Friday, October 28, 2016

Inconsistent Verdicts and the Lesser Included Offense Doctrine (10/28/16)

In United States v. Armstrong, 2016 U.S. Dist. LEXIS 141192 (ED TN 2016), here, the defendant was charged with the defraud / Klein conspiracy, tax evasion, and tax perjury all related to profits from a scheme to evade Tennessee cigarette tax stamps.  The indictment is here.  "Following a jury trial, the defendant was found not guilty on Counts One and Two and guilty on Count Three."  In this opinion, the court denies the defendant's motion for acquittal or new trial related to the single conviction on tax perjury.  The defendant's motion is here; the US response is here.  I focus here principally on the relationship of the tax evasion count as to which the jury acquitted the defendant and the tax perjury count as to which the jury convicted the defendant.

The two counts are state in the indictment, here, as follows:

Attempt to Evade and Defeat Tax
1. The allegations set forth above in support of Count One are hereby re-alleged and incorporated herein by reference. [These are the usual copious allegations in the conspiracy count.]
2. On or about the 15th day of October, 2009, in the Eastern District of Tennessee, JOSEPH E. ARMSTRONG, a resident of Knoxville, Tennessee, who during the calendar year 2008 was married, did willfully attempt to evade and defeat a large part of the income tax due and owing by him and his spouse to the United States of America for the calendar year 2008, by preparing and causing to be prepared and by signing and causing to be signed, a false and fraudulent U.S. Individual Income Tax Return, Form 1040, on behalf of himself and his spouse, which was filed with the Internal Revenue Service and in that false return, it was stated that their joint taxable income for the calendar year was the sum of $152,999, and the amount of tax due and owing thereon was the sum of $36,441, in fact, as he then and there knew, his taxable income for the calendar year was the sum of $471,418, upon which taxable income there was owing to the United States an income tax of approximately $141,222. In violation of Title 26, United States Code, Section 7201. 

Fraud and False Statements
1. The allegations set forth above in support of Counts One and Two are hereby re-alleged and incorporated herein by reference.
2. That on or about October 15, 2009, in the Eastern District of Tennessee and elsewhere, JOSEPH E. ARMSTRONG, a resident of Knoxville, Tennessee, did willfully make and subscribe and did willfully aid, abet, assist, and cause to be so made and subscribed a joint U.S. Individual Income Tax Return, Form 1040, for the calendar year 2008, which was verified by a written declaration that it was made under the penalties of perjury and JOSEPH E. ARMSTRONG did not believe the return, which was filed with the Internal Revenue Service, to be true and correct as to every material matter in that the return failed to disclose that he was engaged in the operation of an investment activity from which he derived gross receipts and received income and JOSEPH E. ARMSTRONG then and there well knew that he was required by law and regulation to disclose the operation of this investment activity, the gross receipts he derived therefrom, and the income from this investment activity.
As noted, the jury acquitted on Court Two but convicted on Count Three.

The first point is the fact that the Government charged the defendant for tax evasion and tax perjury.  The allegations in the key paragraph of the tax evasion count, Count Two (paragraph 2), appear to allege that the affirmative act of evasion was the filing of the false return under-reporting gross income, thereby under-reporting and underpaying the correct tax liability.  In this regard, Count Two, paragraph 1 does incorporate the Conspiracy Count allegations by reference, but just focusing on the key charging allegations in paragraph 2, it looks like the key affirmative act -- an element of the crime of tax evasion -- was the filing of the false return under-reporting taxable income, thereby under-reporting and underpaying the tax liability.

Saturday, October 22, 2016

IRS Release on Offshore Compliance Requirements, with Statistics on Recent Initiatives (10/22/16)

Offshore Voluntary Compliance Efforts Top $10 Billion; More Than 100,000 Taxpayers Come Back into Compliance, IR-2016-137, Oct. 21, 2016, here.  Excerpts:
As international compliance efforts pass several new milestones, the Internal Revenue Service reminds U.S. taxpayers with undisclosed offshore accounts that they should use existing paths to come into full compliance with their federal tax obligations. 
Updated data shows 55,800 taxpayers have come into the Offshore Voluntary Disclosure Program (OVDP) to resolve their tax obligations, paying more than $9.9 billion in taxes, interest and penalties since 2009. In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. 
“The IRS has passed several major milestones in our offshore efforts, collecting a combined $10 billion with 100,000 taxpayers coming back into compliance,” said IRS Commissioner John Koskinen. “As we continue to receive more information on foreign accounts, people’s ability to avoid detection becomes harder and harder. The IRS continues to urge those people with international tax issues to come forward to meet their tax obligations.”
The release then continues with a description of the options for coming into compliance.

