Odd Aiding and Assisting Case

In United States v. Davis, ___ F.3d ___ (5th Cir. 2010), Davis was a preparer who assisted taxpayers by preparing false returns. At Davis' recommendation, the taxpayer added near the signature and jurat the phrase "without prejudice." Davis and the taxpayer were indicted -- one count of conspiracy, 4 counts of tax perjury for the taxpayer, and 4 counts of aiding and assisting for Davis. After a bench trial, Davis was convicted on 3 counts of aiding and assisting.

On appeal, Davis argued that the addition of the without prejudice language negated the jurat, thus precluding him from being guilty of the aiding and assisting charge. Davis relied on certian civil tax cases that held that altering the jurat might in some cases negate it sufficiently that the taxpayer has not filed a return.

Section 7206(2) is the aiding and assistance statute, and says:

Any person who--

(2) Aid or assistance

Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document;

shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

So, as the court of appeals notes in a footnote at the conclusion of its discussion of Davis' argument, it does not matter whether the purported returns were or were not returns, for § 7206(2) covers other documents which are false as to any material matter. (See footnote 4.) Notwithstanding that Davis' argument was a nonsequitur that could have been (and I submit should have been) disposed of for that reason alone, the Court does address the merits of the argument as to whether the purported returns were returns.

After discussing the authority which, in civil cases, gives the IRS some leeway to speak from both sides of its mouth on the issue of whether a document is or is not a return because of alterations to the jurat, the Court concludes:

In cases such as this, where there is some ambiguity as to language's effect on the jurat, we agree with the Seventh Circuit that the IRS "should be entitled to construe alterations of the jurat against the taxpayer, at least when there is any doubt." Sloan, 53 F.3d at 800. "We refuse to require [the IRS] to engage in guessing games to determine what disclaimers like this one mean. To require such would drastically hinder the [IRS's] ability to process returns effectively and efficiently." Williams v. Comm'r., 114 T.C. 136, 142 (2000). Here, the IRS did not reject Oden's Forms 1040 based on the additional language. We therefore hold that the Forms 1040 were valid, though fraudulent, tax returns.

The problem, of course, in the case at hand was that the Government had determined that it was in the Government's interest to treat the purported returns as returns because it wanted to charge the taxpayer with tax perjury which, of course, requires returns. But, I wonder whether on these facts, a court might also sustain a failure to file, § 7203, charge against the taxpayer. In other words, does the ambiguity give the Government an election as to how to charge?

In this particular case, the Government would not have wanted to charge the taxpayer with failure to file because the really bad guy appears to have been the preparer and thus it needed an aiding and assisting charge to guard against Davis getting off with a full acquittal (assuming it was unable to sustain a conspiracy charge).