 240 (3rd Cir. 9/22/24), CA3 here and GS here. I refer to this denial of rehearing as Chandler II. Judge Bibas argued that, even if Auer/Kisor deference were otherwise applicable to Guidelines Commentary, deference only applied when the interpretive toolkit was otherwise empty, but that lenity was in the toolkit and applied to preempt ambiguity for Auer/Kisor deference. Judge Bibas said that applying Auer/Kisor deference without first applying lenity, “put us on the wrong side of a circuit split. At least three circuits hold that lenity trumps deference.” (Slip Op. 2-3; note the page numbers are for the pdf because the pages are not numbered.) Judge Matey dissented because he felt that the ordinary meaning of the statutory term was discernible without deference (sort of a Chevron Footnote 9 approach). Neither dissenting Judge reasoned that the Auer/Kisor deference applied in Chandler I (the pre-Loper Bright panel opinion) did not survive Loper Bright.

So, as of now, at least so far as I am aware, we still do not have a definitive ruling on whether Auer/Kisor deference survives Loper Bright, but the courts seem to be deciding cases as if it does survive Loper Bright. Most immediately, that means that the Sentencing Guidelines Commentary interpreting the Guidelines may qualify for deference at least when lenity doesn’t apply. (That sets aside the issue of whether lenity might apply to avoid getting to Auer/Kisor deference for Guidelines Commentary; and conceptually the ambiguity invoking lenity is the same as the ambiguity required for Auer/Kisor deference, lenity might always apply.)

Excellent Article on IRS CI Special Agent and Cryptocurrency (10/2/24)

I post today on an excellent article—Geraldine Brooks, The Cyber Sleuth (WAPO 10/1/24), here. This is one article in a WAPO series on “Who is Government?” where seven writers are said to “go in search of the essential public servant.” The articles in the series with author of each article are:

•  The Canary: Michael Lewis on the Department of Labor
• The Sentinel: Casey Cep on the Department of Veterans Affairs
• The Searchers: Dave Eggers on NASA’s Jet Propulsion Lab
• The Number: John Lanchester on the Bureau of Labor Statistics
• The Cyber Sleuth: Geraldine Brooks on the Internal Revenue Service
• The Equalizer: Sarah Vowell on the National Archives
• The Rookie: W. Kamau Bell on the Department of Justice

Each article in the series (so far) is outstanding. It is appropriate that Michael Lewis starts with the first installment because of his book, The Fifth Risk, which has been described as “a love letter to federal workers -- and a dig at Trump’s ‘willful ignorance’.” See WAPO book review here. Lewis tells a great story of the bureaucracy—the deep state, if you will—and how much the bureaucrats do for the country, keeping the country on an even keel in turbulent times (particularly the first (and hopefully the only) Trump administration where chaos reigned as Trump haphazardly filled the ranks of political appointees to the agencies).

The Cyber Sleuth installment deals with Jarod Koopman, an IRS “Cyber Sleuth.” Koopman is an example of IRS employees and government employees generally who bring dedication and unique skill to the mission of the IRS, an agency that Congress chronically underfunds seemingly to hamper the IRS’s ability to do the tasks Congress assigned it to do. The article says:

Until last year, the staff who work inside had watched their budget get cut for a decade. Their staffing numbers had reached lows not seen since the 1970s, even as the U.S. population swelled and the quantity of tax returns soared. There was no money to update failing technology, or even the software that ran it. The result was a pileup of paper returns that colonized corridors and cafeterias, and an American public vexed by poor service.

That, of course, was the goal: anti-tax activist Grover Norquist’s famous shrink-it-till-you-can-sink-it strategy. So the civil servants who had been valiantly struggling to serve more people with fewer resources found themselves unappreciated — even despised.

And perhaps most despised are the 3 percent of IRS personnel involved in criminal investigation, who have become piñatas for the agency’s critics. Fox News’s Brian Kilmeade characterized agents such as Koopman as dangerous threats who could “hunt down and kill middle-class taxpayers,” while Rep. Lauren Boebert (R-Colo.) accused them of “committing armed robbery on Americans.” Republicans even attached a rider to a spending bill limiting the number of bullets the IRS can buy. “A weapon is rarely discharged by one of our agents,” says a frustrated Werfel. “But you can’t send an agent into a criminal enterprise unarmed, so they have to train, and there’s a minimum inventory required for that.” 

Comments Please (9/26/24)

I have eliminated the past comment tool (Disqus) which proved to be so daunting to readers of the blog who tried to make comments. I have returned to the comment tool provided by Blogger/Blogspot which is the blog tool that I have used since the inception of the blog. The Blogger/Blogspot comment tool seems to be better than it formerly was when I moved to Disqus. In any event, it is much easier to post comments, so I urge those wanting to comment and engage in discussions of the issues presented in the blogs to do so. Comments can provide a useful learning experience for those commenting and those reading the comments and discussion.

I urge readers to review the page to the right titled Guides to Use and Posting of Comments (9/26/24), here. As noted on that page, I moderate the comments, meaning that I read the comments prior to approving them to appear publicly on the particular blog entry. I plan to approve comments liberally, weeding out only comments that are not appropriate under the Guides to Use.

Thank you,

Jack Townsend 

11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (9/4/24)

In United States v. Schwarzbaum, 114 F.4th 1319 (11th Cir. 2024), 11Cir here and GS here [to come], the Court:

(1)  (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2)   (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

The unanimous opinion is quite long (53 pages) and offers a lot of interesting discussion of the history of the FBAR penalties. Those relatively new to the subject, can learn from reading the opinion closely. Those who are veterans to the subject can probably skim through the opinion and understand the holdings.

JAT Comments:

Fifth Circuit Holds Criminal Statute of Limitations is Not Suspended for Equitable Tolling on Government's Alleged Excuses (8/20/24)

In United States v. Plezia, 115 F.4th 379 (5th Cir. 2024), CA5 here and GS here, the Court states the facts relevant to this blog as follows (Slip Op. 1-4, bold face supplied by JAT):

          Richard Plezia (“Plezia”) challenges his convictions of conspiracy to defraud the United States, making false statements, and falsification of records in a federal investigation following a fifteen-day jury trial. He challenges the sufficiency of the evidence for some of the convictions, the district court’s determination that the statute of limitations for one count of making false statements was equitably tolled, and the district court’s decision to allow two witnesses to testify with the aid of prior recorded recollections.

          Because we agree with Plezia that equitable tolling of the statute of limitations in 18 U.S.C. § 3282 is not available, we VACATE Plezia’s conviction under [*2] Count Five and remand with instructions to dismiss Count Five with prejudice. However, the panel’s agreement with Plezia ends there. With respect to every other assignment of error, we AFFIRM.

I. Factual Background

          Plezia was a Houston-based personal injury attorney charged with conspiracy to defraud the United States through falsified reporting on tax returns to the Internal Revenue Service (“IRS”). The alleged falsified gains arise from barratry, the impermissible practice of attorneys soliciting clients that have not invited any contact with prospective counsel. The Government averred that Plezia conspired with a group of personal-injury attorneys and non-attorney case runners (“case runners”) in Houston, Texas to unlawfully reduce the federal income taxes owed by Jeffrey Stern (“Stern”). The case runners were alleged to solicit clients for Stern—in violation of the Texas Penal Code and the Texas Disciplinary Rules of Professional Conduct (“TDRPC”). The charging instrument set out that Plezia worked with case runner Marcus Esquivel (“Esquivel”) to aid Stern in reducing the income taxes he owed from 2011 through 2013. It alleged that Stern “funneled” illegal payments for soliciting and “running” cases to Esquivel by writing checks to Plezia—who subsequently wrote corresponding checks out to Esquivel’s business entities. Stern would then deduct the amounts paid to Plezia as attorney “referral fees.”

A. The Indictments and Pretrial Proceedings

          In August 2019, Stern was arrested and charged with conspiracy to commit fraud against the United States, willfully filing a false tax return, and obstruction of justice. Stern pleaded guilty to the first two counts and agreed to pay over $4.35 million in restitution to the IRS and cooperate with the prosecution and investigation of other attorneys involved in the scheme. On August 6, 2019, the grand jury indicted Plezia on one count of conspiracy to [*3] defraud the United States in violation of 18 U.S.C. § 371 (“Count One”). On January 18, 2022, the grand jury returned a Third Superseding Indictment adding two counts of making false statements to IRS agents in violation of 18 U.S.C. § 1001(a)(2) (“Counts Five and Six”) and one count of falsifying records in violation of 18 U.S.C. § 1519 (“Count Seven”).

