Tax Attorney's Conviction and Sentencing Affirmed on Appeal (6/6/18)

In United States v. Lynch, 2018 U.S. App. LEXIS 14085 (3rd Cir. 2018) (nonprecedential), here, the Third Circuit affirmed the conviction and sentencing of Steven J. Lynch, a tax attorney, whose criminal conviction and sentencing I have written before.  See Tax Attorney Convicted of Employment Tax Fraud (Federal Tax Crimes Blog 9/8/16; 9/10/16), here, and Tax Attorney Sentenced to 48 Months of § 7202 Convictions (Federal Tax Crimes Blog 1/14/17), here.  The decision is nonprecedential and covers no new ground.  It  does cover a lot of points, albeit in some cases not in great detail.  I will just point out some of the points as reminders to readers.

1.  As a defense to the criminal charge and as a  means to lower his tax loss for sentencing, Lynch argued that the subsequent delinquent payment of the Trust Fund tax should be considered.  The Court's rejections of those arguments were as follows:

Lynch argues that § 7202 does not contain within it any language specifying a due date and so argues that his late payments do not alone suffice to establish that he failed to pay over the taxes. This argument fails on its face. Section 7202 applies to taxes "imposed by this title," and § 6151 makes clear that "when a return of tax is required under this title or regulations, the person required to make such return . . . shall pay such tax at the time and place fixed for filing the return." See, e.g., United States v. Quinn, No. 09-cv20075 (JWL), 2011 U.S. Dist. LEXIS 10506, 2011 WL 382369, at *1 (D. Kan. Feb. 3, 2011) ("[A] 'failure to pay over' necessarily incorporates the concept of a deadline, as the failure must be measured as of some particular time."), aff'd, 566 F. App'x 659 (10th Cir. 2014). Thus, where a payment is late, the responsible person has by definition failed to pay it over and if that failure was willful, that person has violated § 7202. 

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Lynch next argues that the tax loss should actually have been zero, given that he always intended to pay the taxes, or alternatively should have been reduced by the amount of his late payments. As we already explained, § 7202 is violated when the taxes are willfully not paid as of the time that the filing is due. The Guidelines, for their part, are clear that for willful failure-to-pay offenses, "the tax loss is the amount of tax that the taxpayer owed and did not pay" and furthermore that "[t]he tax loss is not reduced by any payment of the tax subsequent to the commission of the offense." § 2T1.1(c)(3) & (c)(5). Accordingly, the tax loss is properly calculated based on whatever Lynch owed and willfully did not pay when the applicable filings were due, at which point the offense had been committed. Subsequent payments cannot retroactively reduce that tax loss.

2.  Lynch argued that the prosecutor had improperly asserted to the jury that the taxes were his taxes when, in fact, they were employer taxes.  The Court rejected the argument as follows:

Lynch alleges that although he is not an "employer" so does not personally owe taxes or employ employees, the Government made statements implying that Lynch personally owed taxes or employed people. However, as a "responsible person," Lynch — although not the employer — was responsible for the collection and payment of the trust fund taxes. It was no misrepresentation for the Government to argue that Lynch had a duty to pay these taxes or that he failed to do so. Likewise, because Lynch was a controlling owner, it is perhaps inaccurate, but not misleading or unfair, to describe the entities' employees as Lynch's employees. See Rolan v. Coleman, 680 F.3d 311, 325 (3d Cir. 2012). Nor did the Government argue to the jury that Lynch was the employer. It argued, and the evidence conclusively shows, that Lynch was the responsible person. In context, any misleading comments did not render the trial unfair. Lynch cannot show plain error because the statements did not affect his substantial rights.

3.  Lynch argued that the prosecutor violated his Fifth Amendment rights when a Government witness, an IRS Special Agent, testified that, in an interview (presumably one of the surprise interviews Special Agent's make early in a criminal investigation), Lynch declined to talk and indicated he wanted to talk  to an attorney.  The Court rejected the argument as follows:

Lynch also contends that his Fifth Amendment right against self-incrimination was violated when Special Agent Lauth, a Government witness, testified that after telling Lynch that he was the subject of a Grand Jury investigation, Lynch replied that he did not want to talk and wanted an attorney. Lynch argues that this revelation implied to the jury that he was guilty. Lynch did not object at trial, and his claim fails. 

The Government did not intentionally elicit this testimony. Rather, the record reflects that the Government presented Agent Lauth as a witness for the purpose of showing only that Lynch was informed that he was the subject of the Grand Jury investigation, but that Lauth gave a narrative answer. The Government asked no follow-up questions, and although it discussed Lauth's testimony during its summation, did not mention Lynch's refusal to talk or request for counsel. In any event, Lynch again cannot show that the error was plain or that it affected his substantial rights.