More on Collateral Consequences -- Willfulness in OPR Proceedings

I recently wrote here on the OPR collateral consequences of tax crimes and conduct that might be tax crimes. That blog was about the buzz created by the Appellate Authority’s dicta ruminations that perhaps something less stringent than the Cheek criminal willfulness standard is appropriate for sanctions that require willfulness. I suggested that willful is a term of art that should continue to be interpreted as it has in the past. I do acknowledge the comment by one of my co-authors on Tax Crimes, Steve Johnson, that, in the real world of deciding these cases, it is unclear whether different results would obtain in the real world even if a somewhat less stringent interpretation were used. See Jeremiah Coder, Is a New Willfulness Standard at Play in Circular 230 Hearings?, 126 Tax Notes 718 (Feb. 8, 2010).

I write again to address a related nuance. In a decision by the prior Appellate Authority in Director, OPR v. Chandler (April 2008) involving a practitioner’s failure to file for 3 years, the Appellate Authority first discussed the Cheek standard of willfulness and seemed to conclude that it requires the intentional violation of a known legal duty. This is, of course, the criminal standard and it appears from the decision that was the standard that he was applying. At least it appeared that way until the end when the Appellate Authority says (bold supplied by JAT):

As to whether a person has an obligation to file a tax return and when, and whether that question falls into the first category or the second, the Supreme Court has also answered that question, albeit in a different context. In Boyle, the issue before the Supreme Court was whether the duty to file a tax return was personal or could be delegated to a tax advisor assisting the taxpayer (in that case, an estate fiduciary). The Supreme Court found that the duty to file a tax return was a nondelegable duty and that the person with the duty to file could not rely on a tax advisor to do so and thereby remove himself from exposure to penalty. In doing so, the Supreme Court distinguished between situations where it was reasonable to allow a person to rely on an attorney's or accountant's advice (as when determining whether a liability exists) and situations where one does not have to be an expert to know that an obligation exists (such as knowing that tax returns have fixed filing dates and that taxes must be paid when due). 469 U.S. at 249-251. Given that the Instructions in the Form 1040 packages for the years in issue and for each taxable year since I began practicing tax law (in 1971) have clearly set forth who had an obligation to file a Federal income tax return each year, I find it improbable that Respondent-Appellant would have honestly believed that he only had a duty to file a Federal Income tax return if he had tax liability. n13 In any event, I find such a belief, even if honestly held, objectively unreasonable and hence not a defense to willfully failing to timely file his returns for 2000, 2001 and 2003. I therefore find each of Respondent-Appellant's three failures to file to have been "willful."

n13 In each of the three years in issue, the obligation to file a Federal income tax return depended solely on the taxpayer's filing status and whether the taxpayer(s) gross income exceeded specified "floor" amounts that differed based on the taxpayer(s)' filing status.

In the proceeding, OPR was required to prove willfulness by clear and convincing evidence.  Yet the Appellate Authority seems to have based his decision more on a hunch of improbability, hardly the stuff of clear and convincing evidence and, moreover, articulates a standard of willfulness that is not the Cheek standard.  Chandler was not a protestor or defier case in which the defendant was raising constitutional arguments that he was not subject to tax (a defense in any event foreclosed by Cheek). The issue in Chandler was whether he had the required mens rea – in this case, willfulness – to have committed the conduct alleged and whether OPR had shown that by clear and convincing evidence. My reading of Cheek is that objective unreasonable but sincerely held beliefs are not willful. I find the Appellate Authority's discussion of Boyle as somehow mitigating that standard to be unconvincing.  So, my reading is that, although he said he was applying the Cheek standard, he did not.