          Count One’s allegations against Plezia are limited to his participation in redirecting checks to Esquivel. Count Five sets out that Plezia falsely told an IRS agent in Houston in December 2016 that he had never paid Esquivel any referral fees for clients in violation of the Texas bar rules. Count Six avers that Plezia made another materially false statement to IRS agents in September 2018 when he averred that any payments between him, Esquivel, and Stern were provided solely for the purpose of financing his ongoing benzene exposure toxic tort litigation against BP. Lastly, in Count Seven, the Government alleged that Plezia created a false document supporting or tracking the false statement he made in Count Six with the intent to impede a federal investigation under the jurisdiction of the IRS.

          Plezia pleaded not guilty to all charges and proceeded to a jury trial on January 9, 2023. He moved to dismiss the entirety of the Third Superseding Indictment for constitutional violations. Plezia argued that the Government’s delay in prosecuting all charges violated his Fifth and Sixth Amendment rights. He also filed a separate motion to dismiss Count Five as barred by the five-year statute of limitations in 18 U.S.C. § 3282 because it was filed over five years after the alleged false statement was made. He asserted that Count Five was filed five years and forty-two days after the alleged false statement was made even though the Government had all relevant information to charge him with that offense for at least three years before the Third Superseding Indictment. The Government opposed both motions and argued that the statute of limitations had been tolled due to the delays arising from its compliance with the district court’s COVID orders [*4] and from delays in processing Justice Department approvals during the pandemic. It further argued that the discovery of evidence of Plezia’s involvement in Stern’s scheme was hindered by COVID delays related to several steps of the investigation which prompted the addition of Count Five. 

Trump Superseding Indictment: More on the Defraud / Klein Conspiracy (8/28/24)

The D.C. grand jury approved a superseding indictment against former President Trump (“Trump”). The superseding indictment is on CourtListener here. The principal purpose of the superseding indictment is to eliminate charges that might implicate the President’s immunity as stated in Trump v. United States, 603 U. S. ____, 144 S. Ct. 231 (2024).

The Introduction to the superseding indictment contains a good summary on the issue I discuss in this blog – the defraud conspiracy in 18 U.S.C. §371 (Superseding Indictment pp. 1-3, ¶¶ 1-5).

INTRODUCTION

          1. The Defendant, DONALD J. TRUMP, was a candidate for President of the United States in 2020. He lost the 2020 presidential election.

          2. Despite having lost, the Defendant-who was also the incumbent President-was determined to remain in power. So, for more than two months following election day on November 3, 2020, the Defendant spread lies that there had been outcome-determinative fraud in the election and that he had actually won. These claims were false, and the Defendant knew that they were false. But the Defendant used his Campaign to repeat and widely disseminate them anyway-to make his knowingly false claims appear legitimate, create an intense national atmosphere of mistrust and anger, and erode public faith in the administration of the election.

          3. As a candidate and a citizen, the Defendant had a right, like every American, to speak publicly about the election and even to claim, falsely, that there had been outcome determinative fraud during the election and that he had won. He was also entitled to formally challenge the results of the election through lawful and appropriate means, such as by seeking recounts or audits of the popular vote in states or filing lawsuits challenging ballots and procedures. Indeed, in many cases, the Defendant did pursue these methods of contesting the election results. His efforts to change the outcome in any state through recounts, audits, or legal challenges were uniformly unsuccessful.

          4. Shortly after election day, the Defendant also pursued unlawful means of discounting legitimate votes and subverting the election results. In so doing, the Defendant  perpetrated three criminal conspiracies:

                   a. A conspiracy to defraud the United States by using dishonesty, fraud, and deceit to impair, obstruct, and defeat the lawful federal government function by which the results of the presidential election are collected, counted, and certified by the federal government, in violation of 18 U.S.C. § 371;

                   b. A conspiracy to corruptly obstruct and impede the January 6 congressional proceeding at which the collected results of the presidential election are counted and certified ("the certification proceeding"), in violation of 18 U.S.C. § 1512(k); and

                   c. A conspiracy against the right to vote and to have one's vote counted, in violation of 18 U.S.C. § 241.

