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 (S.Ct. 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; 2/19/21)

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.