Monday, February 22, 2021

Defendant Petitions for Cert on Relationship of Defraud Conspiracy and Marinello Interpretation of Tax Obstruction (2/22/21)

I have previously blogged on the plea and resulting conviction of Scott Flynn for the defraud / Klein conspiracy.  See Eighth Circuit Holds that Marinello Pending Proceeding Nexus in § 7212(a) Does Not Apply to Defraud / Klein Conspiracy (Federal Tax Crimes Blog 8/17/20), here; and Two Cases Involving Marinello (Federal Tax Crimes Blog 1/15/19), here.  Flynn has filed a petition for certiorari (pdf here pdf and TN text here) presenting the following issues (Pet. p. 1):

I. Whether the due process clause of the United States Constitution, as discussed in McCarthy v. United States, 394 U.S. 459 (1969) and more recent decisions of this Court, requires discussion in open court of the elements of an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) offense to advise the defendant of the nature of the charges against him before a guilty plea is accepted.

II. Whether the requirement for a nexus between a particular administrative proceeding and a taxpayer's conduct is necessary to save the constitutionality of a conviction under an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) after this Court's decision in Marinello v. United States, 138 S. Ct. 1101 (2018).

III. Whether a criminal defendant is entitled to a jury trial to determine the amount of restitution under either the Sixth or Seventh Amendments to the United States Constitution.

All of the issues are important, but only the Supreme Court will determine whether they are “cert-worthy.”  

I address one issue that I have written on before – whether Marinello’s interpretation of the tax obstruction, § 7212(a), offense can or should apply to the defraud / Klein conspiracy?  See e.g., What Are the Implications for Marinello on the Defraud / Klein Conspiracy? (Federal Tax Crimes Blog 3/24/18), here; see also Great Second Circuit Dissent on Potential Overreach in Tax Obstruction (Federal Tax Crimes Blog 2/28/17), here.  Flynn argues that the defraud / Klein conspiracy is unconstitutional and can be saved by importing the Marinello analysis into the defraud / Klein conspiracy.  See pp. 20, here – 30.  I need not go over the nuance of the argument since the petition presents the position well and I have previously addressed the issue in the various Federal Tax Crimes Blog links above.  Here (p. 4), though is the fairly cryptic summary of the argument:

The charging document for the 18 U.S.C. § 371 (Klein Conspiracy) charge used all but identical language to a tax obstruction charge, 26 U.S.C. § 7212(a), that was limited by this Court in Marinello v. United States, 138 S. Ct. 1101 (2018). The same nexus limitation should have been applied here or the statute should be declared unconstitutional.

JAT Comment (added 2/22/21 at 9:00pm:

Saturday, February 20, 2021

More on the Wartime Suspension of Limitations Act (WSLA) (2/20/21)

The prior blog entry, Daugerdas Fails in Post-Conviction Hail Mary Motion (2/17/21; 12/19/21), here, had a brief discussion in paragraph 4 of Judge Pauley’s holding that the Wartime Suspension of Limitations Act (18 U.S.C. § 3287, here, (“WSLA”) applied to the nontax crimes fraud counts.  I said I would post a later blog with more on the WSLA.  I will now post some thoughts on the WSLA.  (In the prior blog, I did cut and paste my discussion from another text, but I expect this to offer more than in that cut and paste and make some corrections.)

First, here is the text of the statute (I bold-face the key provision):

18 U.S. Code § 3287 - Wartime suspension of limitations

When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)), the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or (2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or (3) committed in connection with the negotiation, procurement, award, performance, payment for, interim financing, cancelation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war or directly connected with or related to the authorized use of the Armed Forces, or with any disposition of termination inventory by any war contractor or Government agency, shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

 Definitions of terms in section 103 [1] of title 41 shall apply to similar terms used in this section. For purposes of applying such definitions in this section, the term “war” includes a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)).

In this blog, I will focus only on the first of the three circumstances – “(1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not.”

 1.     The WSLA suspends the statute of limitations for any “offense” involving the specified categories (1)-(3).  Although some courts applied the WSLA to Government civil claims involving fraud (the False Claims Act in particular), the Supreme Court held that it only applied to criminal offenses.  Kellogg Brown & Root Services v. United States, ___ U.S. ___, 135 S.Ct. 1970, 1976-1978 (2015)

2. Must the offense for which the statute is suspended relate to the hostilities identified in the  congressional authorization? No.  Any fraud against the Government is covered.  See United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593, 613 (S.D.N.Y. 2013) (“applying the WSLA to all frauds against the United States, including those unrelated to the war, accords with the purpose of the Act. ")  Importantly, in this regard, the third disjunctive application specifically requires a relationship to the hostilities, so the absence of such a required relationship in the other two implies that such a relationship is not required for the other two, including specifically the fraud provision under subsection (1).

Wednesday, February 17, 2021

Daugerdas Fails in Post-Conviction Hail Mary Motion (2/17/21; 12/19/21)

I write today on tax criminal, Paul Daugerdas, who has been the subject of many postings on this blog.  (See here.)  After exhausting all of his conviction and other post-conviction remedies, Daugerdas in 1918 tries one other “hail Mary” shot in the form of a motion “to vacate his conviction and sentence pursuant to 28 U.S.C. § 2255.”  Daugerdas v. United States (SDNY Dkt 18cv152, Entry No. 48), Memorandum and Order dated 2/16/21, TN here & CL here).  As with his other efforts to avoid or mitigate his convictions, this one fails. 

Daugerdas’ failed effort included the common use of the ineffective assistance of counsel allegation and other “blunderbuss” claims.  Basically, the Court rejected Daugerdas’ claims that his counsel, both trial and appellate, met the standards for effective assistance of counsel within the broad range of reasonable strategic decisions made in the course of trial and appeal.  The Court also rejected other claims, including a Marinello claim to his § 7212(a), tax obstruction, conviction.  See Marinello v. United States, 584 U.S. ___, 138 S. Ct. 1101 (2018).

This is a fairly standard disposition of such claims.  The following caught my eye.

