Charging Decisions for Trust Fund Tax Crimes - 7202 or 7201 (12/22/12)

In United States v. Farr, 701 F.3d 1274 (10th Cir. 12/27/12), here, the defendant served as administrator of her late husband's medical clinic.  The clinic did not withhold from its employees (by paying them net of withholding) but failed to pay over the deemed withheld amount to the Government.  The IRS assessed a trust fund recovery penalty (TFRP) under Section 6672, here.  She dilly-dallied.  "When . . . Farr did not pay the penalty assessed against her, a civil proceeding evolved into a criminal one."  The Government then charged her with tax evasion under Section 7201, here.  After some trial level sparring and some appeals, the Government sought a new indictment for tax evasion under Section 7201.  The defendant was convicted.  This appeal ensued.

The key issue in this appeal that I want to discuss is defendant's argument that the conviction should be reversed because the Government improperly charged her for tax evasion under Section 7201 rather than for willful failure to collect and pay over under Section 7202, here.  Her argument, as stated by the Court of Appeals, was:

Farr argues, as she did in her motion to dismiss, that the Internal Revenue Code (IRC) "provides a specific criminal penalty for those responsible for collecting and paying trust fund taxes who willfully fail to do so under § 7202." App. at 29-30. She argues that the indictment should therefore have charged her with violating § 7202 rather than § 7201. In support, she asserts that "[w]hile ordinarily the government is free to charge under whatever statute it deems appropriate under the facts in question, when Congress sets forth provisions governing the duties, penalties, and procedures with respect to specific conduct or individuals as it did in Section[] 7202 . . . , the government may not ignore th[at] provision[] specifically deemed by Congress to be the appropriate vehicle under which to impose prosecution, simply because it favors another better." Id. at 31.

The Court of appeals rejected the argument as follows:

While the government undoubtedly could have charged Farr with violating § 7202, the focus of such a charge would have been different than the § 7201 charge alleged in the indictment. Given the clear language of § 7202, charging Farr thereunder would necessarily have had to focus on her obligation "to collect, account for, and pay over" the medical clinic's quarterly employment taxes for the 1999 tax year. In contrast, the § 7201 violation actually charged in the indictment focused on a related, but different obligation, i.e., Farr's obligation to pay the trust fund recovery penalty that was assessed against her under 26 U.S.C. § 6672 for failing to pay the medical clinic's quarterly employment taxes for the 1999 tax year. 

Moreover, case law fully supports, rather than undercuts, the government's decision to indict Farr under § 7201 rather than § 7202. To begin with, it is well established that "[c]harging decisions are primarily a matter of discretion for the prosecution," United States v. Robertson, 45 F.3d 1423, 1437 (10th Cir. 1995), and such "discretion is nearly absolute," id. at 1438. Consequently, "[w]hen a defendant's conduct violates more than one criminal statute, the government may prosecute under either (or both, for that matter, subject to limitations on conviction and punishment)." United States v. Bradshaw, 580 F.3d 1129, 1136 (10th Cir. 2009). And, "[a]bsent certain allegations of impropriety, it is not the role of the jury (or the judge) to decide whether the government has charged the correct crime, but only to decide if the government has proved the crime it charged." Id. Finally, Farr cites to no statutory provision or case law that would have, notwithstanding these general rules, required the government in this case to have charged her under § 7202 rather than § 7201. Thus, in sum, we conclude that the district court properly denied Farr's motion to dismiss the indictment.

It is not clear to me why the Government charged tax evasion under § 7201 rather than willful failure to collect and pay over under §  7202.  But it is clear that the Government has the choice.  I suppose that there might have been some statute of limitations difference that caused the Government to charge one rather than the other.

For my prior blogs on the prior skirmishing in the Farr criminal prosecution, see Evasion of Trust Fund Taxes and Charging Decisions (Federal Tax Crimes Blog 1/23/2012), here (covering a prior Tenth Circuit nonprecedential decision covering some of the same issues in the context of an appeal over the denial of bail) and Tenth Circuit Summarizes Double Jeopardy in Rejecting the Argument (Federal Tax Crimes Blog 1/16/10), here.