Each of these conspiracies-which built on the widespread mistrust the Defendant was creating through pervasive and destabilizing lies about election fraud-targeted a bedrock function of the United States federal government: the nation's process of collecting, counting, and certifying the results of the presidential election ("the federal government function").

More on United States v. Boler (8/25/24)

Yesterday, I wrote a blog entry on United States v. Boler, 115 F.4th 316 (4th Cir. 2024). Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Crimes Blog 8/24/24), here. (The blog entry was cross-posted on my Federal Tax Procedure Blog, here.) I think there is more that can and should be said about Boler. This post will be more of a “notice” post (like the fabled notice pleading lawyers at least of my generation learned about early in our law school careers).

1. The structure of the Federal Sentencing Guidelines. The 2023 version of the U.S. Sentencing Guidelines is here. The Guidelines (with accompanying Commentary and Policy Statements) are promulgated by the U.S. Sentencing Commission which is “a bipartisan, independent agency located in the judicial branch of government, was created by Congress in 1984 to reduce sentencing disparities and promote transparency and proportionality in sentencing.” See website here. So, we know at the outset that it is a strange creature in our constitutional framework—the only agency located in the judicial branch. 

JAT Side Note: Readers of this blog will surely have some passing acquaintance with the difficulty going back to the 1940s of determining precisely what the Tax Court was, even though the statute said since its earliest days (then the Board of Tax Appeals) that the Tax Court was an independent agency in the Executive Branch. As I have noted, the nature of the Tax Court was an issue was much discussed with more heat than light in the 1940s, including in the consideration of the APA; the Supreme Court in Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944), a unanimous opinion authored by Justice Jackson, the most tax procedure savvy Justice ever, held that the Tax Court was an agency rather than a court and applied Chevron-like deference to its statutory interpretations. I cover these issues in John A. Townsend, The Tax Contribution to Deference and APA § 706 (SSRN December 14, 2023), pp. 5-23)   https://ssrn.com/abstract=4665227.

2. Guidelines treated as Legislative Rules; Commentary Treated as Interpretive Rules. As an agency, albeit a Judicial Branch agency, the issue underlying Boler was the authority of the Guidelines and the Policy Statements and Commentary. In Stinson v. United States, 408 U.S., 36 (1993), GS here, the Court treated the Guidelines as analogous to legislative rules which make law pursuant to Congress’ delegation and treated Commentary as an interpretive rule interpreting the law (the law being the Guidelines). The Court said (p. 44-45, cleaned up to omit most case citations):

Although the analogy is not precise because Congress has a role in promulgating the guidelines, we think the Government is correct in suggesting that the commentary be treated as an agency's interpretation of its own legislative rule. The Sentencing Commission promulgates the guidelines by virtue of an express congressional delegation of authority for rulemaking, and through the informal rulemaking procedures in 5 U. S. C. § 553, see 28 U. S. C. § 994(x). Thus, the guidelines are the equivalent of legislative rules adopted by federal agencies. The functional purpose of commentary (of the kind at issue here) is to assist in the interpretation and application of those rules, which are within the Commission's particular area of concern and expertise and which the Commission itself has the first responsibility to formulate and announce. In these respects this type of commentary is akin to an agency's interpretation of its own legislative rules. As we have often stated, provided an agency's interpretation of its own regulations does not violate the Constitution or a federal statute, it must be given "controlling weight unless it is plainly erroneous or inconsistent with the regulation." Bowles v. Seminole Rock & Sand Co., 325 U. S. 410, 414 (1945). 

Bowles v. Seminole Rock is the predicate for Auer deference which I now call Auer/Kisor deference because of the authoritative treatment of Auer deference in Kisor v. Wilkie, 588 U.S. 558 (2019). As I discussed in yesterday’s blog on Boler, the issue was the application of Auer deference to Guidelines’ Commentary (Application Note) defining the Guidelines term “loss” to include “intended loss.”

3. Did Auer/Kisor Deference Survive the Demise of Chevron. One of the issues I presented in yesterday’s blog was whether Auer/Kisor deference survived the demise of Chevron deference. I just want to make a few bullet points about that issue.

Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (8/24/24)

 In United States v. Boler, 115 F.4th 316 (4th Cir. 2024), CA4 here and GS here [to come], the Court held that the term loss included the pecuniary loss that Boler intended from filing false refund claims with the IRS. Boler filed six returns claiming false refunds; the IRS paid refunds on only four of the returns. Boler wanted the loss to be calculated using only the amounts actually refunded and thus to exclude the refund amounts claimed but not refunded. The district court held that Sentencing Guidelines inclusion of loss included intended loss. Since the pecuniary loss is a principal driver of the Sentencing Guidelines calculations, the inclusion of the intended loss increased the advisory Guidelines sentence and factored into the resulting sentence. On appeal, Boler argued that the Guidelines required inclusion of the loss, which facially does not include intended loss and that, the Guidelines Commentary interpretation of “loss” to include intended loss was an invalid interpretation of the Guidelines term “loss.” The Court of Appeals held that loss included the intended loss. (This is perhaps a moot issue in the future, because the definition of loss in the Guidelines was changed effective November 1 to include intended loss.)

The issue, as framed by the majority, turned on the application of Auer/Kisor deference. So, what is Auer/Kisor deference? As interpreted in Kisor v. Wilkie, 588 U.S. 558 (2019), GS here, the Court updated and constricted Auer deference, but, as constricted, held that in some cases courts should defer to agency interpretations of ambiguous agency legislative regulations. The majority in Loper Bright did not mention Auer/Kisor deference, although it cited Kisor several times; the dissent said (S.Ct. at 2306-2307) that Kisor approved Auer deference “which requires judicial deference to agencies' interpretations of their own regulations.” (Hereafter, whenever I use the term regulations, I mean agency notice and comment regulations required for legislative regulations and permitted for interpretive regulations.) The Loper Bright opinions make no statement that Auer/Kisor deference is affected.

I should note that, in my thinking, the Court analogized Auer/Kisor deference to Chevron deference which applied to agency regulations’ interpretations of ambiguous statutory text. The analogy is logical: Chevron deference applied to agency regulations interpretation of law (there statutory law); Auer deference applied to agency interpretations of law (legislative regulations that function like statutes to impose the law); so both forms of deference apply to agency interpretations of law.

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):

Sentencing Guidelines under the Loper Bright Non-Deference Regime (8/7/24; 10/15/24)

Three leading authorities on federal sentencing have co-authored an article that might be of interest to those interested in the confluence of federal sentencing and the demise of deference in Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S. Ct. 2244 (2024), SC Slip Op. here & GS here. The article is Mark Allenbaugh, Doug Passon, and Alan Ellis, Post-Chevron, Good Riddance To The Sentencing Guidelines (Law 360 7/15/24), here. I learned from the article and made appropriate changes to the federal crimes section of the 2025 working draft of my Federal Tax Procedure book.

The authors engage Loper Bright over the Sentencing Guidelines. The authors note that there are two key categories within the Guidelines.

• The Guidelines which “are the equivalent of legislative rules adopted by federal agencies,” quoting Stinson v. United States, 508 U.S. 36. 41, 45 (1993). The Guidelines are thus like, in the Treasury context, the consolidated return regulations under § 1502 which contain many rules (including interpretations of the rules). They are the law if within the legislative rulemaking authority conferred by Congress.
• What I call Sub-Guideline Rules which are Policy Statements and Commentary (including Application notes). Sub-Guidelines rules are not legislative rule-equivalents but more like interpretations of the regulations-equivalent Guidelines. Since they are not law but interpretations, they can be tested for validity of the interpretation.

As I said, legislative rules are the law if within the scope of the authority delegated and thus are not tested as to whether “reasonable” (under Chevron) or “best” (under Loper Bright). They are the law if within the scope of the legislative rulemaking authority granted. While an unreasonable definition in a legislative rule would likely be rejected as arbitrary and capricious (which could overlap but was never the same as the reasonableness test under Chevron), so long as the interpretation in a legislative rule is reasonable, it should be the law, just as interpretations and definitions in the consolidated return regulations under § 1502 are the law. (I know, this sounds like smuggling in Chevron deference, but I am just applying the traditional distinction between legislative rules and interpretive rules which Loper Bright did not reject.)

Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (8/3/24; 8/6/24)

In United States v. Lingat, (S.D. N.Y. No. 1:21-cr-00573 Dkt # 191 Opinion & Order 7/30/24), CL here & GS here [to come], the court rejected the defendants’ motions for acquittal after conviction. The defendants asserted as a principal basis for the motions United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), here, cert. den. 571 U.S. 819 (2013) which questioned the Klein defraud conspiracy (the § 371 defraud conspiracy) for which the defendants were convicted. In affirming the Klein defraud conspiracy convictions, Coplan strongly questioned the validity of the Klein conspiracy but was compelled to follow Supreme Court opinions approving the broad interpretation of the defraud conspiracy. 

I believe that most readers of this blog are familiar with the Klein conspiracy and perhaps even the saga of Coplan. The Second Circuit in Coplan was concerned that, through an expansive reading of the text of § 371, the Supreme Court had judicially created the Klein conspiracy crime to include an object to impair or impede the function of Government without any fraud in its traditional meaning for criminal statutes to deprive another of money or property. In short, the defraud conspiracy does not require fraud, at least fraud as the word is used in other criminal statutes. For readers wanting a short summary, I link a section of my Federal Tax Procedure Book (Practitioner Ed. 2024), pp. 318-319, here. I have posted a number of blogs on the issue presented in Coplan, but here will just link to some of the more prominent blogs. Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here; Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here; and Oral Argument in Supreme Court Case on Trump Immunity Discussing the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 4/26/24), here.

The key troubling aspect of the Klein conspiracy is that the precedent going to Hammerschmidt v. United States, 265 U.S. 182 (1924) and even earlier is now certainly “settled law,” a refrain we have heard so much over the last few years as the Court’s current conservative super-majority court has “unsettled’ much “settled law.” I think the Court’s super-majority has been unsettling too much settled law. But, if the Court's super-majority really wants to fix something worth fixing, it could not find a more worthy issue than the proper interpretation of the defraud conspiracy. Since first wading into the issue in the late 1990s and early 2000s, I have been convinced that the Court went too far in Hammerschmidt and its ilk and now should fix the issue simply because the defraud conspiracy can sweep too broadly. For my ruminations on that concern, see John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here, and its online appendix with examples Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? Online Appendix, 9 Hous. Bus. & Tax L.J. A-1 (2009), here.

Fifth Circuit Reversal of Count of Conviction Based on Statute of Limitations May Permit the Reversed Count Conduct as Relevant Conduct for Affirmed Count (7/28/24)

In United States v. Boswell, 109 F.4th 36 (5th Cir. 2024), CA5 here and GS here, the Court reversed Boswell’s conviction for bankruptcy-fraud conviction (Count One) and affirmed his conviction for tax evasion (Count Two).

The Court reversed the bankruptcy-fraud conviction based on the indictment being untimely under the 5-year statute of limitations. When Count One was originally indicted as a one-count indictment, the indictment was obtained within the 5-year period but the Government sought and obtained a sealing order for the indictment. Then, about 6 months after the 5-month period expired, the Government obtained a superseding indictment adding tax evasion (Count Two), and the indictment was unsealed. The tax evasion statute of limitations is 6-years, so that Count was clearly timely.

The Court reversed the bankruptcy-fraud conviction because the Government failed to adduce a satisfactory reason for the Government to obtain an order sealing the original indictment. The Court relied principally upon the reasoning United States v. Gigante, 436 F. Supp. 2d 647 (S.D.N.Y. 2006) which dismissed because the Government’s claims for need of a superseding indictment were rejected. Hence, the Court reversed the bankruptcy-fraud charge (Count One) for failure to satisfy the required statute of limitations.

The conviction on the tax evasion count (Count Two) was affirmed. The Court rejected Boswell’s various claims on Count Two, holding: (i) the two convictions were not inextricably intertwined so that improper conviction on Count One required reversal on Count Two, (ii) the trial court properly rejected Boswell’s request for a bill of particulars on Count Two; (iii) there was no variance between the evidence and the tax evasion crime charged in Count Two, so Boswell was not surprised by the evidence at trial; (iv) there was no constructive amendment of Count Two as charged; (v) the evidence was sufficient to support the jury verdict; and (vi) the errors, if any, did not support application of the “cumulative error” doctrine permitting reversal for individual nonreversible errors which in the aggregate impaired the right to a fair trial.

