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.

That type of stipulation permitting assertion of the civil fraud penalty is not in the Pursley plea agreement. Indeed, Pursley’s plea agreement may foreclose assertion of the civil fraud penalty and interest on the penalty. Par.9(a) on p.5 provides (emphasis supplied by JAT): 

(a)     The parties will endeavor to execute a Closing Agreement between the Internal Revenue Service (“IRS”) after sentencing. The Closing Agreement will cover all assessments including the anticipated Restitution Order imposed by the Court, payments, accrued interest, and no associated penalties nor any associated interest on any penalties for tax years 2007 through 2010.

A Closing Agreement will close out the years thus closing out the civil fraud penalty. (Although the commitment is to “endeavor” to execute a Closing Agreement, an “endeavor” that might fail thus making this paragraph ineffective.)

So, if the Closing Agreement does not include the penalties, they cannot be assessed. That is the way I read paragraph 9(a). I don’t ever recall a plea agreement that can be read as the IRS in effect waiving the right to assert the civil fraud penalty in a case the gravamen of which is tax evasion whether in a conspiracy or substantive count. Keep in mind that the IRS has an unlimited statute of limitations where fraud is involved, so if 9(a) does foreclose the IRS asserting the civil fraud penalty (with interest), this was a major concession to Pursley.

2. A feature of his particular plea may factor into this penalty concession. