Superseding Indictment for Former Harvard Chair on Tax and FBAR Crimes (7/29/20)

DOJ announced here the superseding indictment for tax-related crimes of Dr. Charles Lieber, the former Chair of Harvard University’s Chemistry and Chemical Biology Department.  See also  James S. Bikales and Kevin R. Chen, Former Chemistry Chair Lieber Indicted on Four Additional Felonies for Tax Offenses (Harvard Crimson 7/28/20), here.  The prior indictment was for making false statements to federal authorities.

Key excerpts from the announcement are:

Dr. Charles Lieber, 61, was indicted by a federal grand jury in Boston on two counts of making and subscribing a false income tax return and two counts of failing to file reports of foreign bank and financial accounts (FBAR) with the Internal Revenue Service (IRS).  In June 2020, Lieber was indicted on two counts of making false statements to federal authorities.  Lieber was arrested on Jan. 28, 2020. 

The superseding indictment alleges that Lieber served as the Principal Investigator of the Lieber Research Group at Harvard University, which received more than $15 million in federal research grants between 2008 and 2019. Unbeknownst to his employer, Harvard University, Lieber allegedly became a “Strategic Scientist” at WUT [Wuhan University of Technology] and, later, a contractual participant in China’s Thousand Talents Plan from at least 2012 through 2015.  China’s Thousand Talents Plan is one of the most prominent Chinese talent recruitment plans designed to attract, recruit and cultivate high-level scientific talent in furtherance of China’s scientific development, economic prosperity and national security. 

Under the terms of Lieber’s three-year Thousand Talents contract, WUT allegedly paid Lieber a salary of up to $50,000 per month, living expenses of up to $150,000 and awarded him more than $1.5 million to establish a research lab at WUT.  It is alleged that in 2018 and 2019, Lieber lied to federal authorities about his involvement in the Thousand Talents Plan and his affiliation with WUT. 

According to the superseding indictment, in tax years 2013 and 2014, Lieber earned income from WUT in the form of salary and other payments made to him pursuant to the Strategic Scientist and Thousand Talents Contracts, which he did not disclose to the IRS on his federal income tax returns.  The superseding indictment also alleges that Lieber, together with WUT officials, opened a bank account at a Chinese bank during a trip to Wuhan in 2012.   Thereafter, between at least 2013 and 2015, WUT periodically deposited portions of Lieber’s salary into that account. U.S. taxpayers are required to report the existence of any foreign bank account that holds more than $10,000 at any time during a given year by the filing an FBAR with the IRS.  Lieber allegedly failed to file FBARs for the years 2014 and 2015.

The Unspotted Issue in an Audit; Ethics and Crimes (7/24/20; 8/2/20)

In an ABA Tax Section Court Procedure Virtual meeting on Wednesday, there was a one-hour discussion of ethical issues in handling a matter in the Tax Court.  The participants in the discussion were:

• Judge L. Paige Marvel, United States Tax Court, Washington, D.C.
• Elizabeth G. Chirich, Chief, Branch 1, Procedure & Administration, IRS Office of Chief Counsel, Washington, D.C.
• Guinevere Moore, Moore Tax Law Group, LLC, Chicago, IL
• Kandyce Korotky, Covington & Burling, Washington, D.C. (Moderator)
• Mitchell I. Horowitz, Buchanan Ingersoll & Rooney P.C., Tampa, FL

The discussion was excellent.  I highly recommend those who can access the recording of the event on the ABA web site to do so.  (I would provide a link but have not yet located the link, perhaps because the recording has not yet been put up.)

