Monday, February 6, 2023

Interesting Motion to Dismiss Government FBAR Willful Penalty Collection Suit (2/6/23)

In United States v. Lisenby (N.D. Ga. Case number 1:22-cv-04579), CL docket entries here, on November 17, 2021, the Government sued Lisenby for recovery of FBAR willful penalties for multiple years. (Dkt entry 1.) On January 31, 2023, Lisenby responded with a motion to dismiss. (Dkt entry 9, here.)  I write here about the memorandum in support of the motion to dismiss.

The memorandum seems to provide a well-written summary of the Government’s claims. The motion to dismiss makes the following claims:

1. The original FBAR assessments were based on the method of calculation that the 11th Circuit rejected in United States v.  Schwarzbaum, 24 F.4th 1355 (11th Cir. 2022). As explained in the motion (p. 6):

The Government alleges that at some unspecified time following the Eleventh Circuit’s decision in United States v. Schwarzbaum, 24 F.4th 1355 (11th Cir. 2022), the IRS determined it would sua sponte recalculate the penalties assessed against Mr. Lisenby based upon that decision. (Compl. ¶ 61). Despite determining that the Government’s initial assessment was not in compliance with the law (Compl. ¶¶ 61-62), the Government has not alleged that it ever reassessed Mr. Lisenby or gave him an opportunity to pay based upon what it now asserts is the correct assessment.

The motion makes further arguments based on that claim (pp. 7-8). My sense is that the best that can come from this claim is to put Lisenby in the position of Schwarzbaum that, once having made an invalid assessment, the statute has expired on making a recalculated assessment. I think that, while that may be a good argument in Schwarzbaum on its current appeal, the 11th Circuit is unlikely to accept it because it will certainly know that it screwed up the original Schwarzbaum opinion that they did not realize would give Schwarzbaum an opportunity to escape the penalty. Two mistakes may do rough justice. I have no idea what the court will do in the Lisenby case.

2. The motion claims (pp. 9-11) that, in any event, the assessments (original or recalculated) are out of time. Lisenby’s argument is that the Government's reliance on consents/waivers to extend the time for assessment are invalid because key consents/waivers were signed at some point after the statute of limitations had expired. Lisenby seeks to morph the clear statutory text of § 6501(c)(4) requiring that consents for tax purposes be signed while the statute is still open. The problem Lisenby must overcome is that there is no such statute applicable to the FBAR penalties, so the general rule applies that waivers to statute of limitations defenses can be made at any time. See Court Rejects Government Summary Judgment Motion in FBAR Willful Penalty Collection Suit (Federal 8/28/19), here, on a rejection of a similar defense in the district court Schwarzbaum.

Saturday, January 28, 2023

Does Tax Perjury, § 7206(1), Require Some Act of "Filing" Beyond Receipt By The IRS? (1/28/23)

In United States v. Abramson, (N.D. Ill Case: 1:18-cr-00681 Doc 119 Memo Opinion and Order 1/20/23), TN here and CL here, Abramson was indicted for various counts of tax perjury, § 7206(1), for original personal income tax returns and original and amended corporate tax returns. Abramson moved to dismiss the counts related to amended corporate tax returns received by the IRS but, he alleges, not "filed" because not accepted by the IRS.

The key facts alleged by Abramson for purposes of the motion are:

Abramson states that in August 2014 he sent the Forms 1120X along with a letter on behalf of LES "requesting a determination that LES and its subsidiaries be allowed an extension of time to file an election under § 1.1502-75 of the Income Tax Regulations which would allow the affiliated group to file amended consolidated returns for the years 2006-2012." (Dkt. 80 at 3). He later received a letter dated March 16, 2015, from the IRS's Office of Associate Chief Counsel (Corporate) that, in Abramson's words, indicated the IRS had "expressly rejected the request to file them." (Id. at 1).

The Court denied the motion on the following bases:

1. the indictment counts alleging that Abramson had filed the amended corporate income tax returns were legally sufficient on their face to state a violation of § 7206(1).

