Monday, August 29, 2016

Government Avoids Hyde Amendment Fees and Expense Liability After It Blew the Criminal Statute of Limitations (8/29/16)

In United States v. Johnson, 2016 U.S. App. LEXIS 15879 (6th Cir. 2016), here, the Court of Appeals affirmed the district court's denial of recovery of attorneys fees and litigation expenses under the Hyde Amendment.  Under unusual facts (discussed in more detail below), the prosecutors obtained an indictment for tax perjury, § 7206(2), that was outside the criminal statute of limitations.  The prosecutors did not realize it at the time.  Indeed, when the defendant raised the issue before trial, the prosecutors constructed an argument that the indictment was timely.  The district court agreed with the prosecutors.  After a 5-day trial, the jury convicted the defendant.  The defendant appealed the conviction urging again that the indictment was untimely.  This time the Government confessed error in its answering appellate brief; the indictment had been untimely.  United States v. Johnson, 599 Fed. Appx. 242, 2015 U.S. App. LEXIS 5446 (6th Cir. 2015), here.  The case was remanded for dismissal. The current appeal was over the district court's denial of recovery of attorneys fees and expenses under the Hyde Amendment which "which permits an award of attorney's fees and other litigation expenses to the prevailing party in a federal criminal case if, among other requirements, the Government's position was vexatious, frivolous, or in bad faith."  As noted, the Court of Appeals affirmed the district court's disallowance of Hyde Amendment recovery.

Let's dig into the facts to set up the very nice procedural issues behind the statute of limitations in the case and why it had expired.  Students of tax procedure will understand the scenario almost instinctively.  I will set out each key fact with appropriate commentary and citation to relevant provision.

1.  The indictment for filing a false return was obtained on April 16 2013.  There is a six year statute of limitations from the date of filing.  § 6531, here.  That would mean the the filing of the return had to be on or after April 16, 2007.

2. The defendant filed his 2006 tax return in February 2007, well before the prescribed due date of April 15, 2007 prescribed in § 6072(a), here.  Section 6501(b)(1), here, provides that "a return * * * filed before the last day prescribed by law * * * shall be considered as filed on such last day."  See also DOJ CTM 7.02[1][a] General Rule, here.  If we stopped at this point, the defendant's 2006 return would be deemed filed on April 15, 2007, one day outside the statute of limitations and the indictment would be untimely.

3.  April 15, 2007, however, was a Sunday and the following day (Monday) was a holiday.  Section 7503, here, provides:  "When the last day prescribed * * * for performing any act falls on Saturday, Sunday, or a legal holiday, the performance of such act shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday, or a legal holiday."  (Bold face supplied by JAT.)  Now, as written, this statute does not change the last day prescribed by law, but simply says that returns filed on the next succeeding business day are deemed timely filed.  The normal due date is still the last day prescribed by law (April 15, 2007 in this case).  So, if the return had been filed by Tuesday April 18, it would not have been timely filed but would only have been considered to have been timely filed by the April 15, 2007 due date.  This analysis is confirmed in IRM (02-24-2010), Running of the Statute of Limitations, here, which says:
4. If the statutory due date falls on a Saturday, Sunday, or legal holiday, the filing of the return on the next succeeding business day is considered timely (see 26 USC §7503). However, the statutory due date remains unchanged. Therefore, the calculation of the statute of limitations in investigations involving early filed returns or failures to file should use the statutory due date regardless of the day of the week on which that date falls. See Rev. Rul. 81-269, 1981-46 I.R.B.13.
All of that is pretty straight-forward statutory analysis.  The IRM is just a recognition of the straight-forward statutory analysis.

Saturday, August 27, 2016

Fifth Circuit Opinion on Aiding and Assisting and Trial Management (8/27/16)

In United States v. Morrison, ___ F.3d ___, 2016 U.S. App. LEXIS 14888 (5th Cir. 2016), here, an appeal from a trial by Judge John H. McBryde (ND TX), the Fifth Circuit affirmed the taxpayers' convictions.  The Fifth Circuit's opening gives the background relevant for the present discussion (bold-face supplied by JAT):
Running a profitable small business is notoriously difficult. But the clients of a tax preparation service run by a husband and wife, Gladstone and Jacqueline Morrison, brought business failure to a new level. Year in and year out, the vast majority of the clients submitted tax returns showing sizable business losses. A federal jury provided the following explanation for this seeming anomaly of unlucky clients: the Morrisons helped their clients prepare returns with fake business losses so the clients could obtain refunds rather than pay the taxes they owed. 
That was not the only fraud the jury found. Once they became aware of an IRS investigation into their business, the Morrisons attempted to rid themselves of the problem by selling the business on multiple occasions. Not only did those sales not insulate the Morrisons from tax fraud charges, but they resulted in additional charges of wire fraud because the Morrisons made numerous misrepresentations in connection with these deals, including falsely stating that the business was not the subject of any ongoing investigation. 
The Morrisons appeal their convictions for conspiring to submit fraudulent tax returns, aiding and abetting the filing of numerous false returns, and wire fraud in connection with the attempted sales of the business. They both challenge the sufficiency of the evidence. They also raise, among other arguments, separate challenges to the district court's conduct during the trial. Jacqueline contends that the district court impermissibly limited her testimony. Gladstone contends that the district court assisted the prosecution. Finding no reversible error, we affirm.
Actually, the opening is not as precise as it should be.  I have bold-face the part that is in error.  The defendants were not convicted of aiding and abetting (a concept under 18 USC § 2(a)) but rather aiding and assisting in the preparation of false returns (a substantive crime under § 7206(2)).  The distinction is important, as I explain below.