1. Daugerdas claimed that his trial counsel failed in advising him to execute pre-indictment extensions of the criminal statute of limitations.  One of his arguments was that he received no consideration for the extension and therefore, as a contract, the extension was unenforceable as a matter of basic contract law.  The Court rejected that argument (see pp. 9-10).  The Court’s holding appears to be based on one holding and one notion:  (1) as recited in the extensions, Daugerdas did receive consideration in the DOJ’s forbearance to indict immediately without the extension and the extension gave him more opportunity to argue against indictment and marshal his case for trial when indicted; and (2) in any event, possibly, a waiver of the statute of limitations is a unilateral waiver rather than a contract, thus requiring no consideration under contract law (this second holding is, stated cautiously (“Under this view”), in a footnote, p, 10 n. 4).  My comments are:

  • The second holding, a standard and routine one for extensions of the civil statute of limitations under § 6501(c)(4) is, I and my former partner have argued, wrong.  John A. Townsend & Lawrence R. Jones, Jr., Interpreting Consents to Extend the Statute of Limitations, 78 Tax Notes 459 (1998), here.  The problem is that there is too much water under the bridge on this spurious notion to ever correct it.  (Regardless, the Court,  usually meticulous, miscites the name of a key case, Stange v. United States, 282 U.S. 270 (1931)).
  • As I said, § 6501(c)(4) applies only to civil statute extensions.  I am not sure that authority which was based on an early version of § 6501(c)(4) (since materially changed as we note in the article), could affect criminal statute extensions.  The cases cited by the Court in the footnote are civil cases which all go back to the notion cited above which now is mainstream even if erroneous. and I am not sure that authority would govern in criminal cases.
  • In all events, I can't imagine that any defense counsel would advise a client to extend the statute of limitations unless there was something for the defendant in the extension.  So, I would imagine that a court considering such a contract consideration claim for a criminal statute extension would not be able to find consideration, at least in terms of considering an ineffective assistance of counsel claim.

2. Daugerdas also raised Marinello arguments.  The Court held (pp. 15-16) that the argument was procedurally defaulted because he could have raised the Marinello-based argument before on the direct appeal.  Even though Marinello had not been decided by the direct appeal, the underlying argument could have been made (just as Marinello’s lawyers and others before Marinello made them in courts of appeals).  Daugerdas also failed to show prejudice (see below in discussing the Government’s response).

Sunday, February 14, 2021

Court Denies Convicted Defendant's Post-Trial Motion in Biofuel Tax Scam (2/15/21)

In United States v. Derman (D. Utah No. 2:18-cr-00365-JNP-BCW Doc. 1183 2/10/21), TN conversion here and pdf here, the district court in a 54-page opinion denied Derman’s post-trial motions regarding his conviction "of ten counts of various offenses arising out of his participation in a conspiracy to defraud the United States government of  renewable tax credits and launder the proceeds of the fraud.”  Although a tax related crime, Derman was not convicted of a tax crime but for his conduct relating to tax crimes that violated other criminal provisions (most notably mail fraud and money laundering (Concealment and Expenditure Money Laundering)).

The Court (i) found the evidence at trial (over 7 weeks) sufficient to support the crimes of conviction and that the convictions were not against the weight of the evidence, (ii) found the alleged newly discovered evidence of little relevance, and (iii) denied the Derman’s request for additional discovery but did order disclosure of certain ex parte filings submitted by the Government.

Readers interested in this proceeding might be interested in this detailed article:  Vince Beiser, The Lion, the Polygamist, and the Biofuel Scam (Wired 2/2/21), here.

As the opinion and the article report, there were various intrigues in the facts behind this factually complex case.

The interesting thing is how relatively easily this fraud was perpetrated.  The article concludes as follows:

“It was tax fraud on an almost unimaginable scale,” says Jacob’s own lawyer, Marc Agnifilo. “It’s really a simple fraud. The government is writing these million-dollar checks, $5 million checks, $20 million checks, just because you gave them some paperwork that shows that maybe you made biodiesel.”

Here’s hoping that the federal government has, then, learned something from the saga of the Lion and the Numbered Man. Because just one month before Dermen’s trial got underway, former president Donald Trump signed a five-year extension of the $1-per-gallon biodiesel blenders tax credit program.

Thursday, February 11, 2021

Tax and FBAR Crimes and Related Naturalization Crimes (2/11/21)

DOJ issued this Press Release:  Former Florida Resident Indicted for Tax Evasion and Failing to Report Foreign Bank Accounts (2/10/21), here.  The thing that, I think, should be most interesting to readers are the naturalization charge which, apparently, relates to the tax charges (at least the offshore income and accounts).  The key excerpts of the press release are:

According to the indictment, Gatta was born in Chile and became a naturalized U.S. Citizen in 2012. The indictment alleges that, for calendar years 2012 through 2014, Gatta failed to disclose her interest in a Swiss bank account on annual FBARs as required by law. Gatta also allegedly evaded assessment of income taxes on the interest and dividend income she earned in her Swiss bank account and failed to file tax returns with the IRS for tax years 2011 through 2014.

The indictment also charges Gatta with naturalization fraud. According to the indictment, Gatta did not disclose to the Department of Homeland Security’s U.S. Citizenship and Immigration Services (USCIS) that she had failed to report foreign dividend and interest income during her citizenship application process, and she allegedly presented misleading documents to USCIS to substantiate the false statements she made during her naturalization interview.

 The key takeaway for readers should be that tax crimes (here evasion, failure to file and related FBAR crime) may also get entangled with other crimes (her naturalization fraud).  I infer that there is perhaps some bad conduct that fleshes out the cryptic description in the Press Release.

Wednesday, February 10, 2021

Court Holds Taxpayer Liable for FBAR Civil Willful Penalty (2/10/21)

In United States v. Collins, 2021 U.S. Dist. LEXIS 23260 (W.D. Penn. 2/8/21), CL here and TN here, in an FBAR collection suit, the Court starts its Findings of Facts, Conclusion of Law & Order as follows (2d bold-face supplied by JAT) :

Defendant's willful failure to report his foreign accounts

1. Defendant Richard Collins ("Mr. Collins") is a sophisticated taxpayer, with a sophisticated understanding of finance, financial obligations and financial consequences that are well beyond that of an average person. (Trial Tr. at 220:15-19.)

2. Mr. Collins knew that, when he approved his tax submissions in 2007 and 2008, he held financial accounts in foreign countries. (Trial Tr. at 220:21-23.)

a. Mr. Collins identified an interest in keeping his foreign accounts secret in the United States and consciously avoided disclosing his accounts. (Trial Tr. at 221:1-4.) [*2] 

b. Mr. Collins's course of conduct reflects an actual intent to deceive the IRS and others about the existence of his foreign accounts, including his effort to avoid receiving mail from UBS in the United States, as well as his express desire to "discreetly" transfer funds from Switzerland to the United States in connection with a mortgage transaction. (Trial Tr. at 221:5-19; id. at 129:13-133:19; Pl.'s Exs. P25—P28.)

c. Mr. Collins has sought to excuse his conduct based on a multitude of objectively unreasonable beliefs, including those that:

i. By filing an IRS Form W-9 with UBS, he satisfied his reporting obligations for all of his foreign accounts (including those for which he did not file a W-9) (Pl.'s Ex. P63);

ii. The U.S. Embassy in Paris advised Mr. Collins, in the 1970s, that he did not have any obligations to the IRS (Pl.'s Ex. P56);

iii. As long as his foreign banks withheld taxes, Mr. Collins was not obligated to disclose his accounts to the IRS (though Mr. Collins did not ensure that UBS actually withheld funds) (Pl.'s Ex. P58 at *14; Doc. 42 at 7);

iv. Disclosing his accounts to his U.S. accountant, Dale Cowher, would increase the costs required for Mr. Cowher to perform any [*3]  necessary paperwork (Pl.'s Ex. P35, Pl.'s Ex. P58 at *14); and

v. Swiss bank secrecy laws precluded Mr. Collins from disclosing his foreign accounts to his U.S. accountants (Pl.'s Ex. P54).

Well, needless to say, Collins lost the case.

In the Findings and Conclusions, the Court resolves the following key issues:

Monday, February 8, 2021

Excellent Article on Sentencing in Tax Crimes and White-Collar Crimes (2/8/21)

Readers of this blog will likely be interested in this article:  Jeremy Temkin, Tax Defendants Reaping The Benefit of Booker, 265 NYLJ (1/21/21), here, where the author analyzes Sentencing Commission data on departures and variances from the advisory Sentencing Guidelines calculations.

The data and discussion of the data are interesting.  I particularly focused on the following:

It is tempting to attribute the frequency of non-Guidelines sentences and the extent of the reduction in tax cases to a bias in favor of white-collar offenders. The data, however, does not bear that out, and defendants convicted of tax offenses are more likely to receive below-Guidelines sentences and avoid jail than other white-collar offenders.

In my practice and teaching, I often proclaim that tax crimes are just a subset of white-collar crimes.  I often do that by illustrating that for many of the prominent tax shelter prosecutions of promoters (including tax professionals), the defendants’ counsel were usually identified as white-collar crimes lawyers rather than tax crimes lawyers.  Many did not have deep tax backgrounds, but had tax experts available as needed.

From personal experience, most of the issues encountered in tax crimes prosecutions are just variations on issue in white-collar crime prosecutions.  Complex tax issues are not resolved in criminal prosecutions.  I am reminded of the famous quote (which I paraphrase) by prosecutors in the Enron that the case was not about complex accounting issues, but about lying, cheating and stealing of the sort that ordinary citizens (the jury) can understand with appropriate evidence and instructions.  See John C. Hueston, Behind the Scenes of the Enron Trial: Creating Decisive Moments, 44 Am. Crim. L. Rev. 197, 207 (2007); and See also Professor Stuart Green's play off of the quote in Stuart P. Green, Lying, Cheating and Stealing: A Moral Theory of White Collar Crime (2007).  Tax crimes encounter the same phenomenon that, to convict, the jury must be convinced that the defendant engaged in conduct that they recognize as lying, cheating and stealing.

So, Jeremy recognizes the relationship between tax crimes and “other white-collar crimes,” but concludes from  the data that sentencing goes lighter in the tax subset than in the complete white-collar set.  Interesting.

Editorial Note:  In my writings, I often do not hyphenate the words white and collar.  On a quick database search I find that both white collar and white-collar are frequently used.  I use white-collar in this blog because Jeremy did but usually default to white collar.

Sunday, February 7, 2021

Lenity and Chevron Deference - Some Thoughts in a Tax Context (2/7/21)

I am now working on a larger article that incorporates a discussion of the interface of lenity and Chevron deference, both of which supply rules of interpretation to ambiguous statutory text at least where Chevron can apply (i.e., where the agency has adopted a Chevron-entitled reasonable interpretation that is different than the interpretation the court thinks is the best interpretation).  Basically, I think the law is as of now ambiguous as to how Chevron interfaces with lenity where both may be truly applicable.  I emphasize truly applicable for Chevron because I think much of the commotion about Chevron really does not involve situations where Chevron is truly applicable.  In my analysis earlier in the paper I say Chevron is truly applicable only in what I call Category 5 – where the court believes its own interpretation (after perhaps giving Skidmore deference to the agency interpretation) is still better than the agency reasonable interpretation.

I post below the text (but not the footnotes) to my discussion in the hope that readers may (i) be interested and (ii) can offer constructive comment.  Thanks in advance.

I discussed above the claim that an interpretation which affects penalties is transformed into a legislative rule.  The underlying concern is that Congress alone can enact criminal penalties and the text of criminal statutes (at least as interpreted by the courts) must clearly set the standard of conduct being penalized.  Further, there is the rule of lenity, often described as a canon of construction, that requires that courts interpret ambiguity in criminal statutes in favor of the defendant. The rule of lenity and true Chevron deference (the Category 5 deference) would thus conflict if both were to apply to a criminal statute.  One author has described the conflict as between a “government always loses” standard (lenity) and a “government always wins” standard (Chevron deference).  The answer is less than clear (at least to me) because of the distractive rhetoric that attends discussion of the issue.

Rather than trying to resolve all that rhetoric to some form of black letter law (I think an impossible task on the state of the discussion), I will just try to analyze how the discussion might play out in my area of expertise–tax with a subspecialty in criminal tax. 

Many criminal statutes impose an express element that the defendant have acted “willfully.”  The criminal statutes do not define “willfully,” As authoritatively interpreted by courts, willfully can mean different things in different criminal statutes.  In Bryan v. United States, 524 U.S. 184, 191 (1998), the Court famously noted that noting that the word is a chameleon, “a word of many meanings whose construction is often dependent on the context in which it appears.”  I think that, in Chevron analysis, this is simply to say that when, in a criminal statute, Congress makes willfully an element, there is interpretive space that must be filled to give meaning to the statute as to which of the possible meanings of willfully applies.  Traditionally, that interpretive space in a criminal statute is filled by the courts.  Key Title 26 tax crimes have the requirement that the defendant act “willfully,” interpreted as the highest level of mens rea–that the defendant intended to violate a known legal duty, a standard that is not met just by reckless conduct.  Cheek v. United States, 498 U.S. 192, 196 (1991).  In other criminal contexts where the statute imposes a willfully element, the courts impose, through interpretation, a lesser mens rea standard.  The lower level of mens rea is said to be the general rule for interpreting a statutory willfully element.  The higher level of mens rea applies only to a small subset of crimes where willfully is a statutory element and is said to be an exception to that general rule.  Determining whether the general rule or the exception applies can be a bit esoteric but that need not concern us here.  Suffice it to say for present purposes, Treasury could not, by regulation, authoritatively and binding on the courts interpret the term “willfully” in the elements of tax crimes such as tax evasion to include, for example, a general intent to do some unlawful or reckless conduct without specific intent to violate a known legal duty. I think that is a fair statement of the law.