2. Abramson's defense requires consideration of facts outside the indictment, which the Court held was legally sufficient (see par. 1). Accordingly, on the motion as framed, the Court could not consider the evidence outside the indictment. The evidence Abramson submitted had markings that might indicate that, although the IRS received the amended corporate income tax returns, it had not "filed" the amended corporate income tax returns. The Court said (Slip Op. 7):

            Abramson's defense requires considering and weighing evidence to make factual determinations regarding these documents' meanings. It is not self-evident that the March 2015 letter "rejected" Abramson's returns; there are other possible interpretations of this letter, including that the IRS simply decided not to issue a private letter ruling based on inadequate information. It is even less clear what "D" means on the proffered forms. The government offers an alternative explanation. (Dkt. 91 at 4 n.2). The Court cannot resolve factual disputes about such evidentiary issues on a Rule 12(b) motion. Sampson, 898 F.3d at 281; United States v. Schafer, 625 F.3d 629, 635 (9th Cir. 2010) ("[I]f the pretrial motion raises factual questions associated with the validity of the defense, the district court cannot make those determinations.").

3. Even if Abramson's evidence were considered, the Court held that (Slip Op. 12):

Monday, January 23, 2023

Supreme Court Denies Cert in FBAR Willful Penalty Case With Justice Gorsuch Dissenting on Excessive Fines Issue (1/23/23)

I previously blogged about United States v. Toth, 33 F.4th 1 (1st Cir. 4/29./22), CA1 here and GS here, the Court affirmed the district court’s grant of summary judgment which had imposed a willful determination as a discovery sanction. See First Circuit Sustains Willful Penalty Where Willfulness Found as Discovery Sanction (Federal Tax Crimes Blog 5/2/22), here. Toth petitioned for writ of certiorari. Toth v. United States (Dkt No. 22-177), docket entries here.

The question presented in the petition was:

The question presented is whether civil penalties imposed under 31 U.S.C. § 5321(a)(5)(C)-(D)—penalties that are avowedly deterrent and noncompensatory—are subject to the Eighth Amendment’s Excessive Fines Clause.

Today, the Supreme Court denied a petition for writ of certiorari, with Justice Gorsuch issuing a three-page dissenting opinion, here. Justice Gorsuch sets up his argument with the 1st Circuit’s holding:

It [the 1st Circuit] held that the Constitution’s protection against excessive fines did not apply to Ms. Toth’s case because the IRS’s assessment against her was “not tied to any criminal sanction” and served a “remedial” purpose. 33 F. 4th 1, 16, 17–19 (2022).

Justice Gorsuch then states his case in three paragraphs spanning two pages. It is short, so I recommend readers read his version rather than an inadequate summary I might make.

JAT Comments:

Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted (1/23/2023; 1/25/23)

I recently reported on the Supreme Court  Oral Arguments in In Re Grand Jury (Sup Ct. No. 21-1397), docket entries here.  See On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23), here.

Today, the Supreme Court entered the following order “Writ of certiorari DISMISSED as improvidently granted. Opinion per curiam.”  See the docket entries linked above and the opinion here.

The Supreme Court does not explain why it dismissed, but I anticipated that dismissal as a possibility based on the comments at oral argument. See the blog above at paragraph 2 as follows:

Justice Jackson’s point is that, if the parties wanting the test to be “significant” rather than “primary” and the courts are already doing "significant" (or less than primary) in practice even when articulating a primary purpose test, shouldn’t the Supreme Court just let the issue alone because there has been no upswell of complaint from the district courts applying the test. Mr. Levin expressed concern that a Supreme Court statement that the test is “primary” (which the courts already stated they were applying even which in actuality applying a significant-type test) will add gravitas to the primary test and cause courts to change their practice to strictly limit the privilege. Does that mean that Mr. Levin’s client was imprudent in asking for cert in the first place? Perhaps, the Court could do a win-win for both parties simply by ducking the issue by saying that cert was improperly granted. As Justice Kagan said (Tr. 33): “I -- I'm wondering if  you would just comment on, you know, the ancient legal principle, if it ain't broke, don't fix it.”

Note, I said improperly granted rather than improvidently granted, but it was the same point.  Technically, the writ was not improperly granted but was improvidently granted. So my choice of words was poor.