Aiding and Assisting § 7206(2) is Not Aiding and Abetting

Later in the opinion the Court of Appeals panel indicates that it does understand the distinction between aiding and abetting under 18 USC § 2(a) and aiding and assisting under § 7206(2), but, erroneously, I think, says that § 7206(2) is an aiding and abetting statute.  This permits, erroneously I think, the Court of Appeals panel to state at one point aiding and abetting is not involved (see fn. 1 below), but then move back and forth between the aiding and assisting concept and the aiding and abetting concept.  Here is the Court's analysis, with my bold-face to draw the readers' attention.
That statute incorporates aiding and abetting liability by making one guilty who "[w]illfully aids or assists" in the filing of false returns. 26 U.S.C. § 7206(2); United States v. Searan, 259 F.3d 434, 443-44 (6th Cir. 2001) ("The recognition that the first element of a § 7206(2) charge effectively incorporates 'aiding and abetting' complicity liability means that charging a defendant with 'aiding and abetting,' under 18 U.S.C. § 2, the 'aid[ing], assist[ing], procur[ing] . . .' of false tax returns, under 26 U.S.C. § 7206(2) is a redundancy."). n1 Section 7206(2) thus "relies on a theory of liability akin to complicity: it criminalizes an act that facilitates another person's crime when the act is undertaken willfully and with knowledge of the circumstances that make the other person's act illegal." Clark, 577 F.3d at 285 (quoting Searan, 259 F.3d at 443).
   n1 The indictment in this case takes that unnecessary step of also charging the separate aiding and abetting statute under 18 U.S.C. § 2. 
But such a requirement is inconsistent with our precedential case law construing section 7206(2) and that of other circuits, as well as general aiding and abetting principles. To be convicted under an aiding and abetting theory, the defendant must "share[] in the principal's criminal intent" and take some affirmative steps "to aid the venture or assist[] the perpetrator of the crime." United States v. Garcia, 242 F.3d 593, 596 (5th Cir. 2001) (examining sufficiency of aiding and abetting evidence in drug case). He "must have aided and abetted each material element of the alleged offense[s]." United States v. Lombardi, 138 F.3d 559, 561 (5th Cir. 1998) (examining sufficiency of evidence of aiding and abetting the use of a minor in a drug offense conviction). 
Relying on these principles in the context of the false tax return statute, the Sixth Circuit rejected an argument like Gladstone's when a son argued that his mother prepared and signed most of the returns in question. Searan, 259 F.3d at 445. Using evidence adduced to support the overarching conspiracy conviction, the court upheld guilty verdicts on the substantive counts based on evidence that the the son actively participated in the criminal acts by assuring victims of his mother's competency, prepared certain fraudulent returns himself, held himself out to be a partner in the business, and split profits. Id.; see Nye & Nissen v. United States, 336 U.S. 613, 619, 69 S. Ct. 766, 93 L. Ed. 919 (1949) (explaining that the "fact that some of th[is] evidence" supporting aiding and abetting liability "may have served double duty by also supporting the charge of conspiracy is of course immaterial"). 
Like Searan, a case we have relied on before in interpreting this statute, see Clark, 577 F.3d at 285 (quoting Searan, 259 F.3d at 443), much of the evidence underpinning Gladstone's conspiracy convictions supports his guilt on the substantive counts as an aider and abettor. n2 As previously recounted, Gladstone co-owned the business with Jacqueline, was the Chief Operating Officer, and oversaw the entire operation. He prepared the false returns for Stefanie Brown, (the subject of counts 13 and 14) that suffered from the same fraudulently-inflated Schedule C losses as those that Jacqueline prepared (counts 3-12). Gladstone also created false tax returns for himself and Jacqueline which grossly underreported their taxable income. Recognizing that Gladstone's connection to counts 3 through 12 is less direct than what we have seen in other section 7206(2) cases, we nonetheless conclude that his active involvement in, and knowledge of, the scheme were sufficient evidence from which a jury could find that he knowingly assisted in the submission of these false returns. Clark, 577 F.3d at 286.
   n2 That is not to say that a defendant guilty of conspiring to commit an offense is necessarily guilty of aiding and abetting all substantive offenses committed during the course of the conspiracy. See Lombardi, 138 F.3d at 561-62 (noting that the government "seem[ed] to be confusing aiding and abetting with conspiracy" and rejecting argument that evidence proving drug conspiracy was sufficient to prove aiding and abetting of the use of a minor in a drug offense). Lombardi notes one difference is that aiding and abetting liability requires that the defendant take some "action to make the venture succeed." Id. at 562. Conspiracy requires only an agreement, and sometimes (as with the general section 371 conspiracy statute) an overt act aimed at making the venturing succeed. But the defendant need not commit that act, an act by any conspirator suffices.
   Of course, a conspiracy conviction can also result in Pinkerton liability for foreseeable substantive offenses committed in the course of the conspiracy. But when a jury is not instructed on Pinkerton liability as was the case here, it is not a basis for liability. See United States v. Polk, 56 F.3d 613, 619 n.4 (5th Cir. 1995).

Friday, August 26, 2016

Kroupa Criminal Case Status Report (8/26/16)

I just reviewed the docket sheet in Judge Kroupa's criminal tax case.  Nothing exceptional there. The trial is scheduled to commence on December 5, 2016.

I link here the Amended Trial Notice and Pretrial Order.  I recommend that law students review it.  Different judges will have different procedures.  As always, the local rules for the court and, where available, for the judge must be consulted.

Students should think about the scheduling required as a case moves toward trial.  Each of the steps are designed to insure that the case moves along to trial and that the time required by the court and the jury is not unduly extended.

One thing to note is that, for many of the documents, the parties are required to submit the document in Chambers in word format.  This  will permit the judge, her clerks and other court personnel to cut and paste as appropriate into other documents.

Attacks on Indicted Tax Court Judge Kroupa's Decisions (8/26/16)

I blogged earlier in the indictment of Tax Court Judge Kroupa. Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (Federal Tax Crimes Blog 4/5/16; 4/6/16), here  (Note I had planned to get back with additional thoughts about the indictment and charging decisions, but have not yet done so.)

It now appears that taxpayers are attempting to attack Judge Kroupa's orders or decisions in cases she decided while she was committing the conduct subject to the indictment and was even under audit that led to the indictment.  See e.g., Andrew R. Roberson, Taxpayer Argues First Circuit Should Not Follow Tax Court Decision by Judge Indicted for Tax Fraud (McDermott Will & Emory's Tax Controversy 360), here.  In the immediate subject of that blog entry, the taxpayer prevailed in the district court with respect to a foreign tax credit generator transaction.  Santander Holdings USA, Inc. v. United States, 144 F. Supp. 3d 239 (D MA 2015), on appeal to the First Circuit (No. 16-1282) (the brief is linked on the MWE blog).  The genre of transaction in issue in Santander, although sustained by the district court in that case, had been rejected by Judge Kroupa in the Tax Court and, based on Judge Kroupa's opinion, by the Second Circuit.  Bank of N.Y. Mellon Corp. v. Commissioner, 140 T.C. 15, as amended by 106 T.C.M. (CCH) 367 (2013), aff’d, 801 F.3d 104 (2d Cir. 2015), cert. denied,  136 S. Ct. 1377 (2016) (“BNY”).