Friday, February 5, 2021

Reasonable Doubt About Reasonable Doubt Instructions (2/5/21)

I have written below about some of the problems with the venerable “beyond a reasonable doubt” for convictions for crimes.  E.g., Inspired by the Manafort Trial, On the Beyond a Reasonable Doubt Standard (8/15/18; 8/17/18), here (collecting some earlier posts).  See also my earlier pdf book the latest offering being for 2013 after discontinuing because of my chapter in the Saltzman book.   Townsend, John A., Federal Tax Crimes, 2013 (February 5, 2013). Available at SSRN:  The key discussion starts on p. 680 [p. 717 of the pdf] beginning here.  I think the cited discussion is still a fair even though now over 7 years old.

Readers interested in the meaning and problems in the criminal standard “beyond a reasonable doubt” might be interested in a law review article I read yesterday.  Michael D. Cicchini, Reasonable Doubt and Relativity, 76 Wash. & Lee L. Rev. 1443 (2019), here.  The key discussion for present purposes starts with the outline  II.B. B. Reasonable Doubt is Not Self-Defining  1455 (pdf p. 14), here.

Key points 

1. After explaining problems in the approaches of not explaining to the jury what reasonable doubt means or attempting some explanation, the author notes from pp. 1455-1456 (pdf pp.. 14-15):  

With so many pitfalls awaiting the trial judge who attempts to define or explain reasonable doubt, many courts have determined  “that the better practice is not to attempt the definition.” Their justification is this: reasonable doubt is already “self-defining,” and, therefore, jurors require no further explanation to understand it. However, this assumption has now been thoroughly tested and debunked.

2. The author presents (pp. 1456-1460 (pdf pp 15-19)) some studies that indicate that jurors really do not reach different outcomes under the reasonable doubt standard as compared to the lesser burdens in civil cases – preponderance of the evidence and clear and convincing evidence.

3. The author discusses the so-called “60/65” rule (pp, 1460-1462 (pdf pp. 19-21), footnotes omitted):

In addition to the above studies showing no significant differences in acquittal rates under the three burdens of proof, researchers have also been testing the impact of reasonable doubt jury instructions in a different way: they seek to determine the subjective confidence level that jurors require before they are willing to convict. “This research has consistently shown that the jurors in criminal cases will often be satisfied with much less certainty than is conventionally assumed.”

Wednesday, February 3, 2021

Bloomberg Article on the Intrigue in the Smith NPA (Related to Brockman Indictment) (2/3/21)

I have written previously about Robert Smith’s unusual nonprosecution agreement.  I say unusual because his misconduct was sustained and blatant over many years.  Based on my experience and attention to the federal tax crime universe over the years, it was unusual because, even with an agreement to cooperate, a plea of guilty to some serious tax crime (often conspiracy and/or tax evasion) would be required for the type of conduct involved.

 Bloomberg has a report of some of the intrigue behind the unusual plea agreement (at least as alleged in the article).  Neil Weinberg and David Voreacos, How Billionaire Robert Smith Avoided Indictment in a Multimillion-Dollar Tax Case (Bloomberg 2/3/21), here.

 Excerpts that attracted my attention:

But rather than expose a man worth about $7 billion to a possible prison term and potentially force him to give up control of his private equity firm, Vista Equity Partners, Barr signed off on a non-prosecution agreement. It required Smith to admit he had committed crimes, pay $139 million and cooperate against a close business associate indicted in the largest tax-evasion case in U.S. history—Texas software mogul Robert T. Brockman.

Smith, the richest Black person in the U.S. according to the Bloomberg Billionaires Index, agreed to cooperate after spending years raising his public profile as a philanthropist and advocate for racial justice. He praised the Trump administration’s efforts to provide economic assistance to minority business owners amid the Covid-19 pandemic. As his wealth tripled over the past five years, he also gave away more than he had hidden abroad. All that complicated the possible prosecution of a defendant whom jurors may have viewed sympathetically.


Saturday, January 30, 2021

Third Circuit Case Discussing Difference Between Willfully Element for Tax Crimes (Cheek Willfulness) and for General Crimes with Willfully Element (1/30/21)

In United States v. Smukler, ___ F.3d ___. 2021 U.S. App. LEXIS 2072 (3d Cir. 1/26/21), Ct here; GS here,  a nontax case, the Court wrestled with the criminal statutory element that the defendant have acted "willfully."  Readers of this blog will recall that Title 26’s tax crimes generally required that the defendant act willfully.   Cheek v. United States, 498 U.S. 192, 201 (1991); see also Ratzlaf v. United States, 510 U.S. 135 (1994).  (The Smukler Court calls this the Cheek-Ratzlaf standard, but I shorten it here to the Cheek standard.)  Cheek interpreted willfully for  tax crimes to be intentional violation of a known legal duty.  Stated otherwise, the defendant must know that he is violating the law to act and, as a corollary, ignorance of the law is an excuse (contrary to the general requirement for crimes, even those with a willfully element, that ignorance of the law is no excuse).  Smukler was charged and convicted of a mélange of campaign finance violations, conspiracy with respect to them, filing and causing the filing of FEC reports.  (See Slip Op. 11 n6.) Some of these required that the defendant act willfully.

The Court tees up the discussion as follows (Slip Op. 2-3):

Interpreting the term "willfully" can be a challenge. It is a "chameleon word," United States v. Starnes, 583 F.3d 196, 210, 52 V.I. 1051 (3d Cir. 2009), and "[i]n any closely reasoned problem, whether legal or nonlegal, chameleon hued words are a peril both to clear thought and to lucid expression," Bryan A. Garner, A Dictionary of Modern Legal Usage 145 (2d ed. 1995) (quoting Wesley N. Hohfeld, Fundamental Legal Conceptions 35 (1919) (reprint 1966)). But we take comfort knowing that we do not struggle alone with this "notoriously malleable" concept. Bryan v. United States, 524 U.S. 184, 202, 118 S. Ct. 1939, 141 L. Ed. 2d 197 (1998) (Scalia, J., dissenting). Indeed, "willfully" is "a word of many meanings" whose definition is "dependent on the context in which it appears." Id. at 191 (majority opinion). And just as a chameleon's appearance depends on the surroundings, we look to the whole text of a law to best "interpret the words consistent with their ordinary meaning . . . at the time Congress enacted the statute." Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067, 2070, 201 L. Ed. 2d 490 (2018) (alteration in original) (internal quotation marks omitted). We approach that task with a full box of "traditional tools" of construction. Kisor v. Wilkie, 139 S. Ct. 2400, 2415, 204 L. Ed. 2d 841 (2019). Aided by these principles, interpreting "willfully" seems less troublesome.

Kenneth Smukler asks us to do just the opposite, arguing for an exceptional understanding of "willfully" in otherwise unexceptional statutes. But the ordinary understanding of "willfully" is the best one.

In other words, Smukler wanted a Cheek-type jury instruction as explained (Slip Op. 12-13):

First, Smukler argues that the District Court incorrectly instructed the jury on the mens rea element of the federal criminal laws requiring the Government to prove that Smukler acted "willfully." The District Court explained that "the Government must prove beyond a reasonable doubt that defendant knew his conduct was unlawful and intended to do something that the law forbids." (App. at 1943.) "That is," the Court continued, "to find that the defendant acted willfully, you must find that the evidence proved beyond a reasonable doubt that defendant acted with a purpose to disobey or disregard the law." (App. at 1943.) Smukler sought different language: that "the government must prove beyond a reasonable doubt that the defendant knew of the specific law prohibiting the conduct at issue, and that he acted with the intent to violate that specific law." (App. at 312.) In rejecting Smukler's proposed instruction, the District Court explained that it would follow "the mens rea standard of willfulness based on [the] Third Circuit Model Jury Instructions . . . and will not cover [Smukler's] inconsistent instructions requested on that issue." (App. at 12-13.) Smukler argues that because the Government charged him with violations in the federal election law context, our precedent required the District Court to charge the jury under a "heightened" standard of "willfully."

The Court’s discussion of Smukler’s “willfully” arguments (Slip Op. 16-28) is too lengthy to cut and paste here.  I will therefore just bullet-point the key points that I see in that discussion.  I do encourage interested readers, to read the entire discussion.  The following are key points I focus on here:

The Court had already noted that “willfully” was a chameleon word in the criminal law having different meanings in different contexts.

For tax crimes and some other highly technical statutes, as noted, willfully is interpreted under the Cheek standard.  This standard, the Court explained (p. 17): , “the jury must find that the defendant was aware of the specific provision of the [statute] that he was charged with violating.” Id. at 194 (citing Cheek v. United States, 498 U.S. 192, 201 (1991)).  

For other more general crimes, willfully can mean something less -- requiring the the Government to “prove that the defendant acted with knowledge that his conduct was unlawful.”  See Slip Op. 17.

JAT Comments:

Thursday, January 28, 2021

Tax Court Opinion on Various Aspects of Collection Activity for RBAs and Coordination with DOJ (1/28/21)

In Reynolds v. Commissioner, T.C. Memo. 2021-10, TC Dkt entry #20 here * and TN here, in a collection due process (“CDP”) case, the Court (Judge Thornton) discussed restitution-based assessment (“RBA”) under § 6201(a)(4).  In the prior criminal case preceding, the sentencing judge (i) imposed tax restitution of $193,812, but waived interest on the restitution based on a finding that the Reynolds could not pay; (ii) ordered payments during imprisonment of $25 per quarter and during supervised release of the greater of $100 or 10% of his monthly income; and (iii) ordered that Reynolds apply income tax refunds and “anticipated or unexpected financial gains.”

The IRS made the RBA in the amount of $193,812 restitution and also assessed interest for the period.  The IRS audited the years 2002 and 2003 and determined deficiencies and civil fraud penalty.  Reynolds petitioned the Tax Court to redetermine the deficiencies.  The decision document reduced the deficiencies and assessed the civil fraud penalty but noted (Slip Op. 5 n. 2) that the civil fraud penalty had been discharged in a bankruptcy proceeding (although there is no further explanation).

In this CDP case, Reynolds complained about the IRS’s collection activity with regard to the RBA.  I will just bullet point some of the key discussion / holdings rather than have a further narrative.

The opinion discusses the IRS Collection Advisory Group’s role in RBAs which interfaces with IRS Collections.  The opinion describes this group (Slip Op. 6 n 2): 

The IRS Collection Advisory Group coordinates and monitors probation and restitution cases; the advisor serves as a liaison for coordinating such cases with IRS field offices and the Department of Justice (DOJ). See Internal Revenue Manual (IRM) pt. (Oct. 6, 2017); IRM pt. (Oct. 27, 2017); IRM pt. (Mar. 24, 2014). 

The opinion discusses the Revenue Officers’ collection activity over a number of years in some detail, mostly after the NFTL.

Reynolds attorneys apparently believed that once an RBA was made, only the IRS could collect.  However, the IRS position was that there were two separate debts:  the restitution debt that DOJ’s financial unit can collect; and the RBA that the IRS can collect.  Of course, to the extent that restitution and RBA are the same, payments against one are credited against the other so that there is not double payment.  But, DOJ and the IRS can proceed on separate tracks to collect, although there must be some coordination.

The IRS and the Reynolds tilted during much of the period over Reynolds’ ability to pay more than he was paying.  In the final analysis, the IRS concluded that "this appeal is being maintained primarily for delay."  (Slip Op. 17.)

The IRS eliminated the restitution interest and failure to pay penalties per Klein v. Commissioner, 149 T.C. 341 (2017 ).

More on Willful Blindness (1/28/21)

I have written on several occasions on the issue of willful blindness (which goes by several other terms, such as conscious avoidance in the Second Circuit (see case discussed below)).  For tax crimes as readers of this blog will know, the highest level of scienter is required – that the person act willfully meaning “that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.” Cheek v. United States, 498 U.S. 192, 201 (1991).  Ignorance that the conduct is a crime is an excuse (or a fact that negates willfulness).