During the discussion I posted two questions which, apparently because of time, the participants did not respond to.  I offer the questions and some comment here.  The questions were:

1.        Question : What if the IRS sets up only one issue in the notice of deficiency and the IRS never spotted a big issue involving omitted income. There is no real gray area in the unspotted issue; the taxpayer clearly would owe tax if the unspotted issue were fully litigated (indeed taxpayer's counsel did not think she could even make a nonfrivolous argument that the omitted income should not have been included). After filing the petition, IRS Counsel offers to concede that one issue (the spotted issue in the NOD) and sends a stipulated decision document saying that the deficiency is $0. Because the taxpayers' counsel knows that stipulation that there is no deficiency is not true, can the taxpayers' counsel sign the stipulated decision?
2.        Question: This may be a philosophical question rather than one you can answer here:  What good are ethical rules when they don't provide answers -- i.e., when different ethical lawyers acting ethically can reach different conclusions -- does that simply reward the aggressive attorney (who may even be a lawyer who charges for the benefit offered to the taxpayer by being aggressive within the ambiguities -- even creative ambiguities -- in the ethical rules) and the taxpayer engaging this ethically aggressive attorney?  And would about the more conservative ethical attorney and his client?  Is the ethically conservative attorney providing less than ethically aggressive representation then not zealously representing the client?  There is more but I'll stop there?

The second question is more philosophical, so I will focus on the first question.  Here is the key background:

IRS Return Information Disclosures to Other Federal or State Authorities for Information Obtained in Voluntary Disclosure Processing and other Agency Activity (7/18/20)

I previously blogged on the new Form 14457, Voluntary Disclosure Practice Preclearance Request and Application.  See Revised IRS Form 14457 for Voluntary Disclosure Preclearance (Federal Tax Crimes Blog 5/29/20; 7/17/20), here; for prior discussion, see New Form 14457, Voluntary Disclosure Practice Preclearance Request and Application (Federal Tax Crimes Blog 4/16/19), here; and New IRS Voluntary Disclosure Procedures and Civil Resolution Framework (Federal Tax Crimes Blog 11/29/18; 11/30/18), here.

The Form grows out of the offshore account voluntary disclosure initiative (variously initialized OVDP and OVDI), but now covers the entire IRS voluntary disclosure practice to filing of the Form to seek preclearance to the practice.  The IRS voluntary disclosure practice is described on a web page titled IRS Criminal Investigation Voluntary Disclosure Practice, here (which also includes links to historical information).

I previously discussed the revised form in the link above and added to that discussion comments from a July 14, 2020 an ABA Tax Section Civil and Criminal Penalties Committee virtual meeting in lieu of the in-person meeting at the annual May Meeting.  In that discussion, I noted the importance of a full and complete narrative disclosures on the Form Part II, Question 7.  That narrative disclosures “must include a thorough discussion of all Title 26 and Title 31 willful failures to report income, pay tax, and submit all required information and reports.”   The participants emphasized the requirement for disclosure only includes Title 26 and Title 31 crimes (as to the latter, those crimes under Title where the IRS has been delegated enforcement responsibilities, such as FBAR and dual IRS and FINCen Forms 8300, titled Report of Cash Payments Over $10,000 Received in a Trade or Business).

One issue I indicated I would discuss later was the discussion of whether information disclosed on the Form or in the voluntary disclosure process would be available to other federal or state law enforcement agencies who enforce crimes outside Title 26 and 31.  Of course, if the unreported income is illegal income, the taxpayer is disqualified from joining the voluntary disclosure practice.  But often in the milieu involving a taxpayer’s tax or Title 31 noncompliance, there will be other illegal activity in which other nontax federal or state agencies may have an interest.  Need taxpayers trying to join the voluntary disclosure practice be concerned that the disclosures the taxpayers make in the practice (including the narrative on Part II, Question 7 of Form 14457) or any other information the IRS develops other than submitted by the taxpayer will be available to those other federal or state law enforcement agencies and potentially used for criminal prosecution of the taxpayer with no protection offered by the IRS voluntary disclosure practice?

Second Circuit Affirms Convictions, Rejecting Marinello and Bad Acts Evidence Arguments (7/9/20)

In United States v. Scali,  (2d Cir. 7/7/20), here, Unpublished, the Second Circuit affirmed the conviction of a prior lawyer for “ten criminal offenses, including: mail fraud, structuring cash deposits, tax violations, obstruction of justice, and perjury.”