On the merits, Santander tries to bootstrap victory, as it did below, on two related holdings Compaq Comput. Corp. & Subsidiaries v. Commissioner,  277 F.3d 778 (5th Cir. 2001) and IES Indus., Inc. v. United States, 253 F.3d 350 (8th Cir. 2001), both involving foreign tax credit generator transactions of a different sort.  I noted in a revision to my Federal Tax Procedure Book the following (Revision to Texts on Tax Shelters and Case Assignment (Federal Tax Procedure Blog 9/24/15), here:
A good example of a classic tax shelter is Compaq Computer Corp. v. Commissioner, 113 T.C. 214 (1999), rev’d 277 F.3d 778 (5th Cir. 2002).  Please read both the Tax Court and the Appellate opinions now.  In net, a classic abusive tax feature present in the case is that, except for the benefit of the foreign tax credit for foreign taxes paid that Compaq did not bear the economic burden, the deal was a money-loser.  The Tax Court viewed the transaction as abusive and imposed penalties; the Fifth Circuit blessed the transaction.  It was a tax shelter; it was just a tax shelter that, at least the appellate court, believed – or at least held, regardless of what it believed – was legal and not abusive.  Both the Tax Court and the Fifth Circuit are good courts, with good judges having radically different views of what is an abusive tax shelter and where to draw the line.  (Note the Fifth Circuit’s opinion, however, has not worn well with time.) fn
   fn E.g., Bank of N.Y. Mellon Corp. v. Commissioner, 801 F.3d 104 (2d Cir. 2015), cert. denied,  136 S. Ct. 1377 (2016) (“In so holding, we agree with the Federal Circuit in Salem and disagree with decisions of the Fifth and Eighth Circuits (Compaq and IES, respectively));” Lee A. Sheppard, The Fun Goes Out of Foreign Tax Credit Planning, 148 Tax Notes 1283 (Sept. 21, 2015) (hyperbolically, as is her wont, “The Second Circuit essentially reversed the Compaq and IES decisions.”)  [JAT Note: the hyperbole is that the Second Circuit cannot reverse Compaq and IES but it can and did, at least according to the esteemed Ms. Sheppard, destroy any persuasive value they had (although, I think, most observers had viewed Compaq and IES as sua sponte without any continuing precedential value except perhaps, for exactly the same type of transaction, already legislative overruled, until reversed, by those respective circuits .]
Santander tries to breathe life into the earlier Compaq and IES decisions.  But, since the Second Circuit and the Federal Circuit were the latest to pronounce on the specific type of tax credit generator transactions, Santander has to say something about those authorities.  It tries to attack BNY based on Judge Kroupa's indictment.  Here's how (footnote omitted):

Thursday, August 25, 2016

Congressional Staffer Charged with Failure to File (8/25/16)

I post this item because it is unexceptional and exceptional for failure to file cases.  DOJ Tax announces here that "Congressional Staffer Charged with Failure to File Tax Returns for Five Years."  The charging document, an information, is here.  The description of the basis for the charge is short:
According to the criminal information and affidavit, Isaac Lanier Avant of Arlington, Virginia, is a staff member employed by the U.S. House of Representatives since approximately 2002.  For tax years 2009 through 2013, Avant earned annual wages of over $170,000, but did not timely file a personal income tax return for any of those years.  In May 2005, Avant filed a form with his employer that falsely claimed he was exempt from federal income taxes.  Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013. 
The IRS agent affidavit, here, says in relevant part:
7. In May of 2005, Avant filed a Form W-4, Employee's Withholding Allowance Certificate, with his employer that claimed he was exempt from federal income taxes. Upon receipt of the Form W-4, Avant's employer stopped withholding federal income tax from Avants monthly paycheck. Avant did not have any federal tax withheld from his paycheck from May of 2005 until the IRS mandated that Avant's employer begin withholding federal tax from Avant in January of 2013. 
8. During this period of time Avant was issued a Form W-2, Wage and Tax Statement, from his employer at the end of each calendar year; the Form W-2 included the amount of his federal income tax withholding during the relevant calendar year. Avant used his Forms W-2 to self-prepare and file Forms 1040, U.S. Individual Income Tax Return, for tax years 2006 and 2007, each of which reflected zero dollars ($0.00) of total federal income tax withholding. 
* * * * 
15. On January 26, 2015, Avant was interviewed by special agents of IRS-CI and the Federal Bureau of Investigation. During this interview, Avant admitted to knowing that he was required to file tax returns and pay taxes on income earned. Avant told special agents that he did not file his 2013 Form 1040, U.S. Individual Income Tax Return, because he did not have a full year of withholding in 2013.
The Congressman for whom he worked as Chief of Staff, Rep. Bennie Thompson (D-Miss.), issued this release (as reported in WaPo, here:
“After learning of these accusations, I spoke to Mr. Avant and he assured me that when the proper forum is provided to him, he will fully explain this situation,” Thompson said. “Until such time, I trust that everyone will afford Mr. Avant the presumption of innocence to which all Americans are constitutionally entitled.”
JAT Comments:

Monday, August 22, 2016

Third Circuit Affirms Sentence for Tax Obstruction (§ 7212(a)) Under the Obstruction Guidelines (8/22/16)

The Third Circuit's recently unpublished opinion in United States v. Celluci, 2016 U.S. App. LEXIS 14958 (3d Cir. 2016), here, serves as a reminder of some hiccups in the normal application of the Guidelines for tax sentencing.  There, the taxpayer pled to wire fraud (§ 1343) and tax obstruction (§ 1343).  For sentencing, the counts were grouped under SG § 3D1.3.and sentenced under the tax obstruction Guideline.  Now, normally that would mean that the taxpayer's calculations would be made under the evasion Guideline in SG § 2T1.1.  But, as an "obstruction" crime, Guidelines Appendix A (Statutory Index) provides that the Guideline calculation for the omnibus clause tax obstruction may be made under either SG 2J1.2, Obstruction of Justice, or SG 2T1.1.  Based on the taxpayer's conduct in the two grouped crimes, the sentencing court determined that the Obstruction of Justice Guideline was more appropriate.

Taxpayer complained on appeal.  The Court of Appeals affirmed.  The reasoning for the affirmance is short, so I quote (footnote omitted):
The Statutory Index provides that for a conviction under the omnibus clause of § 7212(a), either U.S.S.G. § 2J1.2 (Obstruction of Justice) or § 2T1.1 (Tax Evasion) may be appropriate.3 U.S.S.G. App. A. Where, as here, the Statutory Index "specifies more than one offense guideline for a particular statute, the court must 'determine which of the referenced guideline sections is most appropriate for the offense conduct charged in the count of which the defendant was convicted.'" Aquino, 555 F.3d at 127 (quoting U.S.S.G. § 1B1.2 cmt. n. 1). 
In determining which of two or more guidelines is "most appropriate," U.S.S.G. § 1B1.2 cmt. n. 1, we consider only the conduct charged in the relevant count of the indictment. See U.S.S.G. § 1B1.2(a); Boney, 769 F.3d at 160; Aquino, 555 F.3d at 129. The indictment here charges that, as part of its efforts to collect back taxes from OLR, the IRS sent CPA a Notice of Levy that directed CPA to submit payments due to OLR to the IRS instead. Cellucci then "endeavor[ed] to obstruct and impede the due administration of the internal revenue laws" by creating a false Release of Levy and transmitting it to CPA, so that CPA would believe it was no longer obligated to submit payment to the IRS and would instead send the payment to OLR. App. 18. 
Section 2J1.2, the obstruction of justice guideline, addresses various offenses, including "obstructing a civil or administrative proceeding." U.S.S.G. § 2J1.2 cmt. n. 2. In the context of a prosecution under § 7212(a), an IRS "action" or "proceeding" has been defined as "some step [by the IRS] to investigate a particular taxpayer beyond routine administrative procedures such as those required to accept and process tax filings in the ordinary course." United States v. Miner, 774 F.3d 336, 346 (6th Cir. 2014). The IRS's efforts to collect back taxes from OLR, which included sending the Notice of Levy to CPA, involved more than routine administrative procedures, and thus are appropriately viewed as a "proceeding." Because Cellucci's criminal scheme—an effort to re-direct the payment from CPA to her business, rather than the IRS—directly interfered with that proceeding, the District Court appropriately relied on § 2J1.2 in calculating her sentence. 

Sunday, August 21, 2016

Sentencing for Defendant Implicated in Early UBS Disclosures (8/21/16)

On Friday, Judge Pauley of SDNY sentenced Rowen Seibel to one month in prison after his plea to one count of tax obstruction, § 7212(a).  Jesse Drucker has a good report on the sentencing:  Restaurateur Seibel Sent to Jail, Then Kitchen, in Tax Scam (Bloomberg 8/19/16), here.

I offer the following documents related to the sentencing:
  • The information (the charging document in lieu of an indictment usually after a plea agreement arrangement has been reached), here.
  • The defendant's sentencing memo, here.
  • The Government's Sentencing Letter , here (like a Sentencing Memo, but SDNY does a lot of filings by letter rather than a more formal pleading document).
  • The defendant's supplement submission in response to the Government's Sentencing Letter,  here.
My own summary of the operative facts is:

In 2004, when Mr. Seibel was just 23 years old, he and his mother traveled to Switzerland to set up a numbered account (having a moniker of CQUE, followed by an account number).  I refer to Mr. Seibel as Seibel and to his mother as "Mother."  That action had some relationship to Brad Birkenfeld of UBS and whistleblower fame.  The account was set up in Seibel's name and he was designated beneficial owner.  It appears, however, that he was not -- at least allegedly not -- the beneficial owner of the account and that Mother was instead the beneficial owner.  Mother was given full power of attorney over the account.  It appears, however, that Seibel had the significant contacts with UBS about the account.  Seibel directed UBS not to send account statements or other correspondence to the U.S.  The account was initially seeded with $25,000, but quickly grew via other deposits to slightly above $1,000,000, all supposedly the Mother's money.  (There is perhaps some intrigue about the source of the deposits, but I don't think the documents I have read really definitively clarifies the matter.)

In 2008, after reading press reports about the IRS initiatives against UBS, Seibel traveled to UBS in Switzerland to withdraw the money, specifically mentioning to the bankers that his concerns related to the press reports.  By that time, the value of the account had increased to over $1,300,000, apparently due to interest and investments.  He then proceeded to deposit the bulk of the amount withdrawn into another bank, Bank Safra (which, by the way, joined the DOJ Swiss Bank Program as a category 2 bank).  The deposit was made in the name of Mirza International, a Panamanian company set up by Seibel owned and controlled by Seibel.  The documents gave Seibel signatory authority over Mirza's Bank Safra account.

The information recites that Seibel had filed 2008 and 2009 returns omitting interest and dividends from the UBS account and failing to report that he had an interest in or signatory authority over the account.  (There is some fuzziness here; if it were the Mother's account as the beneficial owner, Seibel would not have had to report the income from the account.)

After that shuffle to further hide the money, apparently sometime in 2009, an IRS special agent attempted to contact Mother about the account, leaving his card at her residence.  Mother quickly contacted an NYC attorney.  Mother at first misrepresented to her attorney key facts about the account (including her alleged beneficial ownership).  (In his affidavit, the attorney says that she "ultimately" did tell him about having the account which she closed in 2008; the affidavit is Exhibit A, Part One, to the Government's sentencing submission).  The attorney then presumably advised she had a serious problem.  In October 2009, the attorney advised her about the IRS voluntary disclosure program, OVDP as announced in May 2009.  He advised her, however, that she did not qualify because of the agent's attempt to contact her.  He advised, however, that Seibel might qualify, provided that he applied to the program by its then schedule end date of October 15, 2009.  So, allegedly based solely on conversations with the mother, the lawyer set about drafting a submission including some facts and omitting others (that the attorney may or may not have know about).

The handling of the drafts for Seibel's submission is interesting and relevant to this discussion.  The Mother and Seibel were in Florida at the time.  The attorney was in New York.  The attorney says that he only discussed the facts with Mother and not with Seibel.  The attorney emailed drafts of Seibel's submission to Seibel who printed and delivered them to Mother for her to discuss with the attorney.  The implication (although not a direct statement anywhere I could find) is that Seibel was just a messenger for the drafts but did not read the drafts.  (I discuss that implication below in comments.) After Mother and attorney had agreed upon the final draft, the attorney prepared the final document for submission and a Form 2848 which is a power of attorney for the attorney (and a representation that the attorney was the attorney for Seibel at least by that time) and emailed them to Seibel with the instructions to sign and mail them by October 15, 2009.  Seibel claims that he did not read the submission document he signed and submitted to the IRS.  The implication from Seibel's submissions for sentencing is that he did not know the contents of the document he signed, either by reading the drafts or from discussions with Mother (although they were together throughout the process).  The submission (i) made false statements as to Seibel's knowledge about the UBS account and (ii) claimed that the funds may have disappeared rather than disclosing the Bank Safra gambit noted above upon closing the UBS account.

Thursday, August 11, 2016

Taxpayer Loses Cheek Defense at Trial and, on Appeal, Fails in Argument of Prosecutor Misconduct (8/11/16)

United States v. McBride, 2016 U.S. App. LEXIS 13479 (10th Cir. 2016), unpublished, here, involves a relatively common scenario -- a U.S. taxpayer who adopts a claimed sincerely held belief that he does not owe tax in mask his tax evasion.  Cheek v. United States, 498 U.S. 192 (1991) holds that a sincerely held belief -- one actually held -- defeats the willfulness element of evasion and most tax crimes.  Generally, given the rigor with which the IRS and DOJ investigate tax crimes before charging, most cases where there appears to be a real sincerely held belief are not prosecuted.  DOJ Tax tries to authorize prosecution of only those cases where the claimed sincerely held belief is a ruse for tax evasion.  Generally, when prosecutions are authorized, the prosecutions result in conviction.  So it was in McBride.  The jury convicted after McBride took the stand to further his claim.  (The jury did acquit for one count of evasion, but as the Court notes in fn. 4 that may have been because they did not find the tax due and owing element for the crime.)  The opinion is not remarkable in that respect.

I think the opinion may be interesting to readers with regard to the prosecutor's rebuttal closing argument which was a subject that the taxpayer complained of on appeal.  Here is the relevant portion of the prosecutor's rebuttal closing argument:
Ladies and gentlemen, having earned millions of dollars, Mr. McBride decided to pick up the bogus philosophy to try to save what he had left. To him paying taxes, it seems, is for schmucks, working stiffs like you and me, who go to work everyday, earn our keep, and pay our taxes. He placed himself above that. It's the ultimate irony, ladies and gentlemen, that Mr. McBride, who speaks so passionately about his love for the Constitution, has taken a course that would present a great danger to the Constitution of the United States. The Constitution is based on a few bedrock principles that we hold dear. One of them is that we are a nation ruled by laws, not by men. There are very few countries that can say that. 
There are two things that remind me of this great principle. One is when the Office of the Presidency of the United States changes hands from one political party to another. That's inspiring. The other experience that reminds me of the rule of law is when I walk into this building, because it is here that the rule of law is acted out each and everyday. 
Mr. McBride stands in opposition to the rule of law. He stands for the proposition that each person may be a law unto himself. If we don't like the law, we just interpret it our way. If I don't like to pay taxes, I just adopt the belief that earnings are not income and hope to fool people into thinking I'm acting in good faith. Where would that lead, ladies and gentlemen? It would lead to anarchy and chaos. 
Perhaps none of us loves paying taxes, but we do it, don't we? We may grumble a bit, but we do it because we're in this together. This great country thrives because the vast majority of its people have accepted a priceless social contract, a common commitment to do our part to maintain this country's greatness. We pay our taxes because we want to contribute to the well-being of our communities and our nation, we pay them because we don't want to be a burden, our -- we don't want the burden of our taxes to fall on others. And if there are those who, through no fault of their own, can't pay, we gladly carry their load. If we didn't, who would pay for the freeways that Mr. McBride drives on everyday, who would pay for the airport security that protects him on his flights to China, if we didn't, who would pay his medical expenses when he gets old, and for that matter, who would pay ours? Those things cost money. Mr. McBride has been enjoying them for free for the past nine years or more. And whether he pays another dollar of taxes, we'll keep paying ours. But if he's getting a free pass, ladies and gentlemen, by committing the crimes charged in this Indictment, then it is time to hold him accountable in the interest of what we hold dear. Thank you.
The Court of Appeals said that this argument may have been improper but was not sufficiently prejudicial in the overall facts of the case to warrant reversal.  Here is the Court's reasoning:

Wednesday, August 10, 2016

Articles of Interest to Tax Crimes Fans (8/10/16)

I offer these two articles of interest to Tax Crimes fans.  The authors are all prominent players in the tax and white collar crime practice, so I link their bios as well.  They are sorted by first author's last name:
  • Peter D. Hardy, here, Scott D. Michel, here, and Fred Murray, here, Is the United States Still a Tax Haven? The Government Acts on Tax Compliance and Money Laundering Risks, J. Tax Prac. & Proc. 33  (June-July 2016), here.  The summary is:
As the world now knows well, the Panamanian law firm Mossack Fonseca was the subject of a stunning breach of approximately 11.5 million financial and legal documents in April 2016. These leaked documents, the so-called "Panama Papers," have been publicized through an international consortium of journalists and allegedly reveal a global system of undisclosed offshore accounts, money laundering and other illegal activity. The effect of the Panama Papers has been explosive; the documents allegedly implicate world leaders, financiers, celebrities and other prominent individuals from across the world in the use of shell companies to conceal assets from their respective home country governments. The Office of the U.S. Attorney for the Southern District of New York has announced that it is launching an investigation into these matters, as have enforcement agencies in many other countries.
  • Jeremy Temkin, here, Collecting Taxes From Convicted Defendants, 256 NYLJ No. 27 (8/9/16), here.  The summary is:
At the conclusion of a criminal tax case, a convicted defendant is rightfully most concerned with the prospect of incarceration. There are, however, other consequences of a conviction and, in federal criminal tax cases, the financial ramifications are complicated by the potential for a subsequent civil proceeding brought by the Internal Revenue Service seeking taxes, interest and penalties far beyond what was addressed in the criminal case. This article discusses cases that highlight these issues, and concludes that practitioners need to be cognizant of the financial consequences of tax convictions.

Tuesday, August 9, 2016

Priest Pleads Guilty to Tax Evasion After Losing on Suppression Motion re Miranda (8/9/16)

DOJ Tax has this press release, here, on a Catholic Priest who has pled to tax evasion on income he stole from parishoners.  The indictment is here.  This is cut and paste from the press release:
Father Hien Minh Nguyen, 56, admitted that over a period of four years, he stole money his parishioners donated to the Diocese and willfully evaded paying income taxes on the money he misappropriated each year from 2008 through 2011.  He admitted that he deposited this money into his personal bank account, did not disclose this income to his return preparer, did not keep records of the donations he stole, and filed false income tax returns which did not report this money.  
Father Nguyen also pleaded not guilty to bank fraud charges.  Those charges are still pending.  
“Father Nguyen stole money from his parishioners and filed false returns with the IRS to evade his income tax obligations,” said Principal Deputy Assistant Attorney General Ciraolo.  “The department remains committed to holding all criminal tax offenders accountable for their illegal conduct, regardless of their profession.  No one is above the law.” 
Sentencing on the tax evasion convictions has not been scheduled.  Father Nguyen faces a statutory maximum sentence of five years in prison and monetary penalties for each tax evasion conviction. Father Nguyen’s next scheduled appearance is a status conference on the bank fraud charges currently scheduled for Aug. 23.  An indictment is merely an allegation and a defendant is presumed innocent until and unless proven guilty in court.  Father Nguyen pleaded guilty to the tax evasion charges.  He has not pleaded guilty to bank fraud charges and remains presumed innocent of those charges. 
This just seems a different iteration of garden variety fraud coupled with tax evasion.

In an earlier decision, the district court denied a motion to suppress statements he made to "IRS agents on the basis that they were: (1) involuntary; and (2) the product of an un-Mirandized custodial interrogation."  United States v. Nguyen, Case No. 15-cr-00203-BLF-1 (N.D. Cal. May 05, 2016), here.  Such claims by taxpayers who make admissions or false statements to IRS agents are often made and rarely successful.  Although the court ultimately rejected the claim, the pattern is unusual.  The agents surprised the taxpayer with a request to interview him which he allowed.  At the start, the IRS noncustodial Miranda warning was given.  The taxpayer then started giving inconsistent answers.  The agents called the inconsistencies to his attention.  He ask what was the worst that could happen to him.  They declined to answer the question.  He then asked for a break, and the agents left the room.  A short while later, he invited the agents back into the room.  The agents then read him the noncustodial Miranda warning.  The agents then continued the questioning and he continued to participate.  He lied in some of his answers.  Then he said he had stolen the money.  The district court held that he participated voluntarily in the noncustodial interview and had not been tricked, deceived or coerced.

