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.

That was the issue presented to the Second Circuit.  There was no pending IRS investigation that the taxpayer's actions could have obstructed.  In Kassouf, the Court held that the defendant's knowledge of a pending IRS investigation was an element of the crime, as it was a pending grand jury investigation in § 1593, as interpreted in United States v. Aguilar, 515 U.S. 593 (1995).  The bottom line from the discussion in Marinello is that despite some of the common language, § 7212(a), tax obstruction, does not require knowledge of a pending investigation.  Specially, the "due administration of this title" in § 7212(a)  is more sweeping and inclusive than the "due administration of justice" in 18 USC § 1503.  The administration of Title 26 includes all the various administrative steps and requirements even preceding an active "investigation," such as filing or nonfiling of returns, etc., including steps, missteps, and nonsteps which can be elements of the § 7212(a), tax obstruction, offense if related to the IRS administration of the Code.  (Note: in reading hte opinion, I recommend particular attention to footnote n9 of the opinion discussing the history of Kassour in the Sixth Circuit.)  Here is the concluding discussion from the opinion:

For those reasons, we decline Marinello's invitation to adopt the Kassouf rule. Instead, we join three of our sister circuits in concluding that section 7212(a)'s omnibus clause criminalizes corrupt interference with an official effort to administer the tax code, and not merely a known IRS investigation. See Sorensen, 801 F.3d at 1232 (disagreeing with Kassouf because section 1503(a) and section 7212(a) "are [in]sufficiently similar to apply Aguilar's reasoning to § 7212(a)"); United States v. Floyd, 740 F.3d 22, 32 & n.4 (1st Cir.) (determining that "[a] conviction for violation of section 7212(a) does not require proof of either a tax deficiency or an ongoing audit," and rejecting Kassouf (citations omitted)), cert. denied sub nom. Dion v. United States, 135 S. Ct. 124 (2014); United States v. Massey, 419 F.3d 1008, 1010 (9th Cir. 2005) (stating that "the government need not prove that the defendant was aware of an ongoing tax investigation to obtain a conviction under § 7212(a)"), cert. denied, 547 U.S. 1132 (2006). n11 Notably, although we have not explicitly adopted this rule in any previous opinion, we have implicitly applied it by affirming convictions under section 7212(a)'s omnibus clause without discussion of the defendant's awareness of a pending IRS proceeding. See United States v. McLeod, 251 F.3d 78, 80 (2d Cir. 2001) (affirming sentence imposed where the defendant helped his clients falsify tax returns), cert. denied, 534 U.S. 935 (2001); Kelly, 147 F.3d at 174-75 (affirming the defendant's conviction for providing a false agreement to the tax authorities to substantiate a deduction on his tax return).
   n11 In addition to the First, Ninth, and Tenth Circuits, the Eleventh Circuit, in a decision that predates Kassouf, upheld an attorney's conviction under section 7212(a)'s omnibus clause for creating a corporation to "disguise the character of [a client's] illegally earned income and repatriate it," even where the attorney had no knowledge that his client was engaged in a "sting operation" with the government against him. See United States v. Popkin, 943 F.2d 1535, 1536-37, 1541 (11th Cir. 1991), cert. denied, 503 U.S. 1004 (1992).

Our conclusion is consistent with at least two other sources. First, in the body of case law that developed within the forty-four years that elapsed between section 7212's enactment in 1954 n12 and Kassouf's issuance in 1998, the government assures us (and we have found no reason to doubt) that no court had limited the omnibus clause's application to the corrupt obstruction or impediment of a known and pending IRS action. See Appellee's Br. at 19. To the contrary, contemporary model jury instructions for use outside of the Sixth Circuit do not include these criteria as elements of the offense. See 3 Leonard B. Sand et al., Modern Federal Jury Instructions: Criminal ¶ 59.05, Instruction 59-32 & cmt. (2016) (containing pattern instructions or formulations for a violation of section 7212(a)'s omnibus clause in the First, Seventh, Tenth, and Eleventh Circuits).
   n12 See Act of Aug. 16, 1954, ch. 736, 68A Stat. 855. 

Second, the Department of Justice's internal tax division policy states that the omnibus clause may be used "to prosecute a person who, prior to any audit or investigation, engaged in large-scale obstructive conduct involving the tax liability of third parties." U.S. Dep't of Justice, Criminal Tax Manual § 17.03 (2012 ed.), https://www.justice.gov/sites/default/files/tax/legacy/2013/05/14/CTM%20Chapter%2017.pdf (last visited August 1, 2016) (emphasis added), archived at https://perma.cc/QWW4-DTJL . Pursuant to this policy, a defendant may be charged under the omnibus clause in the absence of a pending IRS action. See also id. § 17.04 ("To establish a Section 7212(a) omnibus clause violation, the government must prove beyond a reasonable doubt that the defendant in any way (1) corruptly (2) endeavored (3) to obstruct or impede the due administration of the Internal Revenue Code."). 