Opinion on Effect of Parallel Civil Proceedings, Statute of Limitations on Tax Crimes, and Kassouf (Again) (10/22/16)

In United States v. Ogbazion, 2016 U.S. Dist. LEXIS 143358 (SD OH 2016), here, the Court addressed several claims by the defendant for dismissal of counts in his criminal indictment.  The defendant was a principal in a national franchisor of tax preparation services.  The IRS first proceeded against the franchise operation with an IRS civil investigation and an ensuring civil case to enjoin the business operations.  The defendant apparently cooperated to some extent in that investigation and case, including giving a deposition.  In that case, the court entered a civil injunction and order of permanent injunction against the defendants in the case.  Approximately one and one-half years after the civil case was fully resolved, the indictment was filed.  The criminal indictment charged the defendant with
engaging in a corrupt endeavor to obstruct and impede the due administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a) (Count 1); conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count 2); [*2]  wire fraud, in violation of 18 U.S.C. § 1343 (Counts 3-7); money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(ii) (Counts 8-13); bank fraud, in violation of 18 U.S.C. § 1344 (Count 14); tax evasion, in violation of 26 U.S.C. § 7201 (Count 15); and failure to collect and pay over payroll tax, in violation of 26 U.S.C. § 7202 (Counts 16-23). (Doc. 6).
The defendant moved to dismiss the criminal indictment and certain counts therein.  Briefly, the motion sought the following relief:

1. Parallel Civil Proceeding; Dismissal of the indictment or certain counts or, in the alternative, suppression of evidence.  This gravemen of the claims here is that the civil case was improperly used to obtain evidence for the criminal case.  Basically, after detailed consideration of the facts,
the Court finds that the civil proceedings were not a ruse undertaken to obtain evidence for the criminal prosecution and, further, finds that the Government's representations and actions throughout the civil investigation did not constitute trickery or deceit. The Government's conduct throughout the course of the parallel proceedings did not amount to bad faith such that the use of evidence obtained through Defendant's voluntary cooperation would amount to a constitutional violation or a "departure from the proper administration of criminal justice." See Kordel, 397 U.S. at 11-13 [United States v. Kordel, 397 U.S. 1 (1970)]. Accordingly, neither the dismissal of the Indictment in its entirety, nor the suppression of evidence, is warranted.
For more on parallel proceedings, see Parallel Civil Proceedings and Criminal Proceedings - The Balancing Act (Federal Tax Crimes Blog 10/12/12), here; and Assertion of the Fifth Amendment by a Taxpayer in a Tax Court Deficiency Redetermination Proceeding (Federal Tax Crimes Blog 12/21/15), here.

Order Denying Suppression -- Grand Jury Target or Subject and Miranda Issues (10/22/16)

In United  States v. Cason, 2016 U.S. Dist. LEXIS 142434 (D WV 2016), here, the Court denied Cason's motion to suppress evidence of Cason's statements in an interview of Cason by IRS agents serving a search warrant.  Cason denied that he was testified that he was a subject of the grand jury investigation and that he was given the appropriate Miranda warnings.  The Agents testified differently, and their contemporaneous memorandum of the interview to that effect was entered.  The Magistrate conducting the hearing on the motion had made the key findings:
• After knocking on Cason's front door, the agents waited on his porch for three to four minutes while Cason's daughters left for school, hardly indicating custody or restriction;
• The agents tone did not change once they entered the home;
• The agents twice informed Cason that he was the subject of an investigation, that he was free to consult with an attorney, and that he was free to end the interview at any time n4;
   n4 Agent Gandee recounted this fact in his memorandum of interview, which he gave Cason the opportunity to review a few weeks later. The memorandum clearly indicated that Cason had been "informed he [was] the subject of a criminal investigation, that he had the right to legal counsel, and that he did not have to answer any of [their] questions." After reviewing the memorandum together with his legal counsel, Cason noted that there were no "major" inaccuracies.
   In his objections to the R&R, Cason argues that he "should have testified as to the nature and completeness of his review of the Memorandum, as should have [his attorney]," and that "[n]onetheless, [his] brief review of the Memorandum weeks later does not change any of the facts recited above." (Dkt. No. 39 at 9). Yet, Cason fails to explain how a memorandum wrongfully indicating that he had been informed of such highly pertinent facts and rights, of which both he and his attorney were fully aware, somehow contained no "major" inaccuracies.
• The agents did not restrict Cason's freedom of movement;
• When the agents requested that Cason ride with them to his office, he willingly agreed;
• While at his office, Cason was free to take phone calls and to leave the room, which he did multiple times, indicating that he freely ended his conversation with the agents at multiple points;
• While at his office, Cason was free to consult with counsel, and to end the interview, which he ultimately did; and
• Nothing in the record indicated that Cason was threatened or coerced.
In the opinion linked above, the district court affirmed those findings which controlled the disposition of the motion to suppress.

I write to address two issues -- the grand jury "subject" issue and the Miranda warnings issue.

