Houston Lawyer Closes the Criminal Case by One Count Plea (3/29/23)

I have written before on the prosecution, conviction, appeal and remand in United States v. Pursley (S.D. Tx – No. 18-cr-00575). See blogs here sorted by relevance and here sorted by date. Pursley, a Houston lawyer, was originally convicted of one count of conspiracy and three counts of tax evasion. The Fifth Circuit remanded for retrial on the original counts based on errors not related to guilt or innocence of the original counts. Yesterday, Pursley pled guilty to one count of conspiracy. The DOJ Tax press release is here. The plea agreement is here; the docket entries are here. (Note, according to the Texas State Bar site, here, as of today, Pursley has an “interlocutory suspension entered 11/16/20.)

The plea agreement is pursuant to FRCrP 11(c)(1)(A) and (C), here. The key feature of that type plea is described in the Plea at p.5 ¶ 8:

If the Court accepts this Plea Agreement, this sentencing provision is binding on the Court. Pursuant to Federal Rule of Criminal Procedure 11(c)(5), if the Court rejects this Plea Agreement, Defendant will be allowed to withdraw his guilty plea. If Defendant declines to withdraw his guilty plea, the disposition of the case may be less favorable than that contemplated by the Plea Agreement.

 I will discuss this type of plea at the end of this blog, but I first discuss some terms of this plea that I feel are a bit unusual.

1. Many plea agreements have a more or less standard paragraph saying that the IRS can assess more tax liability (including penalties and interest) beyond restitution. So, for example, in a tax evasion case related to willful understatements of tax liability on a return, restitution normally covers the tax loss (also sometimes called the criminal number) related to the evasion. Sometimes the civil number is larger (never less than the criminal number but sometimes more). Moreover, and more importantly, restitution can only cover the criminal tax number related to the Count of Conviction and sometimes interest on the criminal number. Restitution usually does not include the civil tax number if larger or, more importantly, the civil fraud penalty under § 6663. The reason is that the taxpayer attempts to evade the underreported tax, and not the civil fraud penalty, which would not be in the criminal number/tax loss determined by what he should have reported on the returns. And that is why plea agreements involving return tax evasion (as here, although presented in a conspiracy conviction) normally have a paragraph permitting additional assessments through the IRS normal assessment procedures (notice of deficiency, et al.). The most obvious additional assessment would be the civil fraud penalty, § 6663. There could conceivably also be some civil tax liability that was not included in the criminal number and thus not included in restitution, but the civil fraud penalty potential would remain after sentencing, at least normally. Two provisions of the CTM suggest that plea agreements should, if anything related to the civil fraud penalty, include agreement to the penalty but certainly should not  foreclose IRS post-sentencing assertion of the civil fraud penalty. DOJ CTM 6-4.360 - Compromise of Criminal Liability/Civil Settlement, here; and DOJ CTM 5.01[7] Compromise of Criminal Liability/Civil Settlement, here.

TIGTA Recommendation for Legislation Consideration to Make Failure to File a 2-Year Felony (3/9/23)

TIGTA released a report titled The IRS Has Not Adequately Prioritized Federal Civilian Employee Nonfilers (TIGTA Rept No. 2023-30-011 3/6/23), here. The report discusses that category of nonfilers and the Federal Employee/Retiree Delinquency Initiative (FERDI) started in 1993. The report criticizes the IRS for its low compliance enforcement. Of course, most IRS compliance initiatives are weaker than they could be because of resource constraints. But TIGTA urges the IRS to focus more on that program.

TIGTA makes a number of recommendations based on its findings. One of the recommendations, a recommendation to consider legislation, sweeps broader than Federal Employee noncompliance and would have a major effect on tax crimes generally (particularly IRS charging recommendations and DOJ Tax charging decisions). The recommendation is (Recommendation 5, p. 14):

The IRS Commissioner should:

Recommendation 5: Share this report and recommendation with the Treasury Department Office of Tax Policy to consider a legislative proposal to amend IRC § 7203 by replacing “misdemeanor” with “felony,” and additionally, by replacing the time for potential imprisonment from “one year” to “two years,” thereby making willful nonfiling a felony. Management’s Response: IRS management agreed with this recommendation. The IRS will share TIGTA’s report and this specific recommendation with the Treasury Department Office of Tax Policy. The IRS does not formally propose legislation.

As I understand the proposal, it would not change the current elements of the failure to file crime, which already requires willfulness. It would change only the maximum incarceration period to make the crime a two-year felony.

I have no idea how much traction that recommendation will get within the IRS and the Office of Tax Policy and ultimately in Congress. But if it were to gain traction, I think it will materially affect the criminal tax arena from both the charging side (DOJ Tax and IRS) and the defense side.

Paul Manafort "Settles" His FBAR Civil Willful Penalty Case in Full (3/6/23)

I report today on Paul Manafort’s “settlement” of his FBAR civil willful liability. I had earlier decided not to report on the “settlement” because the only noteworthiness was that the penalty was imposed on Paul Manafort, a person of some public notoriety resulting in the FBAR “settlement” achieving some public press. E.g., Azi Paybarah and  Devlin Barrett , Paul Manafort agrees to pay $3.15 million to settle with Justice Dept. (WAPO 3/5/23), here.

 The number is large, but there have been large FBAR civil willful penalties that were more or less routine, which I have not deemed worthy of posting to the blog. Why do I post now?

I do so because of the press about the "settlement." As I read the motion to enter this “settlement,” it was not a settlement in the way I think of settlements with mutual concessions. The Joint Motion for Entry of Consent Judgment and Notice of Settlement, here, says “As part of the settlement, Mr. Manafort has consented to an entry of judgment in full in this case, with interest accruing.”

Note, for some reason, the link to the Joint Motion seemed to be spotty in working. Readers can retrieve the document from Court Listener service for the docket entries at docket number 29 here,

I suppose that there may have been some costs that the Government gave up. And, I suppose, that it Manafort committed misconduct to hide assets or some other form of obstruction, the “settlement” might include the Government foregoing any further investigation or prosecution of that.  

JAT Comments: