The Relationship Between Affirmative Act of Evasion and Willfulness (11/18/16)

In United States v. Boisseau, ___ F.3d ___, 2016 U.S. App. LEXIS 20535 (10th Cir. 2016), here, Boisseau was a lawyer who reported but did not pay a large amount of tax over a number of years.  He then set about to avoid having to pay the unpaid tax or at least delay having to pay the unpaid tax.  He was prosecuted for tax evasion.

The district court determined that Mr. Boisseau willfully evaded paying his taxes by (1) placing his law practice in the hands of a nominee owner to prevent the Internal Revenue Service (IRS) from seizing his assets; (2) causing his law firm to pay his personal expenses directly given an impending IRS levy, rather than receiving wages; and (3) telling a government revenue officer that he was receiving no compensation from his firm when in fact the firm was paying his personal expenses.

Boisseau's "affirmative acts" of tax evasion were:  (1) he had his son's father-in-law appear as the nominal owner of the LLC through which he practiced law (the opinion does not state whether the father-in-law was a lawyer, but does state that he "had no daily involvement with the firm, performed no work for it, and received no salary."); (2) he altered his compensation from the firm from a salary to paying his personal expenses, so that the IRS would be less able to levy; and (3) he represented -- misrepresented -- to the collection officer that his expenses were being paid by children and family members rather than by the firm (he sought to avoid the inference from this fact by arguing that his lawyer had corrected the representation and that he reported by payments as Schedule C income).  The Court of Appeals held that the evidence was sufficient to permit the trial judge to find that these were affirmative acts of evasion, one of the three element of tax evasion.

And, basically on the same fact pattern, the Court of Appeals held that the evidence was sufficient to permit the trial judge to find willfulness, one of the three elements of tax evasion.

The next part of the opinion is the most interesting.  I quote it in full:

Mr. Boisseau also argues that his conviction was the product of two legal errors. He argues that proof of an affirmative act of tax evasion cannot be established without evidence that the act was designed to conceal or mislead, and that proof satisfying the affirmative act element is not sufficient, in and of itself, to prove the willfulness element. 

Regarding his first challenge, Mr. Boisseau relies upon United States v. Meek, in which we stated, "An affirmative act requires more than the passive failure to file a tax return; rather, it requires a positive act of commission designed to mislead or conceal." 998 F.2d 776, 779 (10th Cir. 1993). In light of this precedent, Mr. Boisseau contends that the district court erred in stating that the government did not need to prove that he misled or concealed assets from the IRS. See Boisseau, 116 F. Supp. 3d at 1257. The government argues, inter alia, that the district court properly recognized the Supreme Court's recent decision in Kawashima v. Holder demonstrates that "the elements of tax evasion pursuant to § 7201 do not necessarily involve fraud or deceit" and that "it is possible to willfully evade or defeat payment of a tax under § 7201 without making any misrepresentation." 565 U.S. 478, 132 S. Ct. 1166, 1175, 182 L. Ed. 2d 1 (2012). Mr. Boisseau asserts that this language in Kawashima is dicta and does not overturn this court's decision in Meek requiring a positive act designed to mislead or conceal. 

We need not resolve this issue, however, because Mr. Boisseau lacks the factual predicate to make it given the district court's evaluation of the evidence. The district court addressed Mr. Boisseau's contention that the affirmative acts must mislead or conceal, and clearly stated that "[Mr.] Boisseau did mislead or conceal." Boisseau, 116 F. Supp. 3d at 1257. It found that Mr. Boisseau's conduct in using a nominee, altering his compensation, and misrepresenting his compensation to the IRS was not only intentional but also inherently misleading. Id. In light of its findings, there was simply no need to expressly state that Mr. Boisseau's conduct was "designed to conceal or mislead." 

As to Mr. Boisseau's second argument, he asserts that because the willfulness and affirmative act elements are distinct, the district court erred in relying on the Second Circuit's decision in United States v. Romano to conclude "if the affirmative act element is satisfied, there is no question that willfulness is also present." Boisseau, 116 F. Supp. 3d at 1256 (quoting Romano, 938 F.2d at 1572). The government responds that this argument was not preserved, and that the district court clearly stated that the elements were separate, defined willfulness in accordance with Supreme Court precedent to mean "the voluntary, intentional violation of a known legal duty," Cheek, 498 U.S. at 201, and found that each component of that definition was satisfied here. 

Regardless of whether the error was preserved, and having considered each of Mr. Boisseau's contentions, we conclude the government has the better argument. The district court's opinion, taken as a whole, demonstrates that the court treated the affirmative act element and the willfulness element as distinct. It defined the elements separately, and separately discussed which facts in the record proved each element beyond a reasonable doubt. Thus, the error, if any there be, was harmless because the district court simply did not conflate the affirmative act and willfulness elements of § 7201.