Grand Jury Subject Issue

Sixth Circuit Affirms Tax Protestor Conviction, Rejecting Evidence and Reasonable Doubt Arguments (10/22/16)

In United States v. Myr, 2016 U.S. App. LEXIS 18963 (6th Cir. 2016) (unpublished), here, the Court affirmed the Myr's conviction for "count of tax evasion, 26 U.S.C. § 7201, and four counts of willful failure to file individual income tax returns, 26 U.S.C. § 7203."  Myr was "a self-employed auto mechanic with a professed interest in tax-protester theories."
Myr ran an auto-repair and brokerage business specializing in rare and exotic cars from a farm in Port Huron, Michigan. When he was not fixing luxury vehicles, Myr spent his free time studying the federal income tax laws. His reading list included the Internal Revenue Code as well as various tax-protester pamphlets and books which opined that the income tax applied to corporations but was "voluntary" or "unconstitutional" as applied to individuals.
Myr put those theories into action as he was earning substantial income from his business.  As in most supposed tax protestor cases, the ultimate issue in a criminal case is whether the taxpayer (or nontaxpayer) really believed that he was not subject to tax or was just hiding behind supposed tax protestor theories to disguise his "willful" conduct.  This is the so-called cheek willfulness issue, named for Cheek v. United States, 498 U.S. 192 (1991).  For many protestors, the objective elements of the charged crime -- e.g., for failure to file, he did not file -- is the only potential defense.  Myr's defense at trial was that the Government's proof did not meet the mens rea element beyond a reasonable doubt.  The jury rejected the defense.

Apparently realizing a frontal attack on the jury's holding was a loser, the issues Myr raised on appeal were (i) that the district court erred in excluding from evidence a civil complaint filed by DOJ Tax against the return preparer for the corporate return (the suggestion being that the preparer did the dastardly deed of preparing the false return and not the taxpayer); and (ii) the jury improperly instructed the jury on beyond a reasonable doubt.  The latter issue although applying to all elements of the crime is in the facts of these types of cases directed at the mens rea element, since the other objective elements of the crime are proved beyond a reasonable doubt.

So, let's look at the issues he did raise and the Court of Appeals rejected.

Exclusion of the Complaint Against the Tax Preparer
Myr uses the district court's decision to exclude the Pope complaint from evidence as the basis for two challenges to his conviction. The first asks us to consider the decision as an evidentiary matter under Rule 401. The second asks us to address it as a constitutional issue. Although these challenges differ somewhat conceptually, both rely on common propositions: that the complaint supported Myr's defense and its exclusion possibly affected the trial's outcome. We find no reversible error under either theory because the complaint offered—if anything—equivocal evidence on an insignificant point. 
* * * * 
As an initial matter, it is important to keep in mind that Myr was not charged with filing a false return. Rather, he was charged with willfully evading the tax obligation assessed in May 2007 for tax years 2000 to 2003. The On Track tax return—which was prepared by Pope, underreported the $610,000 proceeds from the engine sale, and took unjustified deductions—was simply one piece of evidence offered in support of the Government's theory that Myr hid assets to avoid paying the amounts assessed for back taxes and penalties. The On Track return had no relevance to the charges that Myr willfully failed to file his individual income tax returns, and thus the Pope complaint also had no relevance to those charges. 
Assuming arguendo that the Pope complaint would have decreased the evidentiary value of the On Track return in relation to the evasion charge, it is clear that the complaint's exclusion, even if erroneous, was harmless. Myr equates the complaint's exclusion to a total inability to offer a defense on willfulness. See United States v. Canty, 499 F.3d 729, 734 (7th Cir. 2007) (holding that the decision to forbid defendant in a counterfeiting trial from even testifying about his motive for printing fake bills was harmful when intent was the only issue at trial). At multiple points in his briefing, he asserts that the complaint was "critically important" or related "directly" to his intent. And evidence going to intent should particularly matter here, he reminds us, because lack of intent was his only defense. See id. 
But these bare assertions belie what actually happened at trial. The jury heard Myr's intent defense in detail and received instructions on his theory. They also heard him testify about his role in the filing of On Track's return—an event that played a minor role in the proceedings. The indictment alleged three intentionally evasive acts as part of the tax-evasion charge: (1) conveying his property to a nominee entity after notice that the IRS intended to place a tax lien on it; (2); using nominee entities, including On Track and Hosea Holdings, to conceal his income and assets; and (3) dealing in cash. The allegations surrounding the Ferrari transaction—the use of nominee entities, the dealing in gold coins, the bank-account withdrawals with checks written to cash, and, yes, the On Track return—merely evidenced a single act that satisfied the evading charge. The government presented overwhelming evidence on all three alleged intentionally evasive acts. And it specifically offered voluminous evidence that Myr violated a known legal duty—to pay his tax debt—in bad faith: it presented multiple direct communications where-by the IRS informed Myr that, indeed, he was liable for the federal income tax. 
The falsity of the On Track tax return was offered by the government as one piece of evidence showing that Myr had used nominees to conceal income, itself one of three core allegations underlying the single tax-evasion charge. Had the complaint been admitted into evidence, it would have been—at most—evidence that minimally rebutted minor evidence related to the tax-evasion charge. On this record, admitting the complaint into evidence would not have affected the verdict on this or any other charge.
The Reasonable Doubt Issue

Friday, October 21, 2016

Former Tax Court Judge Kroupa Enters Plea to Conspiracy Count (10/21/16; 10/25/16)

Note:  The following includes substantial revisions through 5:00pm on 10/25/16 after I received the plea agreement.

