Friday, November 15, 2013

Daugerdas Retrial Jury Instructions - Part 05 General Criminal Tax Instructions (11/14/13)

Judge Pauley's general criminal tax law instruction is:
General Instructions on Criminal Tax Law 
I will now turn to the charges in this case. The charges all relate to the federal tax laws and to the defendants’ design, marketing and implementation of the tax shelters that you have heard about at trial.  
I instruct you first that the income tax laws are constitutional and valid and everyone has a legal obligation to pay income taxes. However, as I told you at the outset, a taxpayer is entitled to arrange his or her affairs in any lawful manner to minimize the payment of taxes. One of the ways that people minimize the payment of taxes is through a tax shelter. The term “tax shelter” simply refers to a series of financial and related transactions that offer substantial tax savings as one of its main benefits. Some tax shelters are legal; others are not. It all depends on the facts about the individual taxpayer and the tax shelter involved. It is perfectly proper for a taxpayer to file his or her returns based on an aggressive or debatable tax position. If that position turns out to be incorrect, the taxpayer may be required to pay certain penalties. But this case is not about the actual collection of any income taxes that may be due to the United States or penalties imposed on any of the tax shelter clients. This is a criminal case.  
The Government brings this case to enforce laws that make it a crime to attempt to defeat or evade the payment of income taxes or to conspire to commit tax evasion or other related crimes. In a little while, I will instruct you in detail on the elements of a criminal violation of the tax laws. Overall, what you should keep in mind is that a person cannot be guilty of violating the federal tax laws if he believed that his conduct was lawful, even if it turns out that he was wrong about the law. 
JAT Comment:  The following key points are made:

  1. Taxpayer can arrange his affairs to pay the minimum tax.
  2. Tax shelters are defined as "simply" referring "to a series of financial and related transactions that offer substantial tax savings as one of its main benefits."
  3. The jury is told that some tax shelters are legal, some are not -- with the distinction being dependent "on the facts about the individual taxpayer and the tax shelter involved."
  4. The Court says that it will instruct as to the "criminal violation of the tax laws," which is presumably how the jury will distinguish between a legal tax shelter and an illegal tax shelter.
  5. The Court ends with the short-form Cheek instruction.  The Court does have a Cheek "good faith" defense instruction later, after instructing about the crimes charged.  I will present a separate blog on that instruction.
The full set of jury instructions is linked here.


  1. Jack, as I expressed my opinion to you that current IRS efforts are not about compliance but rather about maximizing revenue there is another chapter opening up again and I believe this is now the third attempt . This time under "Options for reducing the deficit " which is again looking for ways to extort even more tax $ from the 7 million expats living and working abroad. They claim again that killing the FEIE and FHD would raise > $7 billion p.a. To quote the CBO : "One rationale for eliminating the partial exclusion for foreign earnings is related to a certain concept of equity—that U.S. citizens with comparable income should incur similar tax liabilities, regardless of where they live. Under the option, people could not move to low-tax foreign countries to escape U.S. tax liability while retaining the benefits of U.S. citizenship." Jack did you know that for expats who live in a foreign country and receive unemployment or disability payments/benefits from them (funded out of high taxes you paid in prior years), the U.S. considers that “unearned income” and taxes you on it without any FEIE ?
    I think so far the continued efforts of a few to educate Congressional staffers on the uniqueness of the U.S.’ system of citizenship-based taxation has stopped this madness from being implemented otherwise the only USPs abroad will be tourists and military personal.

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