Wednesday, December 6, 2017

First Comments on the Marinello Oral Argument Transcript (12/6/17)

I perused the transcript, here, for the oral argument in Marinello v. United States, 839 F.3d 209, 218 (2d Cir. 2016), cert. pending.  I did not try to parse the give and take, but did have some general impressions that I will comment on here.  I may add some more if I have time to dig deeper in the transcript.

1.  Some of the Justices seemed particularly concerned about the seeming scope of § 7212(a)'s Omnibus Clause.  Under what they viewed as the Government's construction, they were concerned that seemingly innocuous conduct might be a felony under that provision and wondered whether there might be some limitation so that it applied only to conduct worthy of a felony crime.  The Government's position is that the mens rea is such a limitation.  I discussed the Government position in Marinello Tax Obstruction 7212(a) Oral Argument is Wednesday (Federal Tax Crimes 12/3/17), here.  In view of the concern expressed by some of the Justices, I thought it might be helpful to again consider the relationship of the Omnibus Clause and the defraud / Klein conspiracy which has been a frequent topic on this blog.  I collect my principal prior blog entries on this subject at the end of this blog entry.

Here is a typical Omnibus Clause jury instruction (from United States v. Sorensen, 801 F.3d 1217, 1229 (10th Cir. 2015), but paralleling the DOJ CTM instructions No. 7212(a)-1 through 7212(a)-4,  here; I bold-face the particularly pertinent text:
First: The defendant in any way corruptly;
Second: Endeavored to;
Third: Obstruct or impede the due administration of the internal revenue laws.
“Endeavor” means to knowingly and intentionally make any effort which has a reasonable tendency to bring about the desired result. It is not necessary for the government to prove that the “endeavor” was successful.
To act “corruptly” is to act knowingly and dishonestly, with the specific intent to gain an unlawful advantage or benefit either for oneself or for another by subverting or undermining the due administration of the internal revenue laws.
Now, here is a defraud conspiracy instruction from the DOJ Tax CTM.
the defendant[s], [names], came to some type of agreement or understanding to [defraud the United States for the purpose of impairing, impeding, obstructing, or defeating the lawful functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment, and collection of income (or other relevant, e.g., excise) taxes]
Note the overlap object of the Omnibus Clause and the defraud conspiracy -- to impair, impede obstruct, etc.  Indeed, there was a time when the DOJ Tax CTM described the Omnibus Clause as a one person conspiracy and a charge that could be brought when there is insufficient evidence of a conspiracy.  See CTM 17.02 (2001 ed.).  I guess the point here is that, although the text in the two statutes is not the same, the interpretation and application of the text appears to be the same except without the common element of a conspiracy.  If that is right, any limitation needed for the Omnibus Clause should also be needed for the defraud conspiracy.
As I have written extensively, I think that Judge Kozinski's decision in United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993), here, does the limiting work for the defraud conspiracy.  See  John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here; and Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? Online Appendix, 9 Hous. Bus. & Tax L.J. A-1 (2009), here.  I particularly direct readers to the Online Appendix where I develop some examples of the type that seemed to concern the Justices in today's oral argument in Marinello.  I think that, as the Government urges in its brief, the mens rea requirement for the Omnibus Clause could do that limiting work.  I think also the analysis of Judge Kozinski in Caldwell could be used with the part of the Omnibus Clause jury instruction that I bold-faced above.

2.  The question on certiorari in Marinello was whether a pending investigation was required.  Consider this discussion as to whether that line -- a pending investigation -- really did the work necessary to limit the scope of the Omnibus Clause:
JUSTICE ALITO: Well, Mr. Hellman, I mean, I share your -- your concern that if this statute is read in its broadest possible literal sense, it has a really staggering sweep, but I wonder if your interpretation really solves the problem because can't the same sorts of things happen after a proceeding has commenced?
Let's say somebody is being audited and eventually the person comes up with the records that the auditor needs, but they're all scrambled up, and it looks like -- and -- and the person is -- is late in providing them and misses meetings and just is very difficult. You could get the same situation there, couldn't you?
MR. HELLMAN: I suppose you could, but there's a difference as to why I think the statute ought to tolerate prosecution in that scenario, which is where there's been a formal notice of audit and someone has been given questions by the government and needs to respond in a reasonable manner to them. You can understand why Congress wanted to make that a crime distinct from, maybe on top of, other crimes that a person has committed. But if we're talking about the maintenance of records prior to the initiation of that proceeding, then there are many other crimes that do cover recordkeeping and, of course, your obligation to pay taxes.
But those are generally, with the exception of tax evasion, generally not felonies and they generally have a lower sentence than the one here.
So I do take your point that there could be the potential for abuse, even under our interpretation, but I do think that it's significantly narrowed just for the reasons that I said.
JUSTICE KAGAN: Mr. Hellman, there are obvious reasons to search for a limiting interpretation here.
JUSTICE KAGAN: I guess the question is why your limiting interpretation? And obviously you talked about this in your brief. But I just want to give you an opportunity now to try to convince me, because right now I feel as though it comes out of thin air. It doesn't
have any grounding in the text of the statute.
And I guess I'm not seeing quite how the precedent gets you there. So -
MR. HELLMAN: Absolutely. I think the -- the key reasons why we would think that Congress had 1503 in mind when it was talking -- when it was enacting 7212 are the following: You've got a statute, 1503, enacted just a few years before, six years before. It doesn't just talk about obstruction of the due administration of something.
It's got that two-part structure with officers in the first half, administration in the second. It's got those same verbs, to impede or intimidate the officer, or impede or obstruct the proceeding.
And you also have the same means by which you're doing it. So you put that all together and, on top of that, the fact that there's nothing unusual about obstruction proceed -- obstruction statutes having proceedings as their focus.

Prior Federal Tax Crimes Blog Entries Discussing the Intersection of the Defraud Conspiracy and the Tax Obstruction, § 7212(a), Omnibus Clause:
  • The Intersection of Conspiracy and Tax Obstruction (7212(a)) (Federal Tax Crimes Blog 1/16/14), here.
  • Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (Federal Tax Crimes Blog 5/26/11), here.
  • Jury Instructions in Tax Obstruction and Klein Conspiracy Case (Federal Tax Crimes Blog 2/6/13), here.
  • Sixth Circuit Holds that § 7212(a)'s Omnibus Clause Requires Knowledge of a Pending Proceeding / Action and Intent to Obstruct (Federal Tax Crimes Blog 12/13/14), here.
  • Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (Federal Tax Crimes Blog 5/26/11), here.

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