Because we conclude that, under section 7212(a), "the due administration of this title" is not limited to a pending IRS investigation or proceeding of which the defendant had knowledge, we reject Marinello's first argument as without merit. n13
   n13 In his reply brief, Marinello also raises for the first time an argument that the enactment of a statute in 2002 prohibiting the knowing destruction, alteration, or falsification of records "with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . , or in relation to or contemplation of any such matter," 18 U.S.C. § 1519 (emphasis added), demonstrates that Congress employs specific language when it prohibits conduct "not predicated upon the existence of any federal action or proceeding," Appellant's Reply Br. at 9. Marinello points to the absence of similar language in 26 U.S.C. § 7212(a) prohibiting corrupt obstruction or impediment "in relation to or contemplation of" an IRS action—which Congress did not add to section 7212(a) in 2002—as support for his theory that a defendant's knowledge of such a pending action is required to violate the omnibus clause. Ordinarily, we do not address an argument that the district court has not previously considered. See In re Nortel Networks Corp. Sec. Litig., 539 F.3d 129, 132 (2d Cir. 2008) (per curiam); Allianz Ins. Co. v. Lerner, 416 F.3d 109, 114 (2d Cir. 2005). Even if we did so here, however, we have found no authority that supports Marinello's attempt to create offense elements by contrasting 18 U.S.C. § 1519 with 26 U.S.C. § 7212(a). Moreover, "Congressional inaction," such as the lack of retroactive amendment to section 7212(a) in light of section 1519, "lacks 'persuasive significance' because 'several equally tenable inferences' may be drawn from such inaction." Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 650 (1990) (quoting United States v. Wise, 370 U.S. 405, 411 (1962)).

I discuss this issue in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), ¶ 12.02[5][b][v] Scope — Is an active investigation required?.  (Reminder, the Saltzman and Book text is the premier test on tax practice and procedure; it requires a subscription, so I cannot post a link; and caveat, I am the principal draftsman Chapter 12: Criminal Penalties and the Investigation Function.)  The link to the subscription is here.  On the next round of updates to the text, I will include the Marinello case.

2. Given its broad interpretation of the "due administration of this title" statutory test, the second Circuit said that omissions designed to interfere with the administration of the Code could meet the statutory text of the crime.  That discussion is:

In Kelly, we described section 7212(a)'s omnibus clause as "render[ing] criminal 'any other' action which serves to obstruct or impede the due administration of the revenue laws." 147 F.3d at 175 (quoting 26 U.S.C. § 7212(a)). From this statement, Marinello attempts to extract the principle that a violation of the omnibus clause must be predicated on a defendant's affirmative "action," and not an omission. But Kelly did not cabin offense conduct under the omnibus clause in this manner; section 7212(a) broadly prohibits corruptly obstructing or impeding, or endeavoring to obstruct or impede, the due administration of the tax laws "in any other way." See 26 U.S.C. § 7212(a). We do not see how a defendant could escape criminal liability under the omnibus clause for a corrupt omission that is designed to delay the IRS in the administration of its duties merely because the offense conduct involved an omission. Cf. Kelly, 147 F.3d at 177 (approving a jury instruction defining the term "endeavors" under section 7212(a) to mean "to knowingly and intentionally act or to knowingly and intentionally make any effort which has a reasonable tendency to bring about the desired result" (emphasis added)). For example, a defendant surely could be charged under section 7212(a) for knowingly failing to provide the IRS with materials that it requests, or, as in Marinello's case, for failing to document or provide a proper accounting of business income and expenses. n15  While apparently not as common as prosecutions based on one or more affirmative acts, we are aware of several cases in which the government has prosecuted on the basis of an omission as a means of violating section 7212(a)'s omnibus clause. n16
   n15 We nonetheless recognize that the scope of omissions on which an omnibus clause violation could be based is not limitless. See Wood, 384 F. App'x at 708 (suggesting it is "a questionable proposition" that a defendant's mere failure to file tax returns could constitute a violation of the omnibus clause, particularly because the "willful failure to file tax returns is addressed in a different section of the Internal Revenue Code, 26 U.S.C. § 7203"). Whatever those limits may be, the omissions at issue here do not exceed them.
   n16 See, e.g., Kassouf, 144 F.3d at 953 n.1 (alleging the defendant "failed to maintain or cause to be maintained partnership books and records"; "failed to report or cause to be reported substantial amounts of interest earned on [certain] bank accounts"; and transferred property "without making or causing to be made any record of that sale or transfer"); United States v. Armstrong, 974 F. Supp. 528, 531 (E.D. Va. 1997) (alleging the defendant "provided false information to, and withheld material information from, his tax return preparer with regard to his travel expense reimbursements and income"); United States v. Bezmalinovic, No. S3 96 CR 97 MGC, 1996 WL 737037, at *2, 1996 U.S. Dist. LEXIS 18976, at *5-6 (S.D.N.Y. Dec. 26, 1996) (alleging the defendant failed to report salary payments to certain employees "in any IRS Form W-2" or "to remit to the IRS the [payroll and unemployment] tax[es] due and owing").

3.  As the ultimate fallback, the taxpayer attempts to mitigate his sentencing.  The taxpayer argued that the sentencing court improperly computed the Guidelines calculations.  Marinello argued that, although he did not plead guilty and went to trial (which normally negates acceptance of responsibility for downward adjustment in the sentencing calculations), he did so only because of legitimate interpretation of the scope of § 7212(a), the principal count in his case.  The Guidelines recognize that there are circumstance where acceptance of responsibility can apply where a defendant does not plead but rather goes to trial over legitimate legal issues.  The Second Circuit said that, under the circumstances in the case, that exception to the denial of acceptance of responsibility did not apply here because the reason that the defendant went to trial had to do with his mens rea, a different issue than the issue he raised later about Kassouf.