In my experience, in cases where the agents suspect a possible crime within the scope of CI's investigative authority, they will always start with the noncustodial Miranda warning.  Indeed, IRM  (02-01-2005), Subject of Investigation, here, requires that, at the start of the initial interview, the agents first identify themselves as IRS CI agents whose job includes investigation of tax crimes.  In the next paragraph, with no specific time statement, the agents are required to give the noncustodial warnings.  As stated, there is no express temporal requirement, but the implication and, in my experience, the practice, has been to give the warning.  The Court addresses the taxpayer's argument on this as follows:
iv. The IRS Form 5661 Non-Custody Statement Of Rights 

Monday, August 8, 2016

The Vanishing Federal Criminal Jury Trial (8/7/16)

This NYT article offers a good introduction, with quotes from noted federal judges in SDNY (Kaplan Rakoff, et al., about the vanishing criminal jury trial.  The myth is that juries delivery better community justice and service on juries makes better citizens.  See Benjamin Weiser, Jury Trials Vanish, and Justice Is Served Behind Closed Doors (NYT 8/7/16), here.  But, the system from overcriminalization and the resulting smorgasbord of choices given to prosecutors virtually compels a plea agreement in the overwhelming number of cases that are charged.  The NYT article is by no means a complete analysis of the issue, but it does introduce the issue in a straight-forward and understandable way.

This phenomenon is present generally in the federal criminal system and in the particular subset of federal criminal tax cases.  The prosecutor can lard up the charging document with any number of charges arising from a pattern of conduct which may be fairly characterized generally as tax evasion. Or he may charge down tax evasion to a lesser crime, such as tax perjury or a tax misdemeanor (although the misdemeanor is rarely charged). The Sentencing Guidelines will usually mitigate the effect of overcharging because the sentence will be primarily driven by the tax loss related to the overall pattern of conduct (including relevant conduct).  So, that is good.  But the perverse side is that the Sentencing Guidelines offer a better deal for acceptance of responsibility, most often achieved by plea agreement which means, in theory, that the Government's charge of criminal conduct may never get tested by trail (oh, sure the Government and the defendant must agree on the elements of the crime to which a plea is made, but that may not be critically tested).  And, of course, the prosecutor has virtually unfettered discretion as to what crimes to charge in the first instance..

I was reading through the recent cases this past Friday and found the following from a federal habeas corpus type proceeding under 28 USC § 2255.  United States v. Crowe, 2016 U.S. Dist. LEXIS 103706 (WD VA 2016).  In these proceedings, a common complaint by the person incarcerated after conviction is that his or her lawyer in the criminal proceeding rendered ineffective assistance of counsel.  One of Crowe's claims was that counsel failed to pursue the issue of selective criminal enforcement of the tax laws.  Here is the full, cryptic presentation and discussion of the issue in the opinion:
D. Selective Prosecution 
Next, Crowe argues that counsel failed to object to the fact that he was being prosecuted for tax fraud when only a fraction of those who commit such crimes are criminally charged. The Due Process Clause does not allow the government to prosecute a criminal case based on an "unjustifiable" factor, such as race, religion, or the exercise of a constitutional right. United States v. Armstrong, 571 U.S. 456, 464 (1996). However, absent a clear and substantial showing of such impermissible conduct, the government's decision to prosecute is presumed to be motivated by proper considerations. Id.; see also United States v. Hastings, 126 F.3d 310, 313 (4th Cir. 1997) (noting that "[a] criminal defendant bears a heavy burden in proving that he has been selected for prosecution in contravention of his constitutional rights"). "The Attorney General and the United States Attorneys retain broad discretion to enforce the Nation's criminal laws." Armstrong, 571 U.S. at 464 (internal quotation marks omitted). 
Crowe does not even make a bare allegation that he was prosecuted based on a discriminatory purpose. The government made clear that it was prosecuting him because he had been convicted of very similar conduct previously, and began the process of purchasing Southside less than 30 days after he was released from incarceration. (Ex. 13 § 2255 Mot. at 17-18, ECF No. 31-1.) Therefore, Crowe's selective prosecution argument lacks merit, and counsel was not deficient for failing to raise it. Strickland, 466 U.S. at 687.
It is just the nature of our system that many more taxpayers cheat than can be prosecuted and the Government knows of many more that cheat than can be prosecuted.  The prosecution bullet is usually retained for use against the worst offenders.  I say usually, because sometimes the Government goes after less egregious tax cheats in order to make a point to the public -- e.g., the prosecution of tax protestors or defiers.  It can't prosecute them all, but perhaps some prosecution -- perhaps it could be called selective prosecution -- will send a message to the larger group and will, at the same time, give the general public some idea that the Government is "on the beat."

Thursday, August 4, 2016

Tax Court Includes Title 18 Fines and Forfeitures from Tax Crimes in Whistleblower Collected Proceeds (8/4/16)

In Whistleblower 21276-13W v. Commissioner, 147 T.C. ___, No. 4 (2016), here, the Tax Court interpreted the term "collected proceeds" which is the base to which the Whistleblower award percentage is based under § 7623(b) to include the following:

tax restitution $20,000,001
criminal fine $22,050,000;
civil forfeiture $32,081,693

Total $74,131,694

There was no question that collected proceeds included the tax restitution.  Tax restitution is a payment with respect to Title 26 taxes and thus is a relatively easy fit in the term "collected proceeds" under § 7623(b).  The dispute was over the criminal fines and civil forfeiture which are not collected under Title 26; rather, criminal fines and civil forfeitures are collected under Title 18, the general criminal code.  (See Slip Op. 5 fns. 4 & 5, discussing 18 USC § 3571 (fines) and § 981(a)(1)(A) (civil forfeiture).)  Bottom line, the Tax Court interpreted the term "collected proceeds" expansively and included the criminal fines and forfeitures.

An interesting point for readers of this blog is the payor of the amounts at issue.  The opinion refers to the payor as the "targeted taxpayer."  Actually, the payor was Wegelin & Co. ("Wegelin,", a Swiss Bank, which was not the U.S. taxpayer but was the conspirator required to pay the tax of the client-taxpayers via tax restitution in Wegelin's criminal case.  The opinion does not specifically identify Wegelin, but gives enough details to identify Wegelin from the other public information.  See the USAO SDNY press release dated 3/4/13, here.  Technically, Wegelin was not a taxpayer per se, but I suppose the term "targeted taxpayer" was used for convenience because that concept is the usual application of § 7623(b).