All of this is fairly routine. I post on the case to address a related issue regarding sentencing calculations.

Federal Tax Procedure Book 2024 Editions on SSRN (7/26/24)

The 2024 versions of the Federal Tax Procedure Book are now posted on SSRN. SSRN still has to approve them, but those interested can view or download them in the interim. See here.

Fourth Circuit Rejects Defendant's Collateral Attacks on Tax Perjury and Obstruction Convictions (6/8/24)

In United States v. Sutherland, 103 F.4th 200 (4th Cir. 2024), CA4 here and GS here, the Court rejects the criminal defendant’s collateral attacks on convictions for filing false tax returns and obstructing an official proceeding. (The latter conviction was for delivering false documents to the government attorney assisting the grand jury in the tax crimes investigation.) The collateral attacks were mounted by a petition under 28 USC § 2255 and a petition for the writ of coram nobis. The principal claim for both methods of collateral attack was an alleged ineffective assistance of counsel (“IAC”) at the criminal trial where the defendant was convicted. The defendant appealed the convictions, and the Fourth Circuit affirmed. United States v. Sutherland, 921 F.3d 421 (4th Cir. 2019), GS here; see also Obstruction Conviction Affirmed for Presentation of False Documents to AUSA Serving as Attorney for Government for Grand Jury (Federal Tax Crimes Blog 4/26/19), here.

I post to this blog primarily to refer readers to the excellent discussion of the collateral attack remedies under § 2255 and coram nobis. Readers wanting the nuance should read the opinion (19 pages, but worth the read). Key summary points are:

1. The principal IAC claim was that defendant’s trial counsel in the criminal trial gave inadequate representation at trial and at sentencing because of failure to present expert tax testimony that would have shown he did not owe the amount of tax claimed by the Government. The Court of Appeals describes this testimony at sentencing as (Slip op. 4-5):

Seeking to mitigate the U.S. Sentencing Guidelines loss calculation in his presentence report, Sutherland presented testimony from Jayne Frazier, a certified public accountant. Frazier reviewed Sutherland’s tax returns for the years 2007 to 2010 and testified that Sutherland had underreported his income by hundreds of thousands of dollars in the relevant timeframe. Despite that fact, she testified that Sutherland’s total tax liability for that period was less than the Government alleged because Sutherland failed to claim various business-expense deductions in 2008, 2009, and 2010, which, if claimed, would have reduced his taxable income for those years. Notably, however, Frazier did not independently audit Sutherland’s tax returns, and her calculations were based largely on information provided by Sutherland, much of which could not be corroborated by itemized receipts or other documentation. See, e.g., J.A. 1230 (Frazier testifying that her calculations included hundreds of thousands of dollars of unclaimed business expenses that were “all cash”). She [*5] also stated that her income calculations for Sutherland excluded approximately half of the $2 million in transfers from STS to Sutherland’s companies because it was her “understanding” that those funds came from a line of credit in favor of STS and thus would be “treated as loan advances” and not “taxable income.” J.A. 1209.

          The district court overruled Sutherland’s objection to the presentence report’s loss calculation, finding that Sutherland’s “self-reported information” to Frazier “was not reliable.”

2. In February 2021, after completing the period of supervised relief on the tax convictions but before completing the period of supervised relief on the obstruction conviction (not sure why they would be different), the defendant filed (1) the “§ 2255 petition [which] targets the obstruction conviction” and (2) the coram nobis petition which “targets the tax fraud convictions.” (Actually, the convictions were for filing false tax returns, commonly called tax perjury, rather than “tax fraud” which is commonly called tax evasion.) The Court explains why defendant chose the two collateral attack procedures (Slip Op. 6 n. 1):

Sentencing Guidelines Amendment Eliminates Acquitted Conduct from Sentencing Calculations (6/6/24; 6/11/24)

Effective 11/1/24, the U.S. Sentencing Commission has eliminated acquitted conduct as relevant conduct under §1B1.3 to enhance sentencing calculations. See Sentencing Commission web page titled "2024 AMENDMENTS IN BRIEF: Acquitted Conduct," here. 

Of course, because the Guidelines were advisory, a sentencing judge did not have to consider acquitted conduct as relevant conduct in imposing sentence, although the judge might feel compelled to include acquitted conduct in calculating the advisory Guidelines sentence. Under the prior rules, the acquitted conduct could be considered only if the judge found the acquitted conduct by a preponderance of the evidence.

The announcement caveats that “This amendment does not comment on the use of uncharged, dismissed, or other relevant conduct as defined in §1B1.3.” What does that mean? Well, for example, it means that a plea bargain dismissing counts permits the sentencing judge to consider the dismissed counts as relevant conduct, provided that by sentencing the judge is convinced by a preponderance of the evidence that the defendant committed the relevant conduct crimes. Same for uncharged conduct. (PSRs often note, particularly for dismissed counts, that the sentencing calculations are the same as if the dismissed counts were counts of conviction.)

There are other amendments that are potentially applicable in tax crimes or FBAR crimes cases. Readers might want to review the Sentencing Commissioner web page titled “Amendments in Brief,” here.

Added 6/11/24 10:00 am:

I offer more on the amendment to prohibit conduct behind “not guilty” verdicts from the Guidelines sentencing calculations. I picked up this blog on the Sentencing Commissions decision: Ellen Podgor, Sentencing Commission Change - Acquitted Conduct - "Not Guilty Means Not Guilty" (White Collar Crime Blog 5/24/24), here. I just wanted to clarify why the Guidelines ever included acquitted conduct as relevant conduct and what the practical effect of the elimination of acquitted conduct in the formal Guidelines calculations may be.

On Unanimity - the Trump NY False Documents Conviction and Federal Conspiracy Law (6/5/24)

I will post at least this blog dealing with conceptual overlaps from the Trump trial and conviction in the New York Supreme Court (trial level).

Readers surely recall that Trump’s false records case, generally a misdemeanor, was elevated to a low-level New York felony if the records were falsified with an intent to commit or conceal another crime. The other crimes are called “predicate’ crimes. See Josh Gernstein, Judge: To convict Trump of felonies, jury does not need to unanimously agree on what 'predicate' crime he committed (Politico 5/21/24), here. At trial, the prosecutors asserted three possible other crimes: “a tax crime and violations of state or federal election law.” Id. Readers of this blog should be thoroughly familiar with use of falsified records as tax crimes. The backdrop of the underlying facts made “state or federal election law” crimes possibilities. The judge ruled and so instructed the jury that, in order to convict for the felony, the jury had to find for each count a predicate crime but need not be unanimous as to the predicate crime.

There is an analog to this holding in federal criminal law of conspiracy. Conspiracy requires, among other elements, an object to commit an offense (offense conspiracy) or defraud the Government (defraud/Klein conspiracy. 18 USC § 371, here. In the infamous Leona Helmsley criminal tax trial, the indictment charged a single count alleging both an offense conspiracy and a defraud conspiracy. United States v. Helmsley, 941 F.2d 71, 91 (2d Cir. 1991), cert. denied, 502 U.S. 1091 (1992), here.  The Court rejected the argument that, as charged, the jury did not have to be unanimous as to the type of conspiracy. The Court held that any confusion was cured by the jury instructions requiring unanimity  on “the specific object the defendant agreed to try to accomplish”). See Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters), current online edition at ¶ 12.03[1][c][vi][A].

There is another analog federal conspiracy law. Conspiracy requires, among other elements, an overt act. I quote the following from Michael Saltzman and Leslie Book, ¶ 12.03[1][c][vi][A] General conspiracy statute:

Federal Tax Crimes Blog Total Pageviews Hit 10 Million + and Thoughts on Comments to Blogs (5/25/24)

I just noticed in the innards of this Federal Tax Crimes Blog that the blog has had over 10 million pageviews. I went into the design features and found a “gadget” that I added to the right-hand column with the total pageviews which, as of this posting, was 10,092,710.

On Blog Comments:

The comments feature (by Disqus) for some reason unknown to me does not seem now to work for readers of this blog anymore. I don’t have the technical skills to make the nested comments feature work, so I will soon go back to the Google blogspot comments feature which will work without nesting offered by Disqus. Nesting, by the way, permits responses to particular comments rather than simply first in first out,. When I do make that change, I think that all of the prior comments will go away and be lost forever. But, on an ongoing basis, this should permit comments for those wishing to share comments with readers.