A question I have obsessed over is whether willful blindness is a substitute for that willful element or, rather, is like circumstantial evidence the trier (usually a jury in a criminal case) may consider in the context of all the evidence to infer willfulness under the appropriate standard (in tax cases, the Cheek standard).  The issue is usually presented in jury instructions on the concept and challenges to the jury instructions.  Courts are sometimes not as clear as perhaps they should be about that.

In United States v. Gatto, Nos. 19-0783-cr, 19-0786-cr, 19-0788-cr, 2021 U.S. App. LEXIS 1146, at *32-38 (2d Cir. Jan. 15, 2021), CA2 here and GS here, in a wire fraud case involving just a slightly less rigid requirement for willfulness, the Court addressed the issue as follows (Slip Op. pp. 36-37, bold-face supplied by JAT and cleaned up):

A. Conscious Avoidance

The doctrine of conscious avoidance (i.e., "willful blindness") prevents defendants from avoiding criminal liability by "deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances" and that, if known, would render them guilty of a crime. Glob.-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 766 (2011). This doctrine has two requirements: "(1) The defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact." Id. at 769.

A conscious avoidance jury charge permits a jury to find that a defendant had culpable knowledge of a fact when the evidence shows that the defendant intentionally avoided confirming the fact. Such a charge may be given when (1) the defendant claims to lack some specific aspect of knowledge required for conviction and (2) there is enough evidence for a rational juror to reach the conclusion beyond a reasonable doubt that the defendant was aware of a high probability of the fact in dispute and consciously avoided confirming that fact. The instruction "permits a finding of knowledge even where there is no evidence that the defendant possessed actual knowledge." When a defendant challenges the factual basis for a jury's finding of conscious avoidance, he is essentially challenging the sufficiency of the evidence and therefore bears a heavy burden.

Wednesday, January 20, 2021

Court Amends Restitution to Reduce Restitution for Amounts For Years Other Than Years for Counts of Conviction (1/20/21)

In United States v. Christensen, 2021 U.S. Dist. LEXIS 9306 (D. Ariz 2021), TN here and CL here, Christensen had been convicted on 9 tax counts (evasion for 7 years and failure to file for 2) but acquitted on 5 counts of tax perjury.  The court ordered $1,603,533 restitution.  Christensen appealed and the convictions were affirmed.  Christensen subsequently filed to vacate his conviction under 28 U.S.C. § 2255, alleging ineffective assistance of counsel.  The district court denied the petition and request for certificate of appealability.  The Ninth Circuit denied Christensen’s request for a certificate of appealability.  During the post-trial proceedings (appeal and § 2255 proceeding), Christensen did not contest the amount of the restitution. 

After completing his period of incarceration, the Government sought to collect the restitution through writs of garnishment permitted to collect restitution.  (For some reason, the restitution apparently had not been assessed under § 6201; in any event, the Government acted under the garnishment collection procedures rather than the tax assessment collection procedures)

Christensen filed a writ for error coram nobis arguing attacking the restitution.

The Court first held that the writ of coram nobis was an appropriate remedy for Christensen.  The writ of coram nobis is rarely used, so I will not go into the details for the Court’s holding that it was an appropriate remedy.  (For procedure enthusiasts, the holding is interesting because FRCP 60(e) by its text abolishes the writ, but courts have held that the writ survives under the All Writs Act (28 U.S.C. § 1651(a)) for some purposes; those enthusiasts should review the opinion.)

The Court then rejected Christensen’s broadside argument against the government’s attempt to collect by garnishment based on restitution rather than on assessment of the tax.  Of course, the Government can collect restitution under general collection tools available for restitution.  The additional tool in § 6201(a)(4) permitting assessment of tax restitution (with resulting IRS collection tools) is not required for the use of the general restitution collection tools.  The Court also rejected certain related arguments.

The Court then turned to Christensen’s good argument -- called the "successful Argument -- related to restitution.  (Slip Op. 13-15.)  In the original restitution order, the Court quantified the restitution based on the tax loss.  The problem is that the tax loss can properly include loss for years other than the years of conviction whereas restitution can include loss only for the years of conviction.  The Court accordingly reduced the restitution amount to $579,706 from the original amount of $1,603,533.  The Court also added to that amount prejudgment interest of $202,816.19, thus raising total restitution to $782,522.19.

On making the critical distinction between tax loss and restitution, see On Restitution, Count of Conviction and Tax Loss (Federal Tax Crimes Blog 10/24/13), here.

JAT Comments:

Of course, the IRS can still assess tax, penalty (probably civil fraud) and interest for the years other than the years of conviction if the IRS can prove fraud for those years by clear and convincing evidence.  To do that, the IRS will have to jump through the required hoops (notice of deficiency, etc.).  Whether the IRS wants to jump through those hoops with the amount of restitution it has sustained of course depends upon Christensen's financial condition and future prospects.

Saturday, January 16, 2021

Outstanding Article on Current State of IRS Voluntary Disclosure Practice (1/16/21)

This brief blog today is to alert readers to an outstanding article on the current state and some uncertainties and risks of the IRS Voluntary Disclosure Practice (“VDP”).  Scott Michel and Mark Matthews, The 2020 Revision to the Internal Revenue Manual’s Voluntary Disclosure Practice: More Consistency with Greater Risk (Bloomberg Daily Tax Report 1/12/21), here.  The article is prompted by recent changes to the IRM provisions on the VDP.  IRM (09-17-2020), Voluntary Disclosure Practice, here.

This blog post is cross-posted on my Federal Tax Procedure Blog, here.

Friday, January 15, 2021

Another District Court Holds FBAR Nonwillful Civil Penalty Is Per Form Rather Than Per Account (1/15/21)

In United States v. Kaufman, 2021 U.S. Dist. LEXIS 4602 (D. Conn. Jan. 11, 2021), Tax Notes here and CourtListener here, the Court: 

  • Granted the Government summary judgment holding that the summary judgment facts precluded reasonable cause.
  • Granted Kaufman summary judgment holding that the nonwillful FBAR civil penalty was per annual form rather per account (basically $10,000 max each year for deficiencies or delinquencies on FBARs) rather than $10,000 for each account that was not or was incorrectly reported on the annual FBAR.

 The holding on reasonable cause is straight-forward.  Kaufman just had bad facts.

The holding on the nonwillful penalty being per form or per account is not so straight-forward.  The Courts – only three district court cases -- are not in agreement.  See the discussion in the Kaufman opinion.  Of the two cases agreeing with the Government position, the lead on is currently pending after oral argument in the Ninth Circuit.   United States v. Boyd, No. CV 18-803-MWF (JEMx), 2019 WL 1976472 (C.D. Cal. Apr. 23, 2019), appeal argued No. 19-55585 (9th Cir. Sept. 1, 2020).  See Two Cases Sustaining FBAR NonWillful Penalties on Per Unreported Account Basis (4/26/19), here.  The other district court case holding for the taxpayer that maximum penalty is per form is United States v. Bittner, 469 F. Supp. 3d 709 (E.D. Tex. 2020), appeal docketed No. 20-40597 (5th Cir. Sept. 11, 2020).  See District Court Holds FBAR Nonwillful Penalty Is Per Form Rather than Per Account (6/30/20), here

So, it appears to me that at this point the issue is not yet settled and, ultimately, the issue might go either way.

For another treatment of Kaufman, see Robert S. Howitz, IRS Loses Another Non-Willful FBAR Case (Tax Litigator Blog 1/14/21), here.

Wednesday, January 13, 2021

Third Circuit Discussion on Violation of Legal Duty with Other Reasonable Interpretations of Duty (1/13/21)

In United States v. Harra, ___ F.3d ___, 2021 U.S. App. LEXIS 915 (3rd Cir. 2021), here, the Court held (as summarized at the opening of the opinion):

When a defendant is charged with false reporting based on an ambiguous reporting requirement, what is the prosecution’s burden at trial as to the element of falsity? Is it sufficient for the prosecution to prove the statement was false only under the Government’s interpretation of the requirement, or must it prove the statement was false under each objectively reasonable interpretation of the requirement? In the balance hang the convictions of four former executives of Wilmington Trust Corporation, a bank that, in the wake of the Great Recession of 2008, excluded certain commercial real estate loans from those it reported as “past due” to the Securities and Exchange Commission and the Federal Reserve. The executives maintained that, under a reasonable interpretation of these requirements, the exclusion of the loans was proper, but the District Court denied their requests to introduce evidence concerning or instruct the jury about that alternative interpretation. The jury then found the executives’ reporting constituted “false statements” for purposes of 18 U.S.C. § 1001, 15 U.S.C. § 78m, and related statutes and convicted Defendants on all counts. 

We hold today that to prove falsity beyond a reasonable doubt in this situation, the Government must prove either that its interpretation of the reporting requirement is the only objectively reasonable interpretation or that the defendant’s statement was also false under the alternative, objectively reasonable interpretation. And because the Government here produced insufficient evidence from which a rational jury could find Defendants’ statements false under this rule, we will reverse Defendants’ false statements convictions and remand on those counts for entry of judgments of acquittal. As for Defendants’ conspiracy and securities fraud convictions,  [*6]  however, which were charged in the alternative on an independent theory of liability, we will vacate and remand for retrial.

Harra is not a tax case, but it does involve the interpretation and application of 18 USC § 1001, sometimes deployed in tax cases.  Moreover, I think it has overtones related to other issues in tax crimes.  I will offer points that, from my perspective of interest in tax crimes, I think are potentially important:

The concerns discussed in the decision and the analysis seem to track the Cheek standard for tax crimes.  Under Cheek, a tax crime (such as tax evasion, § 7201) must have been committed "willfully" -- that is, was the “voluntary, intentional violation of a known legal duty.” Cheek v. United States, 498 US 192, 200 (1991) (citing United States v. Bishop, 412 U. S. 346 (1973) and United States v. Pomponio, 429 U. S. 10 (1976) (per curiam) (see also Justice Blackmun’s dissent citing this as the “conclusively established standard for willfulness under the applicable [tax] statute,” Cheek p. 209.).  Cheek established that there is no requirement to negate this element that the defendant prove that the defendant’s belief be objectively reasonable.

Monday, January 11, 2021

Deloitte and Tax Analysts Open Tax Analysts Library to Public Without Subscription (1/11/21)

 Last week, Deloitte posted this news release:  Deloitte and Tax Analysts Take Great Strides to Increase Tax Policy Transparency:  Professional services leader joins forces with nonprofit to make federal tax law library easily accessible to the public, here.  In pertinent part, the release says:

As part of Deloitte Tax’s sponsorship, visitors to the site can now access details about the federal code, regulations, and other primary source documents, including the Internal Revenue Code of 1986; proposed, final and temporary regulations; rules for lawyers, accountants and others practicing before the IRS; Treasury decisions, IRS guidance, and private rulings; court and legislative documents; public comments on regulations; rate tables; and other correspondence, press releases and miscellaneous tax documents.

The site for access appears to be here:

This is a tremendous service to the public.  Thnks to Tax Notes and Deloitte.

I have not tested the search mechanisms for the various categories of documents.  Some quick simple testing indicates that the search and results are not of the sophisticated type for on the major legal research platforms such as Westlaw and Lexis.  Still, creative use of the search tools might make it very useful.

I generally use the Lexis platform and like it because it permits me to do date limited research -- i.e., pick up all new cases involving a search topic (e.g., FBARs) after a certain date (e.g., the date I last did that date limited search).  That permits me to pick up new materials (cases and articles).  I don't know if that can be done in the Tax Notes databases, although I did see that topics can be selected for search and the results shown in reverse chronological order.

JAT Addition (1/12/21)

Friday, January 8, 2021

Corporate Transparency Act – Beneficial Ownership of Shell Corporations Must Be Disclosed (1/8/21; 2/11/21)

On January 1, 2021, Congress overrode the President’s veto of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”), here.  Among the provisions of the NDAA was TITLE LXIV--ESTABLISHING BENEFICIAL OWNERSHIP INFORMATION REPORTING REQUIREMENTS (§§ 6401-6403), which is called and may be cited as “Corporate Transparency Act” (§ 6401).  The CTA adds 31 USC § 5336, titled Beneficial Ownership Information Reporting Requirements.

First I will provide a high level summary (with some links), and Second some brief comments.  I will refer to the provisions by the short name by the initialism CTA for the Corporate Transparency Act.

High Level Summary (drawn from the following three web sites as well as a quick review of the CTA’s provisions: Jen Kirby, The US has made its biggest anti-money-laundering changes in years (Vox 1/4/2021), here, Landmark Bill Ending Anonymous U.S. Companies Is Enacted (FactCoalition 1/1/21), here; and Morris Pearl, Congress just passed the most important anti-corruption reform in decades, but hardly anyone knows about it (Fortune 12/26/20), here):

Certain corporations (non traded or with a small level of activity) will have to register their beneficial ownership with Treasury which will incorporate the information into a database that may be accessed by law enforcement agencies.  Prior to this, there was no federal requirement and states usually did not require that beneficial ownership be disclosed.  The CTA does not prohibit otherwise anonymous shell companies; it just requires that the ownership be disclosed to Treasury.  As noted in the Vox article, however, some compromises were made:

Clark Gascoigne

This is, of course, a compromise, right? If I could have waved a magic wand, this is not the bill I would have written.

 But it is a compromise with integrity. Most importantly, the definition of who is a “beneficial owner” in the bill is very strong and will truly identify the ultimate owners of the companies. That’s a big deal.

 Now, it doesn’t solve all of our money-laundering problems. One big exemption in this is that while it applies to corporations, limited liability companies, it does not apply to trusts or partnerships.

 Partnerships are generally considered lower risk, but trusts are a major issue, particularly because the vast majority of trusts in the United States don’t actually register with their legal contracts.

 So you will still be able to set up a trust that could potentially be abused for money laundering after this. That’s something that we’re going to have to take a look at. There are studies that the Government Accountability Office and Treasury Department are going to have to do on the risks posed by trusts. The bill mandates those studies, and hopefully we’ll be able to address that down the road.

 There’s also some concerns around pooled investment vehicles, like hedge funds and private equity funds, that are operated or advised by a registered investment adviser. Law enforcement will be able to tie the fund to the investment adviser, and they’ll know the beneficial ownership information for the investment adviser, but they won’t know it for the fund itself.

 There is a big concern around that because you’ve got trillions of dollars in money going into these private pooled investment funds that could potentially pose some risk for money laundering.

 Jen Kirby

When it comes to those pooled investments, just to make sure I’m understanding this: So if I have dirty money, and I am putting it into this fund with a lot of other investments, it basically muddies the waters. You know who’s managing the fund, but you have no way to pull out each investment, correct?

 Clark Gascoigne

Correct, yeah.

 JAT Comments:

Wednesday, January 6, 2021

Whistleblower FYE 2020 Report (1/6/21)

The IRS Whistleblower Office has released a report titled Fiscal Year 2020 annual report, here.  The opening message from the Director of the WBO, Lee D. Martin, is (have added links for the publications referenced):

The fiscal year (FY) 2020, which began on October 1, 2019, marked the 14th anniversary of the Whistleblower Office and the Whistleblower Program. I am extremely proud of the dedicated women and men in the Whistleblower Office, Small Business/Self-Employed (SB/SE) Initial Claims Evaluation unit, and other divisions across the Internal Revenue Service (IRS). Since 2007, the Whistleblower Program paid awards to whistleblowers totaling more than $1 billion dollars and has led to the successful collection of $6.14 billion from noncompliant taxpayers. 

Statistically in FY 2020, the Whistleblower Office made 169 awards to whistleblowers totaling $86,619,032 (before sequestration), which includes 30 awards under Internal Revenue Code (IRC) § 7623(b). Proceeds collected were $472,080,014. Included in the proceeds collected, as a result of IRC § 7623(c), are the non-Title 26 amounts collected for criminal fines, civil forfeitures, and violations of reporting requirements amounting to $110,438,166. The Title 26 amounts collected were $361,641,848. Whistleblower claim numbers assigned in FY 2020 decreased by 20 percent from those submitted in FY 2019, and closures decreased by 33 percent. 

During FY 2020, we continued our focus on operationalizing the whistleblower statutes under the Taxpayer First Act of 2019 (TFA 2019). This included adding four analysts to meet the increased workload due to the new provisions. To educate whistleblowers about the new TFA 2019 provisions, we updated Publication 5251, Whistleblower Claim Process and Timeline, and Internal Revenue Manuals 25.2.1 and 25.2.2. On December 3, 2019, we signed a Memorandum of Understanding (MOU) with Alcohol and Tobacco Tax and Trade Bureau (TTB) that put in place procedures between the IRS and TTB to process claims for whistleblower awards under Internal Revenue laws that are administered and enforced by TTB. On April 30, 2020, the Whistleblower Office held its first ever Whistleblower Program Forum. Lastly, like other organizations and businesses, the Whistleblower Office worked diligently to maintain Whistleblower Program operations that were impacted by office closures due to the coronavirus crisis. 

D.C. Circuit Reverses Trial Court Because the Allen Charge, in Context, Was Coercive, But Affirms on Brady Issue (1/6/21)

In United States v. Driscoll, ___ F.3d ___ (D.C. Cir. 1/5/21), here, Driscoll “was convicted of two counts of  wire fraud, one count of first-degree fraud, and two counts of tax evasion.”  Driscoll appealed.  The Court of Appeals dealt with two issue that I summarize here:

First, the Court dealt with a Brady claim that the Government had not disclosed potentially helpful information to the defense.  The background was that an ESPN article disclosed (i) irregularities involving Driscoll with a charitable organization with which she was affiliated and (ii) that a whistleblower had disclosed information to the FBI and planned to disclose via whistleblower complaint to the IRS.  The following month, there was an unrelated hearing in a child custody proceeding between Driscoll and her ex-husband.  An IRS Special Agent (a CI agent) attended to observe the public proceeding.  Driscoll asked the agent who he was, and the agent responded that he was a member of the public.  While attending, the Special Agent heard the testimony of a cousin of the ex-husband.  That cousin happened to be the IRS whistleblower.  The Special Agent took detailed notes and prepared detailed memoranda for all except the last day (the fifth day). On that last day, at the request of Driscoll’s ex-husband, the Special Agent went to lunch with the ex-husband, the ex-husband’s new wife, and the ex-husband’s custody lawyer.

After indictment, Driscoll’s defense lawyer requested inter alia discovery of a “parallel proceeding” issue – whether the government (presumably the IRS) had used the civil audit process to gather information for a criminal case.  The Court cited United States v. Kordel, 397 U.S. 1, 13 (1970) (“Government may not use evidence against a defendant in a criminal case which has been coerced from him under penalty of either giving the evidence or suffering a forfeiture of his property.”).  There seems to be two different claims embedded in the prior to sentences, but I am not sure the Court articulated it that way.  Apparently, the claim was related to the Special Agent’s activities described above did not involve an IRS civil audit or any coercion except what might be implicit in the Special Agent not identifying himself truthfully when Driscoll asked who he was.  Most importantly, the prosecutors did not disclose the Special Agent’s role or information within the time normally required for Brady disclosures (during the pretrial discovery processes).