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. 5.1.5.16 (Oct. 6, 2017); IRM pt. 5.19.23.1(5) (Oct. 27, 2017); IRM pt. 25.26.1.5.2 (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 9.5.11.9(1) (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:  https://www.taxnotes.com/research

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).