On October 21, 2016, former Tax Court Judge Diane Kroupa entered a guilty plea to Count 1 of the indictment.  The Plea Agreement is here; the transcript of the plea hearing is here (thanks to Keith Fogg, Former Tax Court Judge Kroupa Pleads Guilty to Conspiracy (Procedurally Taxing Blog 10/24/16), here).  (Just a reminder that most readers of this blog should also be following the Procedurally Taxing Blog.)

Kroupa pled to Count 1, the conspiracy count of the indictment, here.  That count is a defraud conspiracy (referred to in a tax context as a Klein conspiracy, named for the leading case, United States v. Klein, 247 F.2d 908 (2d Cir. 1957), cert. denied 355 U.S. 924 (1958)).  The conspiracy is charged under 18 USC § 371, here, which is a five-year felony.  The relevant language of the statute is:
If two or more persons conspire * * * to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.
Her husband, Robert E. Fackler, pled to tax obstruction, § 7212(a), here, which is a three year felony (and has even in earlier, simpler times been described as a one person conspiracy because the conduct punished, other than the conspiracy, is basically the same as the defraud / Klein conspiracy).  See Update on Judge Kroupa Prosecution - Her Husband Pleads Guilty (Federal Tax Crimes Blog 9/26/16; 9/27/16), here.  In his plea agreement, Fackler admitted participating in a conspiracy.  The other person in the conspiracy was his wife, Kroupa.

The single five-year conspiracy to which Kroupa pled should fully vindicate the tax imperatives involved.  Under the agreed Sentencing Guidelines calculation (discussed below) produces a sentencing range substantially below the maximum allowed by the five year count of conviction.  (As is often stated in the presentence investigative report (discussed below), based upon the sentencing guidelines calculations, convictions under the other counts dismissed under the plea agreement would not generate a higher guideline range.)

The following are key items of the plea agreement and the sentencing hearing transcript.

1.  The factual basis for the plea is in paragraph 2 of the plea agreement starting on p. 1 of the plea agreement.  The factual basis of the plea is also covered at sentencing hearings.  The presentation at the sentencing hearing begins on p. 27 of the transcript.  The factual basis includes the machinations to falsely report the components of tax liability on the return and the obstructions, including false representations in the 2012 audit.

2.  The agreed total tax loss is "approximately" $455,257 (federal) and $57,784 (state).  (See chart on plea agreement p. 10.)  The tax loss is the principal driver of the sentencing guidelines calculations.  The tax loss for guidelines purposes includes the state tax loss.  Hence, the total tax loss for guidelines purposes is $513,041.  She benefits from the recent guidelines amendments to the tax loss table which moved the the upper end bracket from $500,000 to $550,000 (otherwise, under the old guidelines, her base offense level would have been 2 levels higher and her resulting sentencing level would be two higher; generally the current guidelines apply unless the guidelines in effect at the time of the offense conduct are more favorable, which they are not here).

3. The calculations (beginning on p. 10 of the plea agreement; beginning on p. 20 of the transcript) are:
18 Base Offense Level (because tax loss is around $500,000).
+2 for abuse of public trust
+2 obstruction of justice
-3 acceptance of responsibility
Yields 19 Sentencing Level
The sentencing history is I.

The sentencing table range for 19:  30-37 months imprisonment

The Guidelines calculation is just advisory; the Court can "vary" upward or downward based on other sentencing considerations in 18 USC § 3553, here.  See United States v. Booker, 543 U.S. 220  (2005).  Upward variances in tax crimes cases are rare, so I would not expect an upward variance here.  I would expect for her attorneys to strive mightily for a significant downward variance.  I have no crystal ball on that downward variance, however.  But, if there is no downward variance, my hunch -- pure speculation -- that sentencing will be a the low end of the range.

3.  The sentencing will occur after the Probation Office provides a presentence investigative report (acronmyned or initialized to PIR or PSR) and the parties provide the comments or objections to the report, along with such other sentencing factors as appropriate.

Thursday, October 20, 2016

Is Stupid a Defense to a Tax Crime? (10/20/16)

DOJ Tax announced, here, the following indictment of a Utah resident for "one count of attempting to evade the payment of his federal income taxes for the years 2005, 2006, 2007 and 2010, and one count of corruptly endeavoring to impair and impede the due administration of the internal revenue laws."  The indictment is here.  Here is the key excerpt from the press release:

According to the allegations in the indictment, in March 2012, Louis Hansen, presented a check to the Internal Revenue Service (IRS) in the amount of $342,699.41 that was drawn on a closed bank account in an attempt to pay taxes, penalties and interest that he owed for tax years 2005, 2006, 2007 and 2010.  He also caused a copy of this check to be mailed to an IRS revenue officer, as well as a signed certified letter claiming that he had submitted the check to discharge his debt.  The indictment further alleges that in June 2012, Hansen presented four additional checks to the IRS drawn on a different closed bank account in an attempt to have funds credited to his IRS tax account.  Each check was in the amount of $425,000.  According to the indictment, at the time these four checks were presented to the IRS, Hansen owed more than $240,000 in taxes for the years 2005, 2006, 2007, 2010 and 2011.
JAT Comment:

1.  I presume that this guy, if convicted, will not be subject to the sophisticated means sentencing specific offense characteristic requiring a 2-level upward adjustment to the base offense level..

2.  I just wonder if this defendant could argue that he did not have the specific Cheek willfulness intent required for tax evasion or the intent required for tax obstruction (sometimes equated to Cheek willfulness) because what he did could not have evaded the tax or materially obstructed the IRS.

Former IRS CI Special Agent Indicted for Tax Perjury and Other Crimes, Including Obstruction (10/20/16)

The DOJ announced, here, an indictment (actually superseding indictment), here, of a former IRS criminal investigation agent (excerpted):
A federal grand jury in Sacramento, California returned an indictment [superseding indictment, here] today charging a former Internal Revenue Service–Criminal Investigation (IRS-CI) special agent with six counts of filing false income tax returns, one count of corruptly endeavoring to obstruct the internal revenue laws, one count of theft of government money and one count of destroying records during a federal investigation * * * *.   
According to the allegations in the indictment, Alena Aleykina, of Sacramento, a certified public accountant and former IRS-CI special agent, filed false individual income tax returns for the years 2009, 2010 and 2011, on which she claimed false filing statutes, dependents, deductions and losses and tax returns on behalf of two trusts.  The indictment further alleges that, between 2008 and 2013, Aleykina attempted to obstruct the IRS by preparing false tax returns for herself, family members, trusts and partnerships and by making false statements to representatives of the Department of the Treasury and attempted to obstruct a federal investigation by destroying evidence on a government computer.  Aleykina is also charged with fraudulently causing the IRS to issue IRS Tuition Assistance Reimbursement payments to her. 
If convicted, Aleykina faces a statutory maximum sentence of three years in prison on each count of filing a false tax return and corruptly endeavoring to obstruct the internal revenue laws, 10 years in prison for the charge of theft of government money and 20 years in prison for the destruction of evidence charge, as well as a period of supervised release and monetary penalties.
JAT Comments:

1. The indictment was filed in the Eastern District of California but only the U.S. Attorney for ND CA is on the press release.  The Superseding Indictment identifies several Government attorneys other than the USA.  The lead government attorney (per the docket sheet) is Thomas Newton, described on the indictment as "Special Attorney to the United States Attorney General"  In the docket sheet, he is identified as Thomas M. Newton with the U.S. Attorney's office in San Jose, CA.  I did some quick Google searches on "Special Attorney to the United States Attorney General," but could not discern from hurried reading of the hits precisely what that means.  I presume that the use of out of district U.S. Attorney and other attorneys is because the defendant may have worked with AUSAs in ED CA as a special agent assigned to grand jury investigations or in other capacities.

2. The original indictment, here, charging only theft of public money relating to the fraudulently causing the IRS to issue an IRS Tuition Assistance Reimbursement payment was filed on 7/28/16.  The original indictment was sealed and unsealed today, along with the filing of the superseding indictment.

3.  According to the superseding indictment, Aleykina "worked for Internal Revenue Service Criminal Investigation ("IRS-CI") as a Special Agent from approximately 2006 to 2014."

4.  The allegations are:

  • Counts One through Six  - tax perjury, subscribing to a false return (§ 7206(1), here)
  • Count Seven - tax obstruction (§ 7212(a), here)
  • Count Eight - theft of public money or property (18 USC § 641, here)
  • Count Nine - destruction alteration or falsification of records in Federal Investigation (18 USC § 1519, here)

Saturday, October 15, 2016

Second Circuit Rejects Aberrational Sixth Circuit Opinion in Kassouf on Requirements for § 7212(a) Tax Obstruction (10/15/16)

In United States v. Marinello, 839 F.3d 209 ((2d Cir. 2016), here, the Second Circuit held, as it states in its summary at the beginning of the opinion:
Defendant-appellant Carlo J. Marinello, II appeals from an amended judgment of conviction entered against him on July 14, 2015 by the United States District Court for the Western District of New York (William M. Skretny, J.). One of the counts of conviction alleged a violation of 26 U.S.C. § 7212(a)'s "omnibus clause," which criminally penalizes one who "corruptly . . . obstructs or impedes, or endeavors to obstruct or impede, the due administration of" the Internal Revenue Code in ways not addressed by other specific provisions of the statute. The district court denied Marinello's motion for an acquittal or a new trial on this count, concluding that the government was not required to establish a pending Internal Revenue Service action and a defendant's knowledge thereof as part of its burden of proof. We agree and conclude that these criteria are not offense elements under the omnibus clause. We further conclude that a violation of this provision may be predicated on an omission, and that the district court did not procedurally err in determining Marinello's sentence. The judgment of the district court is therefore.
The opinion is a worthy read.  I will just provide a few comments that may help the reader decide whether to read the entire opinion (44 pages in the slip opinion format):

1. In terms of federal tax crimes, the principal issue resolved in the case is that United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998) is not binding or, more importantly, even persuasive authority for its holding that the actor's obstruction of an active IRS investigation is required.  The issue exists only because of the common statutory language in 26 USC 7212(a), the tax obstructions statute, here, and 18 USC 1503, here, the obstruction statute titled "Influencing or injuring officer or juror generally."  The issue arises because the language of the two statutory provisions is very similar; indeed, it is fair to say that the language of the tax obstruction statute was drawn from or, at least inspired, by the obstruction statute in 18 USC § 1503.

I think that presenting the statutory text will be helpful in developing the principal issue (I present the portions of the text or the relevant statutes I think relevant to the issue):

§ 7212(a) provides (in relevant part):
Whoever corruptly * * * * endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly * * * obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be [punished].  
18 USC § 1503 provides (in relevant part):
Whoever corruptly, or by threats or force, * * * * endeavors to influence, intimidate, or impede any grand or petit juror, or officer in or of any court of the United States * * * in the discharge of his duty * * * or corruptly or by threats or force, * * * * obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be punished * * *.
In United States v. Aguilar, 515 U.S. 593 (1995), the Supreme Court interpreted § 1503 to require that the actor, the defendant in the case, know of a pending grand jury or other investigation that his actions obstructed.  In United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998), interpreting from the common language in the two provisions (§ 7212(a) was drawn from 18 USC § 1503), the Sixth Circuit interpreted § 7212(a) to require that the defendant know of a pending IRS investigation that his actions were intended to obstruct.  If there were no pending IRS investigation, the taxpayer could not have requisite intent to obstruct.

Friday, October 7, 2016

Another Plea to Offshore Account Tax Crimes (10/7/16)

DOJ Tax announced here a new guilty plea, here, to tax obstruction, § 7206(1), a three year felony.  Excerpts:
Bernhard Rumbold, a resident of Clarkston, Michigan, and owner of several mining-related businesses in Michigan and Ontario, Canada, pleaded guilty to filing a false amended 2008 individual income tax return.  According to the information and the plea agreement, in approximately November 2004, Rumbold transferred more than approximately $2.6 million from his parents’ trust account, which he managed, into a bank account at Credit Suisse Bank AG in Switzerland.  Rumbold arranged for the Credit Suisse bank account to be in the name of Wisdom City Limited, a Hong Kong company whose sole purpose was to be the named account holder on foreign bank accounts.  Rumbold, who was the beneficial owner of the account, transferred control of the account to a relative in December 2008.    
On his 2006 through 2008 individual income tax returns, Rumbold falsely stated that he had no interest in a foreign financial account, and failed to report the interest, dividends and capital gains generated by the Swiss bank account as income.  In October 2010, Rumbold signed and filed an amended 2008 individual income tax return in which he again failed to report the interest, dividends and capital gains generated by the Swiss bank account as income. 
* * * * 
The plea agreement requires Rumbold to pay restitution for his unpaid tax liabilities for the years 2006 through 2008.  [There is no indication that he will be required to pay an FBAR penalty.]
I note in this regard that the DOJ Tax's advertised policies for plea deals are (DOJ Tax CTM 5.01[1] Offense of Conviction — The Major Count Policy, here):  (i) "tax evasion counts (26 U.S.C. § 7201) take priority over other substantive tax counts;" and "the count charged in the indictment or information that carries the longest prison sentence is the major count."