The question I find interesting is the relationship of the affirmative act element and the willfulness element of the crime of tax evasion.  Since, it seems to me, intent is required for the affirmative act of evasion of payment, that intent would necessarily supply the element of willfulness as the Romano quote suggests.  I suppose that the only argument against this is that it conflates what has always been treated as separate elements of the crime of evasion of payment.  But, it also seems to me, it would be conceptually inconsistent to find an affirmative act of evasion but no willfulness.

I have looked at the Meek opinion and the Kawashima opinon.  I don't think that they are inconsistent.  And, more to the point, I do think the affirmative act has to have some tendency, intended by the actor, to conceal or misrepresent in order to evade payment.  In other words, if the actor did not intend by the affirmative act to evade payment of the tax, then it does not make sense that that act could be treated as an affirmative act of evasion just because it unintentionally may be viewed as having that effect.

More on United States v. Romano, 938 F.2d 1569 (2d Cir. 1991), here.  Romano was caught transporting cash from the U.S. into Mexico without filing the required customs report.  He was thereafter convicted of evasion for the year of the seizure on the theory that it was income for that year and that he had not filed a return for the year.  Merely not filing a return is not an affirmative act of evasion so, the Government argued that his action in not reporting the currency transportation and evasive answers to customer authorities was the affirmative act of evasion either separately or in conjunction with the failure to file.  But, of course, at the time of the seizure, the return for that year was not even due.  Here are some key excerpts from Romano:

2. Wilfulness 

We next consider willfulness. Satisfaction of the willfulness requirement is closely connected with the affirmative act element. See United States v. Stone, 702 F.2d 1333, 1339 n. 4 (11th Cir. 1983). Evidence of affirmative acts may be used to show willfulness, and the defendant must commit the affirmative acts willfully to be convicted of tax evasion. In this case, if the affirmative act element is satisfied, there is no question that willfulness is also present, and if the evidence of an affirmative act is insufficient, then willfulness becomes moot. Thus, the critical question is the third element — whether Romano engaged in affirmative acts with the specific intent to evade his tax obligation. We turn to that question. 

3. Affirmative Act in Attempt to Evade Taxes 

* * * * 

Without some intent to violate the law, we do not think it is correct to infer that merely carrying money to Canada can be used to fulfill the affirmative act requirement for the felony of tax evasion, especially if Romano had no obligation to disclose the amount of the money to the IRS at the time he was trying to transport the money. 

* * * * 

Romano could not have been guilty of evading taxes on November 17, 1983, when he crossed the Peace Bridge, because his tax year was still open and he had yet to owe anything to the IRS. After the events of that day there was nothing that Romano did or failed to do, including his not filing a return for 1983, that in any way could have deceived the government. The government had already seized the money that gives rise to the tax debt underlying the tax evasion charge.  

* * * * 

Romano was, of course, required to file a tax return, and his failure to do so might have been a basis for the lesser criminal charge of failure to file, see 26 U.S.C. § 7203, one of the charges that was dropped. However, given that Romano was required to provide only the bare minimum of information under Sullivan, to protect his fifth amendment rights, information which the government already had and which Romano knew the government had, we cannot accept the government's claim that Romano's failure to file under these circumstances has probative weight in establishing the more serious crime of tax evasion. 

Since the element of an affirmative attempt to evade taxes was not established beyond a reasonable doubt, the government failed to establish the charged crime of tax evasion. We hold that Romano's conviction for willfully evading his income tax obligations for 1983 cannot be upheld in the unique and specific circumstances revealed by this record. Romano may have been guilty of other crimes, but his guilt of tax evasion has not been sufficiently established.

DOJ's CTM 8.03, here, addresses this issue as follows in the context of evasion of payment:

In order to establish the crime of attempted evasion of payment of tax, the government must establish that the taxpayer took some affirmative action to defeat the payment of the tax. “Merely failing to pay assessed taxes, without more, * * * does not constitute evasion of payment.”5 United States v. McGill, 964 F.2d 222, 231 (3d Cir. 1992) (citing Sansone, 380 U.S. at 351); United States v. Romano, 938 F.2d 1569, 1573 (2d Cir. 1991) (evidence that defendant merely carried cash to Canada and failed to file return not sufficient to establish existence of affirmative act of evasion of payment); see also United States v. Masat, 896 F.2d 88, 97 (5th Cir. 1990) (citing Spies v. United States, 317 U.S. 492, 499 (1943)); United States v. Voorhies, 658 F.2d 710, 715 (9th Cir.1981). Generally, affirmative acts associated with evasion of payment involve some type of concealment of the taxpayer’s ability to pay taxes or the removal of assets from the reach of the IRS. See United States v. McGill, 964 F.2d at 231.

Note that DOJ's discussion of Romano suggests a nexus between an objective act (the carrying of cash to Canada) and the affirmative act of evasion.  Certainly, if Romano's intent in carrying the cash to Canada were to evade payment of the tax due on the unfiled return that would have met the element and the putatively separate element of willfulness.