One of the interesting steps in its holding was the following (Slip Op. 17-18) (bold-face supplied by JAT):
The Code itself refers to laws outside title 26 as internal revenue laws. As an example, section 6531 provides periods of limitation on criminal prosecutions:  
No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years--
* * * * * * *
     (8) for offenses arising under section 371 of Title 18 of the United States Code, where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof. 
We find the reference in section 6531(8) to 18 U.S.C. sec. 371 to be especially illuminating inasmuch as the targeted taxpayer pleaded guilty to conspiracy to defraud the IRS, file false Federal income tax returns, and evade Federal income tax, in violation of 18 U.S.C. sec. 371. n15 Finally, the phrase “internal revenue laws” dates from the earliest version of the whistleblower statute enacted in 1867. At that time, the modern title 26 did not exist; internal revenue laws meant all revenue laws. We think it erroneous to impose a post facto restriction on the meaning of the phrase not intended by Congress when it enacted the legislation. In sum, the phrase “internal revenue laws” is not limited to those laws codified in title 26.
   n15 Ours is not the only court to note that tax laws and related laws may be found beyond those codified in title 26. The District Court for the Northern District of California in Hom v. United States, 2013 WL 5442960 (N.D. Cal. Sept. 30, 2013) aff’d, ___ F. App’x ___, 2016 WL 1161577 (9th Cir. Mar. 24, 2016), stated: “[T]he issue here is whether [31 U.S.C.] Section 5314 is either an internal revenue law or related statute (either designation would make the disclosure [of taxpayer information under sec. 6103] permissible). The United States argues that [31 U.S.C.] Section 5314 is a ‘related statute’ under Section 6103 (Dkt. No. 13 at 6). This is correct. Congress intended for [31 U.S.C.] Section 5314 to fall under ‘tax administration.

Wednesday, August 3, 2016

Eighth Circuit Opinion on Cheek Good Faith Defense and Conditions of Supervised Relied (8/3/16)

Leslie Book has a great Procedurally Taxinging Blog entry on a recent 8th Circuit case, United States v. West, ___ F3d ___ (8th Cir. 2016), here.  The Blog entry is 8th Circuit Strikes Down Restrictions on Internet and Computer Use Special Conditions for Convicted Tax Evader (Procedurally Taxing Blog 8/3/16), here.

The case involved an appeal by West who had been convicted of tax evasion.  West was what is commonly referred to as a tax protestor or tax defier, arguing that he believed that the law did not apply to him.  This is often called the Cheek defense, after Cheek v. United States, 498 U.S. 192, 201 (1991), a defense that is frequently discussed in this blog.  (Actually, as I note below, the Cheek defense is not a defense at all, so see below.)  As background, as noted by the panel "West proselytized his beliefs in an e-book self-published and sold through, entitled Are You a Taxpayer? Really? Prove It!."  (Readers may purchase the Kindle edition of the e-book here for just $7.77; the picture with the Kindle offering shows a man, presumably West, dressed ruggedly (perhaps as some type of patriot which is a cloak that many tax protestors/defiers adopt) with a gun, a look that might resonate with the anti-tax population.)  West made similar claims on his websites.  West represented himself at trial.  He lost (i.e., was convicted), despite his Cheek defense.

On appeal, the panel considered his arguments that (i) in the case in chief, the trial court had excluded certain evidence and argument generally addressed to a good faith defense and (ii) imposed certain conditions of supervised relief (banning creation of websites and use of computers).

Les -- with a contribution from Peter Hardy of Ballard Spahr, here -- does a great job discussing the holding on the conditions of supervised release holding, so I won't repeat that here.

Rather, I will focus on the common issue of the Cheek defense.  West's claim on appeal is that he was not allowed to present the Cheek defense properly -- or at least the way he wanted to.  Normally, the defendant will have to take the stand to present the most credible Cheek defense.  The defense after all is about what the defendant subjectively believed; the defendant is almost always the best witness on that issue and is in the courtroom and available to enlighten the jury.  But, it is often -- indeed usually -- dangerous for a defendant in a white collar crime case (of which a tax crimes case is a subset).  Apparently, although representing himself (which often blindsides the pro se litigant as to dangers of trial strategies), West made the right call on this and did not take the stand.  So, according to the panel opinion:
West presented his defense almost entirely through cross-examination of the government's witnesses. One of these was IRS agent Richard Troester, a so-called "summary" witness, who discussed application of the tax code generally to the particular facts of West's case. See United States v. Ellefsen, 655 F.3d 769, 780 (8th Cir. 2011) (describing role of summary witness in tax evasion case). West cross-examined Troester and attempted to impeach his knowledge ofthe IRC and contradict his testimony by referencing the IRC's definition of "United States" and "employee." The district court sustained the government's objection to each of these lines of questioning and did not permit West to recite the IRC's definitions of "United States." During his case-in-chief, West called his son Brandt, who had assisted West in writing his e-book. When West attempted to enter the e-book into evidence, the district court sustained the government's objection on relevance.

Monday, August 1, 2016

Another Plea to Offshore Account Tax Crimes (8/1/16)

DOJ Tax announced here another plea to offshore tax crimes.  The criminal information is here; the plea agreement with Exhibit A Statement of Facts is here.  The plea is to one count each of conspiracy (18 USC § 371) and tax obstruction (26 USC § 7212(a)), which have 5 year and 3 year, respectively, maximum incarceration period, so 8 years or 72 months maximum.  As usual , the Sentencing Guidelines will provide a lesser likely sentence.  Here are the key quotes:
Masud Sarshar, who owned and operated Apparel Limited Inc., a business that designed, manufactured and sold clothing and other apparel, signed a plea agreement admitting that he maintained several undeclared bank accounts at Bank Leumi and two other Israeli banks, both in his name and in the names of entities that he created.  For decades, with the assistance of at least two relationship managers from Bank Leumi and a second Israeli bank (Israeli Bank A), Sarshar hid tens of millions of dollars in assets in these accounts in an effort to conceal income and obstruct the Internal Revenue Service (IRS).  As alleged in the information, between 2006 and 2009, Sarshar diverted more than $21 million in untaxed gross business income to these undeclared bank accounts.  Between 2007 and 2012, Sarshar also earned more than $2.5 million in interest income from these accounts.  Sarshar omitted all of this income from his 2006 through 2011 individual and corporate tax returns and he failed to report his authority over and ownership of these bank accounts in false Reports of Foreign Bank and Financial Accounts (FBARs) that he submitted to the U.S. Department of Treasury. 
Sarshar signed a plea agreement to the charges in the information, agreeing to plead guilty and pay more than $8.3 million in restitution to the IRS.  If the court accepts the parties’ agreement, Sarshar will be sentenced to 24 months in prison.  In addition, Sarshar stipulated to a civil penalty in the amount of 50 percent of the high balance of his undeclared accounts to resolve his civil liability for not disclosing the existence of his Israeli bank accounts. 
“Mr. Sarshar stashed millions in secret foreign financial accounts in Israel and then sought to use these accounts to evade his U.S. tax obligations, seeking to cover his tracks along the way,” said Principal Deputy Assistant Attorney General Ciraolo.  “The message of this case is clear: There are no safe havens.  If you are concealing assets and income in undeclared offshore accounts – or are a banker, an asset manager or otherwise are assisting accountholders in such criminal conduct, your only viable option is to come forward and accept responsibility for your actions.  Those who continue to violate U.S. tax laws will be held accountable and pay a heavy price.” 
According to the information and statement of facts, Sarshar’s relationship managers at Israeli Bank A (RM1) and at Bank Leumi (RM2) visited him frequently in Los Angeles.  At his request, neither bank sent him account statements by mail, but rather, RM1 and RM2 provided Sarshar with his account information in person.  For example, RM2 loaded electronic copies of Sarshar’s Bank Leumi account statements on a USB drive, which she concealed in a necklace worn during her trips to the United States.  To further maintain the secrecy of his accounts, Sarshar’s meetings with RM1 sometimes occurred in Sarshar’s car.  RM1 and RM2 also used these visits to Los Angeles to offer Sarshar other bank products, including “back-to-back” loans.  Through back-to-back loans, which Bank Leumi made to Sarshar through its branch in the United States and which Sarshar collateralized with funds from his account at Israeli Bank A, Sarshar was able to bring back to the United States approximately $19 million of his offshore assets without creating a paper trail or otherwise disclosing the existence of the offshore accounts to U.S. authorities.  At the direction of RM1 and RM2, Sarshar also obtained Israeli and Iranian passports in an effort to avoid being flagged as a U.S. citizen by the compliance departments at both banks.  After receiving both new passports and still being flagged as a U.S. citizen by their compliance departments, RM1 and RM2 advised Sarshar to transfer his remaining funds to yet another Israeli bank, which he did in late 2011.
The news release says that Sarshar will be sentenced to 24 months pursuant to the parties' agreement.  The plea agreement states that it is a FRCrP 11(c)(1)(C) which is an agreement that "a specific sentence or sentencing range is the appropriate disposition of the case."  However, and not to be too picky, I wonder whether the actual wording would lock the judge into the sentence.  The agreement provides (emphasis supplied by JAT):
24.  Defendant and the USAO agree that, taking into account the factors listed in 18 U.S.C. § 3553(a)((1) - (7), the relevant sentencing guideline factors set forth above [in pars 22 (with calcs)] and defendant's cooperation pursuant to §5K1.1 of the Sentencing Guidelines, an appropriate disposition of this case is that the Court impose a sentence of 24 months imprisonment (the low end of level 17) * * * *.  
The use of "an" rather than "the" would seem to take it out of FRCrP 11(c)(1)(C), here, as to "the" appropriate disposition.  I wonder if that may be just a scrivener's error or whether a judge would impose the sentence accordingly anyway, whether or not bound.

Important CA2 Opinion on Foregone Conclusion Required To Overcome Fifth Amendment Act of Production Assertion to Summons Production of Foreign Documents, Including Bank Records (8/1/16)

In United States v. Greenfield, 831 F.3d 106 (2d Cir. 8/1/16), here, the Court rejected the IRS's summons enforcement.  I offer first the Court's opening summary and will then offer more (including some quotes and discussion).
Defendant-Appellant Steven Greenfield was implicated in tax evasion after a leak of documents from a Liechtenstein financial institution revealed connections to previously undisclosed, offshore bank accounts. Years after the leak, the Internal Revenue Service issued a summons for an expansive set of Greenfield’s financial and non-financial records, including those pertaining to the offshore accounts referenced in the leak. Greenfield refused to comply with the summons, and the Government sought enforcement in the Southern District of New York (Hellerstein, J.). Greenfield opposed enforcement and moved to quash the summons, inter alia, on the basis that the compelled production of the documents would violate his Fifth Amendment right against self-incrimination. The District Court granted enforcement for a subset of the requested documents under the foregone-conclusion doctrine set out in Fisher v. United States, 425 U.S. 391 (1976). We conclude that the Government has failed to establish that it is a foregone conclusion that the requisite exercise, control, and authenticity of the documents existed as of time of the issuance of the summons. Accordingly, we VACATE the District Court’s order enforcing the summons and denying Greenfield’s motion to quash and REMAND for further proceedings consistent with this opinion.
The panel in an opinion by Judge Calabresi opens with a sweeping introduction to the problem of offshore wealth and offshore evasion:
A remarkable amount of American wealth is held offshore, often in an effort to evade taxation. One recent study estimated that $1.2 trillion—some four percent of this nation’s wealth—is held offshore and that this results in an annual loss in tax revenue of $35 billion. Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens 53 (Teresa Lavender Fagan trans., 2015). Such lost income diminishes the Treasury and exacerbates problems of inequality since, generally, only the wealthiest of individuals can take advantage of foreign tax havens. Id. Recognizing this, recent measures, such as the Foreign Account Tax Compliance Act, 26 U.S.C. §§ 1471-1474, have sought to strengthen the IRS’s efforts to combat tax evasion through the use of foreign shelters. But enforcement presents significant challenges given the sophistication of tax planning and the information asymmetry between taxpayers and tax authorities.
So there is strong need for tax enforcement and collection in the offshore area.  But,
The need to curtail tax evasion, however pressing, nevertheless cannot warrant the erosion of protections that the Constitution gives to all individuals, including those suspected of hiding assets offshore. In the present case, Steven Greenfield was implicated in tax evasion as a result of a document leak from a Liechtenstein financial institution. Years later, the Government issued a summons for a broad swath of Greenfield’s records, including documents relating to all of Greenfield’s financial accounts and documents pertaining to the ownership and management of offshore entities controlled by Greenfield. 
Greenfield opposed production and moved to quash the summons based on his Fifth Amendment right against self-incrimination. But the District Court for the Southern District of New York (Hellerstein, J.) granted enforcement as to subset of the records demanded by the summons. It concluded that the existence, control and authenticity of that subset of documents were a foregone conclusion and, as a result, under Fisher v. United States, 425 U.S. 391 (1976), any Fifth Amendment challenge must fail. 
We disagree with the District Court for two reasons. First, we find that, for all but a small subset of the documents covered by the District Court’s order, the Government has not demonstrated that it is a foregone conclusion that the documents existed, were in Greenfield’s control, and were authentic even in 2001. Second, we find that the Government has failed to present any evidence that it was a foregone conclusion that any of the documents subject to the summons remained in Greenfield’s control through 2013, when the summons was issued.  Accordingly, because the Government has not made the showing that is necessary to render Greenfield’s production of the documents non-testimonial and, hence, exempt from Fifth Amendment challenge, we vacate the District Court’s order and remand.
I urge readers with particular interest in the issue to study the opinion carefully.  I offer the following which steps through the key analysis as I understand it.