Thursday, January 19, 2023

Update on Use of Acquitted Conduct to Enhance Guidelines Calculations (1/19/23)

Today, I alert readers of potential action on the Sentencing Guidelines' use of acquitted conduct as "relevant conduct" to increase the sentencing offense level and incarceration range. Technically, all the acquittal meant was that the Government had not proved guilt beyond a reasonable doubt. However, the Government could theoretically still prove, either on the trial record or perhaps with new evidence at the sentencing hearing, that the guilty conduct was proved by a preponderance of the evidence (the standard at sentencing) and could even use otherwise inadmissible evidence (e.g., hearsay) in determining preponderance.

1. The Supreme Court may consider the issue of whether use of acquitted conduct in sentencing is constitutional. See John Elwood, Acquitted-conduct sentencing and "offended observer" standing (SCOTUSblog Relist Watch 1/19/23), here. In this article, the author advises

a. The Supreme Court has relisted five cases involving “the controversial practice of sentencing criminal defendants based on offenses that juries acquitted them of.” (For links discussing the Supreme Court practice of relisting and inferences/speculations from relisting, see citations and links in paragraph 4 of my comments below.)

b. A divided Supreme Court had approved the use of acquitted conduct in United States v. Watts, 519 U.S. 148 (1997). Based on Watts, “essentially every federal court of appeals and many state courts have read the opinion to have conclusively resolved the constitutionality of acquitted-conduct sentencing.”

c. The relisted petitions “argue that Watts should be overruled or limited and that the due process clause of the Fifth Amendment and the jury-trial guarantee of the Sixth Amendment prohibit imposing sentencing enhancements on criminal defendants based on conduct of which the jury acquitted them.”

2. On January 12. 2023, the US Sentencing Commission released proposed amendment limiting the use of acquitted conduct to enhance sentences. See USSC, Proposed Amendments to the Sentencing Guidelines (Preliminary) (1/12/23), here

Tuesday, January 10, 2023

On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23)

Yesterday, the Supreme Court held the much anticipated oral arguments in In Re Grand Jury (Sup Ct. No. 21-1397). See docket entries here. The oral argument audio is here, and the transcript is here

I discuss the acceptance of cert from the Ninth Circuit case In re Grand Jury, 23 F.4th 1088 (9th Cir. 2022), CA9 here and GS here, in the following blog:  Supreme Court Grants Cert to Determine Whether Dual-Purpose Communications Involving Legal and Non-Legal Advice (in Tax Return Preparation Setting) is Protected by Attorney-Client Privilege (10/3/22), here, where I addressed the question presented. The question is whether the attorney-client privilege, permitting the client to withhold evidence about an attorney-client privilege, requires that the "principal purpose" of the client communication be to seek legal advice or, instead, only a "significant purpose" of the communication to seek legal advice. For more on the issue, see the Federal Tax Crimes Blog linked above, but for even more ad nauseam on the issue, see the briefs on the merits at the Supreme Court docket entries linked above, both the parties' merits briefs and the many amicus curiae merits briefs. (In fairness, from my perspective, an experienced attorney can understand the arguments from the parties' merits briefs; the amicus briefs, in my opinion, add nothing of material value; I will say more about the amicus merits briefs at the end of the blog.)  For a general discussion of the attorney-client privilege, see my text, Federal Tax Procedure 860-873 (2022 Practitioner Ed.), SSRN here.

 I now offer some comments on the oral arguments. 

 CAVEAT: My high overview comment is that the arguments were packed mostly with glittering generalities rather than struggling with specific context in the case presented. The context arose in a grand jury investigation which requires secrecy of the events in the grand jury. Thus, we are not offered specifics of how the general issue of principal rather than significant arose. There are some more or less relevant examples from other cases used by the parties' counsel to frame the issue, but we don't know the specific context in the case before the court. Hence, much of the back and forth between the Justices and the parties' respective counsel is very general. That, in my mind, may be required by the grand jury context, but it does not offer the best context for fleshing out strengths and weaknesses in the parties' arguments. With that caveat, I offer the following:

1. The parties were represented at oral argument as follows: