Friday, July 23, 2021

ABA Tax Section Recommendation to IRS for Priority Guidance to Disavow Application of WSLA and Further Comments Re Same (7/23/21)

I have written several times on the Wartime Suspension of Limitations Act (“WSLA”), 18 U.S.C. § 3287, here.  In part relevant to tax crimes, the WSLA suspends “the running of any statute of limitations applicable to any offense involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not.”  (Cleaned up.) The statute of limitations is suspended from the date of the “specific authorization for the use of the Armed Forces 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.”  (Cleaned up.)

Where the WSLA is applicable, there are several authorizations that might establish the starting point for the suspensions.  Authorizations that have never been revoked were passed in 2001 and 2002 related to the activity after the 9/11 event.  So, for purposes of this discussion, I assume that the WSLA authorizes tax crimes prosecutions with the general 6-year statute of limitations for conduct back to 1995 or 1996 and the statute continues until 5 years after the authorizations are terminated.

Caveat:  There could be even earlier starting dates under the WSLA for earlier authorizations not yet revoked:  (1) a 1991 authorization incident to the Gulf “War”; and (2) a 1957 authorization (although it might not meet the “specific authorization” required by the WSLA.  Matthew Waxman, Remembering Eisenhower’s Middle East Force Resolution (LawFare 3/9/19), here.  The House has recently passed resolutions to revoke these authorizations.  See Karoun Demirjian, House votes to repeal military authorizations dating to Gulf War, Cold War (WAPO 6/29/21), here.

I have stated my belief that tax evasion under § 7201 is within the literal language of the WSLA.  That would mean also that the offense conspiracy to commit tax evasion would likely be within the literal language of the WSLA.  (The defraud conspiracy, in my view, would not be within the WSLA because the defraud conspiracy for some strange reason does not require fraud per Hammerschmidt v. United States, 265 U.S. 182, 188 (1924); see John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here; I think (perhaps speculation) that if the crime’s elements do not include fraud in the traditional sense of the term (defraud conspiracy does not), the WSLA would not apply.)

However, for some reason as yet unnanounced, at least in recent memory, DOJ Tax has asserted only the traditional six-year tax crime statute of limitations.  The CTM’s discussion of statutes of limitations does not even mention the WSLA.  DOJ CTM 7.00 STATUTE OF LIMITATIONS, here.  So how long DOJ Tax will forebear asserting the WSLA is open.  Further, in cases where the defendant challenges the normal statute of limitations, a court might sua sponte invoke the WSLA to deny the challenges.

The general rules regarding statute of limitations.  They are:

§ 6531, here, generally provides a 6-year statute of limitations for the more serious tax crimes usually prosecuted, including offenses (1) “involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner;” (2) “willfully attempting in any manner to evade or defeat any tax or the payment thereof;” (3) conspiracies “under section 371 of Title 18 of the United States Code, where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof;” (4) “aiding or assisting under § 7206 a “false or fraudulent return, affidavit, etc.; (5) certain felony tax crimes not having a fraud (or its equivalent, tax evasion) element of the crime (such as tax perjury, § 7206(1)); and (6) for certain misdemeanor tax crimes such as § 7207. relating to fraudulent returns statements or other documents .  Basically, for most tax related crimes that get prosecuted, the is a 6-year statute of limitations.

There are various rules that suspend the running of the statute of limitations.  I catalogue these (including the WSLA) in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015) at ¶ 12.05[9][a][iii] Suspension and tolling.  I cut and paste that section at the end of this blog (without footnotes).  

Further, although not suspensions, there are acts that will refresh or create a new statute of limitations, such as affirmative acts of evasion or overt acts of conspirators (including co-conspirators) or acts otherwise within the scope of the continuing offense.  For example, tax obstruction (§ 7212(a)) or tax conspiracies may involve acts over a long period of time.  The date of the last act within the scope of the crime will start a new statute of limitations for the original crime.

My most definitive FTC Blog discussion of the WSLA is in More on the Wartime Suspension of Limitations Act (WSLA) (Federal Tax Criems Blog 2/20/21), here.

The purpose of this blog entry is (1) to alert readers that the ABA Tax Section has recommended here that the issue be addressed in the IRS 2021-2022 Priority Guidance and (2) offer some of my further thoughts about the WSLA.

1. The ABA Tax Section recommendation is (footnotes omitted):


CIVIL AND CRIMINAL TAX PENALTIES Caroline Ciraolo, Chair, (443) 845-4898,

* * * *

4. Guidance making it clear that the Service’s Criminal Investigations division will not recommend prosecution for charges that otherwise would be untimely except through the operation of the Wartime Suspension Limitations Act,21 which extends the statute of limitations with respect to fraud against the government occurring during any period of war or authorization of the use of the armed forces until five years after an official [*7] Presidential proclamation or Congressional resolution announcing the end of hostilities. (Priority: High)

a. This guidance is needed to avoid the potentially unlimited statute of limitations in cases involving tax offenses following the Ninth Circuit’s decision in United States v. Nishiie. [2021 WL 1900045, ___ F.3d ___ (9th Cir. May 12, 2021)] Given that an authorization for the use of armed forces was provided shortly after the events of September 11, 2001, and no official announcement of termination has been made, if the suspension is applicable, crimes more than two decades old could be recommended and prosecuted.

2. JAT further thoughts (beyond those in the FTC Blog linked above):

a. The ABA Tax Section recommendation that IRS CI “will not recommend prosecution” seems to relate to all crimes investigated by IRS CI rather than just traditional tax crimes.  Did ABA Tax Section mean the recommendation to apply to other crimes investigated by the IRS (such as money laundering and wire or bank fraud not tethered to the DOJ Tax policy to charge the offense as a tax crime)?

b. Is an IRS / IRS CI recommendation for prosecution necessary for tax crimes?  In other words, can DOJ Tax prosecute without an IRS / IRS CI recommendation for prosecution (either no recommendation at all or a recommendation that DOJ Tax not prosecute)?  If an IRS / IRS CI recommendation is necessary, the ABA Tax Section recommendation, if adopted, would insure that DOJ Tax not rely upon the WSLA.  (I seem to recall somewhere in my various stops on my journey in practice that DOJ Tax claims the authority to investigate and charge tax crimes independent of any recommendation or authorization or approval from the IRS.)

c. Would a statutory amendment to WSLA limiting it to crimes related to the conduct of hostilities related to the declaration of war or authorization for use of military force? Is that limitation a type that might gather wider support than just excluding tax crimes?  Of course, apparently DOJ finds the WSLA useful for nontax crimes even if unrelated to the hostilities, even though I suspect (based on anecdotal information) DOJ does not invoke the WSLA in most cases that it could do so.  And what would / should be done about convictions now final based on WSLA?

d. I am particularly concerned about a policy that would apply only to tax crimes (however that might be defined).  I would think that, if an amendment is necessary, making that type of “tax exceptionalism” expressly in a statute might be politically fraught.  And, for the same reason, it seems to me, some administrative announcement of a policy or practice exempting tax crimes but not other crimes might be politically fraught.  (As an aside, I think the claims of tax exceptionalism have been overstated from the beginning; indeed, as authors recently noted in the title of an article: Alice G. Abreu and Richard K. Greenstein,  Tax: Different, Not Exceptional, 71 Admin. L. Rev. 663 (2019).

3. Excerpts from Saltzman text (I am the principal author of Chapter 12; footnotes are omitted).

¶ 12.05[9][a][iii] Suspension and tolling.

Several events can suspend the running of the statute of limitations for tax crimes. Note the following:

The civil and criminal statutes of limitations are suspended (1) if the taxpayer brings or participates in a proceeding to quash the summons, the statute is suspended during the period the proceeding is pending 921 ; or (2) if the third party summonsee, including a John Doe summonsee, fails to respond properly, the statute is suspended during the period beginning on the date six months after the summons is issued and ending on the date of “final resolution of such response.”922

The statute of limitations is suspended during a so-called Due Process Proceeding when there are limitations upon the Service's ability to investigate or collect.923

18 USC § 3292 may permit the government unilaterally to toll the statute of limitations by making an official request for foreign records relevant to the crimes being investigated by a grand jury.924

Tolling By Absence From Country or Fugitive Status.

Tax Crimes and Conspiracies. For the tax crimes created in the Internal Revenue Code and for conspiracies related to tax — both offense conspiracies and Klein defraud conspiracies — where the statute of limitations is determined in Section 6531, the statute is tolled while the defendant is outside the United States or a fugitive from justice within the meaning of 18 USC § 3290.925 Tolling is in the disjunctive.

Absence. The defendant's mere absence from the United States tolls the statute.926 For example, a defendant's eleven-day health and pleasure trip to Switzerland tolled the statute of limitations under 26 USC § 6531.927

Fugitive. Section 3290 defines fugitive as “any person fleeing from justice.” The “majority rule” is that “intent to avoid arrest or prosecution must be proved” for the fugitive definition of Section 3290 to apply; the minority rule is that mere absence from the jurisdiction, regardless of intent, is sufficient.928 As noted, of course, the disjunctive provision in Section 6531 tolls the statute upon mere absence from the country regardless of fugitive status under Section 3290.

For Other Crimes. For other tax-related Title 18 crimes where the statute of limitations is determined in Title 18 (e.g., false statements to an agent) rather than Section 6531, the statute of limitations is tolled only if the defendant is a fugitive as defined in Section 3290. As noted, intent for the absence is critical under the majority rule.

The statute is tolled while an indictment is under seal.929

The statute is effectively tolled for nine months by the government filing a complaint.930 This device is a limited one to be used in exigent circumstances, and not as a general way to extend the statute in all cases.931

If a timely indictment is dismissed after expiration of the statute of limitations for a reason other than one that bars later prosecution, a new indictment or information may be brought within six months of the dismissal.932

The Wartime Suspension of Limitations Act (WSLA), 18 USC § 3287, which on the bare text of the statute might apply to tax crimes involving “fraud or attempted fraud against the United States or any agency thereof” apparently does not apply to tax crimes.933

CAVEAT RE SALTZMAN QUOTE:  I was too timid perhaps in saying that, for the reasons cited in the footnote 933, the WSLA “apparently” does not apply to tax crimes.  As I said in the footnote, a literal reading of the WSLA would not except tax crimes, but the DOJ Tax with respect to prosecutions and presumably the IRS with respect to investigations have not asserted the WSLA.  I will change that to state that DOJ Tax’s at least in recent history has not relied on the WSLA in charging tax crimes. 

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