At the Civil and Criminal Penalties Section meeting (at the larger ABA Tax Section May Meeting), a panel discussed tax crimes in a tax shelter context. Kevin Downing, a DOJ attorney heavily involved in these prosecutions, pronounced that tax shelter prosecutions are not about complex tax interpretations; rather, those prosecutions are about the "lie." The lie may appear in the context of complex tax interpretations, but it is still the lie that is the criminal problem. Of course a lie may be a flat out falsehood as to the law, but these shelters often appear in contexts that, even when they approach the too good to be true category, they have some semblance of tax superstructure to avoid being a flat out lie. Usually, in this context, it is the assumptions of the factual underpinnings for the legal interpretation superstructure that is the problem. Prominently mentioned in this context are factual representations from the taxpayer that he or she has a business or profit motive independent of the tax benefits sought and has a reasonable prospect of making a profit in excess of the transaction costs.
The statement that the prosecutions are about the lies is a variation of the theme in the Enron prosecution where complex accounting issues were the backdrop, but the prosecutor distilled the criminal case to a simple theme “This is a simple case. It is not about accounting. It is about lies and choices.” John C. Hueston, Behind the Scenes of the Enron Trial: Creating Decisive Moments, 44 Am. Crim. L. Rev. 197, 207 (2007). The theme is also inherent in the larger white collar crime context. See e.g., Stuart P. Green, Lying, Cheating and Stealing: A Moral Theory of White Collar Crime (Oxford Univ. Press 2007). I discuss this subject in considerably more detail in my upcoming article for the Houston Business and Tax Law Journal, titled Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough? This article was written in conjunction with a seminar presentation at the University of Houston described here.
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