Thursday, January 16, 2014

The Intersection of Conspiracy and Tax Obstruction (7212(a)) (1/16/14)

In United States v. Floyd, ___ F.3d ___, 2014 U.S. App. LEXIS 253 (1st Cir. 2014), here, the First Circuit panel affirmed the defendants' convictions and sentencings arising from their tax evading payroll tax scheme and warehouse banking scheme.  Judge Selya (Wikipedia here) wrote the decision for the panel. (More on Judge Selya at the bottom of this blog.)

The defendants were convicted of two counts of the defraud / Klein conspiracy under 18 USC 371, here -- one count for the payroll tax scheme and the second count for the warehouse banking scheme.  The Klein conspiracy is a conspiracy to impair or impede the lawful functioning of the IRS.  The defendants were also convicted of tax obstruction under Section 7212(a), here, which criminalizes impairing or impeding the lawful functioning of the IRS.

Klein Conspiracy and Tax Obstruction

The Court's affirmance of the conspiracy convictions seem fairly routine -- at least I don't think they are worthy of discussing here.  Moreover, the affirmance of the tax obstruction convictions is also routine and not otherwise noteworthy.  What is noteworthy, is the reminder that the conspiracy and the substantive counts were so closely related in the conduct involved, with the key difference that conspiracy is not the same crime as the substantive counts.  Ianelli v. United States, 420 U.S. 770, 781-2 (1974), citing Pinkerton v. United States, 328 U.S. 640, 643 n. 11 (1946).  In other words, the conspiracy is based on the agreement to obstruct rather than the obstruction itself, except of course the pesky overt act requirement.  Indeed, in this regard, some persons (including me) have referred to tax obstruction as a one-person conspiracy.  See also David F. Axelrod, Larry A. Campagna, James A. Bruton III, The “New” Tax Laws - 26 U.S.C. Section 7212(a) and the One-Person Conspiracy (Paper prepared for ABA National Institute on Criminal Tax Fraud in 1999).  The notion of a one-person Klein conspiracy is an oxymoron, of course, but the oxymoron conveys some truth.

I previously discussed the relationship between tax obstruction and the Klein conspiracy.  See Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (Federal Tax Crimes Blog 5/26/11), here.  Here are key excerpts:
2. As the Klein conspiracy is defined by the courts (a broader definition than the word defraud would normally connote), the two crimes substantially overlap in targeting conduct which impairs or impedes the lawful functions of the IRS. The difference is that the conspiracy requires two or more actors pursuant to a conspiratorial agreement whereas tax obstruction only requires a single actor (although it can include multiple actors as well). Because the interpretations overlap, tax obstruction may be viewed as a one person Klein conspiracy. (I realize that statement technically is an oxymoron, but the larger point, I think is correct; see CTM 17.02 (2001 ed.) where DOJ Tax asserted that tax obstruction may be charged where the Klein conspiracy is “unavailable due to insufficient evidence of conspiracy,” although that statement is omitted from the 2008 ed.)  
3. With this overlap in interpretation, the Government could take the standard formula of the Klein conspiracy (impair or impede, etc.) and turn the alleged conspiracy into an offense conspiracy to violate Section 7212 rather than couching it in defraud conspiracy lingo. That's not the way the Government does it, but it seems to me that that is the practical effect of this overlap. Or, I suppose, a conspiracy to impair or impede can simultaneously be both an offense conspiracy to violate Section 7212(a) and a Klein / defraud conspiracy.
See also Jury Instructions in Tax Obstruction and Klein Conspiracy Case (2/6/13), here, and John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here.

Joinder and Severance

The Court does have an interesting discussion of joinder/severance.  I thought it was interesting to illustrate different defense strategies by co-defendants.  Here is the discussion:\
We come now to the defendants' shared claim that they should not have been tried together with Adams. This claim arises at the intersection of Federal Rule of Criminal Procedure 8(b), which permits the joinder of two or more defendants in a single indictment, and Federal Rule of Criminal Procedure 14, which empowers the district court to sever a defendant for purposes of trial if joinder "appears to prejudice" him. 
This intersection has been extensively mapped. The general rule is that defendants who are properly joined in an indictment should be tried together. See United States v. O'Bryant, 998 F.2d 21, 25 (1st Cir. 1993). This rule has special force in conspiracy cases, in which the severance of coconspirators' trials "will rarely, if ever, be required." United States v. Flores-Rivera, 56 F.3d 319, 325 (1st Cir. 1995) (internal quotation marks omitted). Because considerable deference is due to the trial court's superior coign of vantage, we review that court's ruling granting or denying a motion to sever for abuse of discretion. See United States v. Boylan, 898 F.2d 230, 246 (1st Cir. 1990).  [JAT sidenote:  I espied a new phrase in this paragraph -- coign of vantage -- the meaning of which I could iinfer by context,  but I did repair to a dictionary and confirmed that it means "an advantageous position; my spell check also did not recognize coign.]
The defendants' claim of error has two subsets. They start with the plaint that Adams's defense was both antagonistic to and irreconcilable with their defenses. We do not agree. 
The defendants and Adams were charged as participants in the payroll tax conspiracy. Unlike the defendants, Adams — who was also charged with three counts of tax evasion — decided to confess and avoid; that is, he admitted that he intentionally committed and facilitated the proscribed acts, but contended that his good-faith belief that he had no legal obligation to pay income taxes forestalled any finding of guilt. See Cheek v. United States, 498 U.S. 192, 203, 111 S. Ct. 604, 112 L. Ed. 2d 617 (1991). The defendants took a different tack: they eschewed an affirmative defense and instead questioned the adequacy of the government's proof that they acted unlawfully. 
Defenses are not antagonistic merely because they are not congruent. "In order to gain a severance based on antagonistic defenses, the antagonism . . . must be such that if the jury believes one defendant, it is compelled to convict the other defendant." United States v. Peña-Lora, 225 F.3d 17, 33 (1st Cir. 2000) (alteration in original) (emphasis in original) (internal quotation marks omitted). Put another way, "the tension between defenses must be so great that a jury would have to believe one defendant at the expense of the other." United States v. Yefsky, 994 F.2d 885, 897 (1st Cir. 1993). 
No troubling antagonism existed here: the jury could have accepted both that Adams intentionally committed fraud and that the defendants lacked the same culpable state of mind. See, e.g., United States v. Voigt, 89 F.3d 1050, 1095-96 (3d Cir. 1996); United States v. Martinez, 979 F.2d 1424, 1431 (10th Cir. 1992); cf. United States v. Throckmorton, 87 F.3d 1069, 1071-72 (9th Cir. 1996) (finding severance not required when codefendant "intended to implicate [defendant], admit that the drug transaction occurred, but contend he was involved solely as a DEA informant"). While the defendants may have been uncomfortable with Adams's frank admissions, the defenses were neither irreconcilable nor even substantially incompatible. Accordingly, severance was not required on this basis. See United States v. DeCologero, 530 F.3d 36, 52-53 (1st Cir. 2008). 
The defendants' second ground for severance is equally unavailing. They assert that a spillover effect from Adams's presence as a defendant unfairly prejudiced them to such a degree as to require separate trials. Specifically, they assert that the evidence used to convict Adams (including Adams's own testimony) was bound to provide proof of their criminal intent — proof that would not have been admissible in a separate trial. 
These assertions contain more cry than wool. Demonstrating unfair prejudice sufficient to require severance of coconspirators' trials "is a difficult battle for a defendant to win." Boylan, 898 F.2d at 246. The defendants have not come close to winning the battle here. 
The defendants try to marry their claim of unfair prejudice to Adams's role in the Save-a-Patriot organization. But the defendants' ties with the Save-a-Patriot organization form a legitimate part of the government's case against them; and in any event, the record contains ample evidence, independent of Adams's testimony, to bind the defendants to the Save-a-Patriot organization. The most obvious example of this independent evidence is the defendants' membership in the organization. 
To be sure, the defendants might well have been advantaged by a separate trial. But that is not the test of whether severance must be granted. See id. (explaining that, in the severance context, "prejudice means more than just a better chance of acquittal at a separate trial" (internal quotation marks omitted)). 
We need not tarry. Much of the evidence about which the defendants complain would have been admissible against them even if they had been tried separately from Adams. It follows that this evidence does not furnish a plausible basis for severance. See O'Bryant, 998 F.2d at 26 ("Where evidence featuring one defendant is independently admissible against a codefendant, the latter cannot convincingly complain of an improper spillover effect."). For aught that appears, the remainder of the evidence, if prejudicial at all, caused nothing beyond the "garden-variety" prejudice that we consistently have found insufficient to require severance. Boylan, 898 F.2d at 246. 
We add a coda. To the extent that there was any spillover from evidence that might not have been admissible against the defendants in a separate trial, the district court took effective measures to palliate spillover prejudice. Where, as here, "[t]here were appropriate limiting instructions as to the admissibility of evidence against particular defendants and as to the need to determine guilt on an individual basis," id., no more is exigible. [JAT Note:  OK, palliate is not that uncommon; the definition as might be inferred is: "to make the effects of (something, such as an illness) less painful, harmful, or harsh."]
We conclude, without serious question, that the district court acted well within the encincture of its discretion when it denied the defendants' motions for severance.  [JAT Note: OK, context does infer the meaning, but I find that one definition of encincture is the process of surrounding with a cincture, which is a belt or girdle; example from Wordsworth: "The vast encincture of that gloomy sea"; got that?]
Federal Register Act

The Court dismissed the defendants claim that, under the Federal Register Act, 44 U.S.C. § 1505(a)(1), here, the tax obstruction statute was unenforceable in the absence of implementing regulations.  Describing the argument as "woven out of whole cloth," the Court said:
The defendants wrap their argument in the mantle of the Supreme Court's decision in California Bankers Ass'n v. Shultz, 416 U.S. 21, 94 S. Ct. 1494, 39 L. Ed. 2d 812 (1974). There, the Court concluded that the Bank Secrecy Act of 1970 was not "self-executing," id. at 64, so if the agency did not promulgate regulations, "the Act itself would impose no penalties on anyone," id. at 26. 
This precedent is inapposite. The Federal Register Act has been described as a "notice" statute. United States v. Floyd, 477 F.2d 217, 222 (10th Cir. 1973). It requires the publication of regulations, not their promulgation. See Kennecott Utah Copper Corp. v. U.S. Dep't of Interior, 88 F.3d 1191, 1205, 319 U.S. App. D.C. 128 (D.C. Cir. 1996) (explaining the purpose of the Act as "protect[ing] regulated entities from . . . the government's failure to publish duly-approved regulations"). The statute of conviction here is self-executing and no regulations are needed to effectuate it. See, e.g., Marek, 548 F.3d at 150, 155. This is why courts that have faced similar Shultz-based attacks on other provisions of the Internal Revenue Code have repulsed those attacks. See United States v. Dawes, 161 F. App'x 742, 745 (10th Cir. 2005); Watts v. IRS, 925 F. Supp. 271, 277 (D.N.J. 1996).
On Judge Selya's Writing Style

Finally, I should note that my side notes about Judge Selya's wording may be a bit picky.  Here is what Wikipedia reports about his propensity to use uncommon language (footnotes omitted):
Writing Style 
As a private practitioner, Selya was often lulled to sleep by the legalese and boilerplate rhetoric in judicial opinions, a matter he has sought to remedy since ascending to the bench: "I made a commitment to myself that I would attempt to prove that sound jurisprudence and interesting prose are not mutually exclusive."[10] Selya disclaims "lexiphanicism for its own sake." For Selya, precision is a precondition for his use of a word, and "[i]f it does not fit, I won't submit." 
Selya aspires toward readability by using uncommon words in contexts that make the words' meanings clear; and apart from his vocabulary, Selya's prose is notable for its readability and its avoidance of clotted or formulaic legal rhetoric. It is clear at least that Selya is widely read by his colleagues. Over the years 1998-2000, Selya numbered as the fourth most cited federal judge outside of the Supreme Court, as measured by the number of citations to his opinions from outside of his own circuit. Occupying the three positions above Selya were Judges Richard Posner, Frank Easterbrook, and Sandra Lynch. 
Selya's writing style is not without its critics. Boston attorney Harvey A. Silverglate has written that his opinions are "well known" for their "remarkably judgmental but politically naive language," and that "[i]t is not unusual to see Selya gratuitously criticize, in sarcastic and sometimes grandiloquent fashion, a party or witness. He has earned a reputation for tossing around both his power and trademark one-hundred-dollar words."

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