Thursday, October 6, 2016

Creative But Unsuccessful 2255 Proceeding with Interesting, but Unproven, Allegations (10/6/16)

I offer today an opinion in a Hail Mary habeas corpus-like proceeding under 28 USC 2255 after conviction and appeal.  United States v. Bertram, 2016 U.S. Dist. LEXIS 126906 (D DC 2016)  The opinion is here and the petition addressed in the opinion is here.  These proceedings are very common, particularly federal prisoners who have some time on their hands and can proceed pro se. Bertram proceeded pro se, but the petition reflects a lot of research and creativity.  The opinion offers no new law, but, although the petition was unsuccessful, the opinion does have some interesting aspects.  Readers should look for the following:

1. The petitioner argues that his conviction should be reversed because he was selectively prosecuted.  The claim was that
he was the victim of selective prosecution because his work during President Obama's administration was for the GOP.1 See, e.g., Def.'s Mem. at 8. In support of this claim, defendant provides the court with seven anecdotal examples of prominent Democratic figures who allegedly committed similar offenses but were not prosecuted. See Def.'s Mem. at 5-6. He also provides statistics in an effort to show that the felony charged in this case - 26 U.S.C. § 7202 - is "infrequently charged." See U.S. Sentencing Comm'n Guidelines Manual, Ex. 1 to Def.'s Mot. [Dkt. # 24-1]; see also Emp't Tax Evasion Statistical Data, Ex. 10 to Def.'s Mot. [Dkt. # 24-1] at 50 (providing statistics showing the relative infrequency of prosecution). Finally, he contends that the prosecution was permeated with "bad intent" because an IRS agent allegedly inquired as to the political motivations behind defendant's work. See Aff. of Kevin Duane Bertram, Ex. 14 to Def.'s Mot. [Dkt. # 24-2] ¶¶ 10-15.
For his statistical presentation, see the petition linked above.

2.   The petitioner made the standard 2255 claim of ineffective assistance of counsel.  His particular focus was upon Cono Namorato, here, a giant of the tax crimes bar, who had represented him during the criminal investigation but did not enter an appearance for him in the criminal case or represent him in the plea agreement and plea hearing.  The petitioner argued that nevertheless Namorato had failed in his due diligence, infected by a conflict of interest by his nomination to be AAG of the Tax Division while representing him.  The Court''s resolution of the conflict issue is:
B. Defendant has not shown that Mr. Namorato had a conflict of interest. 
Defendant complains that Mr. Namorato was nominated by President Obama to serve as Assistant Attorney General for the Tax Division of the Justice Department while he was still engaged as a member of the defense team. See Def.'s Mem. at 12-13. Defendant insists "that a lawyer attempting to become the head prosecutor of an agency would not want to risk his chance of that desired position by zealously representing his defendant-client who is at odds with the agency." Id. at 13. Whatever truth there might be to this statement as a general principle, the record does not indicate that the nomination posed an actual conflict in this case — in which, it bears repeating, another attorney was counsel of record — or that defendant was adversely affected in any way. n14
   n14 Defendant seems determined to deflect responsibility for his own wrongdoing onto Mr. Namorato, but the last time he invoked Mr. Namorato's name in these proceedings, he sought to benefit from the attorney's recent nomination and cloak himself in his lawyer's fame and reputation. In the sentencing memorandum filed on April 29, 2015, defendant informed the Court that at one time, defendant had retained Caplin & Drysdale to represent him in the criminal investigation. Def.'s Mem. in Aid of Sentencing [Dkt. # 12] at 11. After touting Mr. Namorato's qualifications and specifically mentioning his recent nomination to the Tax Division post, defendant stated that he "believed that his attorneys were working to resolve the outstanding tax liabilities and that he should delay filing all outstanding Form 941s and pay all tax liabilities as part of a comprehensive settlement." Id. at 11 & n.4. The next day, the defense filed a motion for leave to file a "corrected" memorandum that would "clarify" certain statements made in the memorandum, Mot. for Leave to File Corrected Def.'s Mem. in Aid of Sentencing [Dkt. # 14], and in the revised version, this reference to Mr. Namorato was completely excised. See Def.'s Mem. in Aid of Sentencing at 11. 
"Conflict of interest claims ...are a 'specific genre' of ineffective assistance of counsel claim." United States v. Wright, 745 F.3d 1231, 1233, 409 U.S. App. D.C. 63 (D.C. Cir. 2014), quoting United States v. Bruce, 89 F.3d 886, 893, 319 U.S. App. D.C. 245 (D.C. Cir. 1996). "[A] defendant who asserts a conflict of interest habeas proceedings generally must demonstrate only that an actual conflict of interest adversely affected his lawyer's performance." Id., citing Cuyler v. Sullivan, 446 U.S. 335, 348, 100 S. Ct. 1708, 64 L. Ed. 2d 333 (1980). "An actual conflict of interest exists where a lawyer is 'required to make a choice advancing his own . . . interests to the detriment of his client's interest.'" United States v. Thomas, 114 F.3d 228, 252, 324 U.S. App. D.C. 374 (D.C. Cir. 1997), quoting Bruce, 89 F.3d at 893. If a defendant can show an actual conflict that adversely affected his attorney's performance, he "typically need not demonstrate the second prong of the Strickland test — that the lawyer's deficient performance affected the outcome of the case." Wright, 745 F.3d at 1233, citing Cuyler, 446 U.S. at 349-50. 
First, the timeline does not support defendant's claim. Defendant retained Mr. Namorato and Caplin & Drysdale to deal with the tax matter on May 30, 2012. Aff. of Kevin Duane Bertram, Ex. 17 to Def's Mot. [Dkt. # 24-2] ¶ 1; see also Engagement Letter, Ex. 1 to Def.'s Reply [Dkt. # 27] at 1. Defendant avers that "sometime in 2013," he noticed a "marked decrease in Mr. Namorato's performance." Ex. 17 to Def.'s Mot. ¶ 6. According to defendant's own account, he "became so concerned about Mr. Namorato's decrease in representation, that [he] retained attorneys Thomas Perrelli and Jessie Liu of the firm Jenner & Block to assist [him]." Id. ¶ 13. Defendant retained Jenner & Block on February 10, 2014. Ex. 1 to Def.'s Suppl. The prosecutor sent the formal [*36]  plea offer letter to Ms. Liu on January 13, 2015, and she entered her appearance in the case at the arraignment and plea hearing on February 10, 2015. She was also the lone counsel for the sentencing on May 5, 2015. n15
   n15 Caplin & Drysdale formally concluded its representation of the defendant in a letter dated June 8, 2015. Ex. 2 to Def.'s Reply [Dkt. # 27].  