For  most readers of this blog, the most interesting part of the decision is the discussion of Jury Instructions (Slip Op. pp. 10-11) regarding the Marinello issue.  Marinello v. United States, ___ U.S. ___, 138 S. Ct. 1101 (2018).  Marinello held that § 7212(a)’s tax obstruction crime (Omnibus Clause) requires:

• A nexus to an administrative proceeding: “a ‘nexus’ between the defendant’s conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action. That nexus requires a 'relationship in time, causation, or logic with the [administrative] proceeding.’”
• A pending or reasonably foreseeable proceeding: “the [administrative] proceeding was pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant.”

Before the Supreme Court decided Marinello, the trend in the cases was to hold that tax obstruction did not require a relationship to a pending investigation. 

In Scali, the trial occurred while the case was pending in the Supreme Court, so that the outcome was not known when the case was submitted to the jury.  The Second Circuit easily affirmed the Marinello issue because of how the district court submitted the case to the jury to address the uncertainty in Marinello outcome ((Slip Op. 10-11):

The district court, aware that the Supreme Court was considering the scope of § 7212(a) in Marinello, provided the jury with a special verdict form that required the jury to indicate whether it unanimously found that Scali committed one or more of the specified obstructive acts "after becoming aware of a pending IRS proceeding, specifically the IRS's civil collection activities." Suppl. App'x at 763 (italics in original). In finding Scali guilty of Count Five, the jury checked "Proved" next to each of the six obstructive acts listed in the special verdict form. Accordingly, the jury's findings make clear that it found the required nexus between Scali's obstructive acts and the pending IRS proceeding of which Scali was aware, rendering any Marinello error in the jury instructions non-prejudicial. See United States v. Beckham, 917 F.3d 1059, 1064-65 (8th Cir. 2019) (holding a Marinello instructional error harmless because the overwhelming evidence established the nexus and knowledge requirement), cert. denied, 140 S. Ct. 857 (2020).

Sixth Circuit Affirms Conviction, Upholding Relevant Conduct Tax Loss Attributable to Defendant's Conduct (7/8/20)

United States v. Igboba, 964 F.3d 501 (6th Cir. 2020), here, the Court affirmed Igboba’s conviction “on multiple criminal counts based on his participation in a conspiracy to defraud the United States Department of the Treasury by preparing and filing false federal income tax returns using others’ identities.”  The Court rejected his arguments that:

1. The tax loss, the principal driver for the sentencing calculation, improperly included tax loss of others for jointly undertaken criminal activity under S.G. 1B1.3(a)(1);
2. The sophisticated means enhancement did not apply; and
3. Two other arguments made in a pro se brief that the Court deemed insubstantial, so I don’t address them here.

I address here only the tax loss issue.

S.G. 1B1.3(a)(1), here, treats certain sentencing factors as “relevant conduct” that can be included in the tax loss calculation which determines the base offense level under S.G. §2T1.1(a), here, the tax base offense level.  In part here relevant, S.B. 1B1.3(a)(1)(B) includes:

(1)       (A)       all acts and omissions committed, aided, abetted, counseled, commanded, induced, procured, or willfully caused by the defendant; and
(B)      in the case of a jointly undertaken criminal activity (a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy), all acts and omissions of others that were—
(i)      within the scope of the jointly undertaken criminal activity,
(ii)      in furtherance of that criminal activity, and
(iii)      reasonably foreseeable in connection with that criminal activity;
that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense.

Roughly, (A) covers the sentencing factors from the defendants’ personal conduct and (B) covers the sentencing factors from the conduct of others.  The scope of (B) is not the same as and generally can be less than conduct within the scope of so-called Pinkerton liability for which a defendant can be convicted for crimes committed by others within the scope of the conspiracy.  See also Pinkerton and Sentencing for Jointly Undertaken Activity; Proposed Sentencing Guidelines Amendment (Federal Tax Crimes Blog 4/17/15), here; and 11th Circuit Holds Relevant Conduct Loss for Guideline Calculation Can Be Less Than Loss Within Scope of Criminal Conspiracy (Federal Tax Crimes Blog 2/27/19), here.

The Guideline’s Application Note 3(B) provides:

(B)       Scope.—Because a count may be worded broadly and include the conduct of many participants over a period of time, the scope of the "jointly undertaken criminal activity" is not necessarily the same as the scope of the entire conspiracy, and hence relevant conduct is not necessarily the same for every participant. In order to determine the defendant's accountability for the conduct of others under subsection (a)(1)(B), the court must first determine the scope of the criminal activity the particular defendant agreed to jointly undertake (i.e., the scope of the specific conduct and objectives embraced by the defendant's agreement). In doing so, the court may consider any explicit agreement or implicit agreement fairly inferred from the conduct of the defendant and others. Accordingly, the accountability of the defendant for the acts of others is limited by the scope of his or her agreement to jointly undertake the particular criminal activity. Acts of others that were not within the scope of the defendant's agreement, even if those acts were known or reasonably foreseeable to the defendant, are not relevant conduct under subsection (a)(1)(B). 

In cases involving contraband (including controlled substances), the scope of the jointly undertaken criminal activity (and thus the accountability of the defendant for the contraband that was the object of that jointly undertaken activity) may depend upon whether, in the particular circumstances, the nature of the offense is more appropriately viewed as one jointly undertaken criminal activity or as a number of separate criminal activities. 

A defendant's relevant conduct does not include the conduct of members of a conspiracy prior to the defendant joining the conspiracy, even if the defendant knows of that conduct (e.g., in the case of a defendant who joins an ongoing drug distribution conspiracy knowing that it had been selling two kilograms of cocaine per week, the cocaine sold prior to the defendant joining the conspiracy is not included as relevant conduct in determining the defendant's offense level). The Commission does not foreclose the possibility that there may be some unusual set of circumstances in which the exclusion of such conduct may not adequately reflect the defendant's culpability; in such a case, an upward departure may be warranted.

With that background in mind, the Court first said that Igboba did not properly preserve the argument, so the standard of review was plain error review.  The Court then moved to the merits (see Slip Op. pp. 7-12).  The Court noted that the district court "did not specifically address whether the relevant $4.1 million in losses was attributable to Defendant under subsection (A) or subsection (B)," but that "its analysis suggests that it found all $4.1 million attributable to Defendant’s own criminal activity, rather than others’ acts that were a part of 'jointly undertaken criminal activity.'"  Importantly, the district court excluded any loss "where Defendant could not be directly connected to a loss through reliable evidence."

New CTM discussion on § 7212(a) re Marinello (7/1/20; 7/12/20)

I was just notified the DOJ Criminal Tax Manual, here, often referred to as the "CTM," has updated the chapter on tax obstruction, § 7212(a), to reflect changes principally driven by Marinello v. United States, 584 U.S. 1 (2018).   The new discussion is here.  I have posted several entries on Marinello.  See here.  I have not yet had time to review the new discussion and likely will not for a week or so, but those having Marinello based issues will certainly want to review this new CTM discussion.

Added 7/12/20 12:15pm:

I have now had time to read the revised CTM.  The changes that seem to have been driven by Marinello should be predictable to readers who paid attention to Marinello when it was released, including contemporaneous commentary, including commentary on this blog.  I will offer here some comments and short excerpts (excerpts are cleaned up for readability).

1.  Section 17.02, titled Generally, has a good succinct discussion of § 7212(a) and the Marinello holding.

2. Section 17.04, titled Elements of the Omnibus Clause as Construed in Marinello, has a lengthier analysis of the nexus interpretation in Marinello.

3.  Section 17.04[1], titled Corruptly, discusses the corruptly element and relates it to the willfulness element for most tax crimes which may be parallel in effect.  It says that Marinello did not alter the definition, but did state: "the Court simply opined that, “practically speaking,” a taxpayer who “willfully” violates the tax code would also intend to obtain an unlawful advantage [an element of the Omnibus Clause]."

4.  Section 17.04[3], titled Omissions as Endeavors, says that conceptually omissions, at least some omissions, might be within the scope of the Omnibus Clause and that Marinello did not address that possibility.  The Section then concludes:  "Against this legal backdrop, it remains the policy of the Tax Division that a § 7212(a) Omnibus Clause prosecution should not be based upon an omission, including a failure to file a tax return, without the express authorization of the Tax Division."