Tuesday, October 4, 2016

District Court Rejects Suppression for Interview of Target of Grand Jury Investigation Without Notifying His Counsel (10/4/16)

In United States v. Sabean, 2016 U.S. Dist. LEXIS 136658 (D ME 2016), here, the district court declined to suppress made by the target of a grand jury investigation to IRS agents when the agents knew that he was represented by an attorney on tax matters without going through the the attorney.  The facts are unusual, so I will just summarize the key facts.

First, the indictment, here, that was ultimately handed down in October 2015 charged tax evasion (Counts 1-5) and Unlawful Distribution of Controlled Substances (Counts 6-57).  I don't know what inferences might be drawn from the tax charged appearing first in the indictment.

Now, turning to the key facts.

The grand jury investigation in which Dr. Sabean was targeted had commenced prior to January 15, 2014.  The scope of the grand jury investigation as of that date is not stated.  IRS agents had been assigned to assist the grand jury.  From the tax charges in the ultimate indictment and the presence of IRS agents, it might be inferred that tax crimes were among those being considered by the grand jury.  But, that is an inference and not a compelled inference because IRS agents are used in some nontax grand jury investigations.  At any rate, whether the scope of the grand jury investigation included tax crimes at the key times here relevant does not appear to be important.

The interview in question was conducted on January 29, 2014 by IRS agents assigned to assist the grand jury.  This is the key interview in issue.

Before that interview, on January 15, 2014, the agents had appeared at the residence of owners of a bookkeeping company used by Dr. Sabean,  to serve a grand jury subpoena.  They advised the owners of the company that "they were conducting an investigation of Dr. Sabean and had questions for the Kuhls [the owners of the bookkeeping service] in this regard." They then interviewed the Kuhls for about 2 hours.  No indication came up in the interview that Dr. Sabean was represented on his tax matters.  They left with some boxes of documents and requested that the Kuhls not advise Dr. Sabean of the visit and grand jury subpoena.

The IRS agents determined on preliminary review of the documents that some of the documents might be subject to privilege as to Dr. Sabean with an attorney named Sheehan, a tax attorney, who had engaged a private investigator on Dr. Sabean's tax matters.  As typical, an AUSA taint team was created to review the documents potentially subject to privilege.

On January 21, 2014, the IRS agents conducted another interview of the Kuhls and obtained additional documents  responsive to the subpoena.  They discussed the attorney and the hiring of the investigator.  In obtaining the additional documents, the IRS agents asked the Kuhls to segregate out items potentially privileged so that they could then be submitted to the taint team.

On January 29, 2014, the IRS agents went to Dr. Sabean's offices to interview him.  The opinion suggests, but does not state, that Dr. Sabean was not aware of the investigation until the agents showed up.  The agents did not advise Dr. Sabean of any rights he might have.  Readers of this blog know that IRS agents conducting CI administrative investigations are required by the IRM to give the noncustodial statement of rights.  See the IRM provisions quoted and linked at the bottom of this blog entry.  The reason was that they were not conducting a CI administrative investigation.  The AUSA had advised them that they were not subject to that requirement because they were conducting the interview pursuant to a grand jury investigation.  (See IRM provision cited and quoted at the end of this blog entry.)

The attorney then advised the agents that further communications should be through him rather than through Dr. Sabean.

In ensuing criminal case then brought by indictment in October 2015, Dr. Sabean moved to suppress any statements he had made in the January 29 interview.  The issue was whether the agents' interview of Dr. Sabean on January 29, 2014 had violated the Maine Rules of Professional Conduct, made potentially applicable by the Citizens Protection Act, 28 U.S.C. § 530B(a) (referred to as the “McDade Amendment”).  The applicable Maine Rule 4.2 was: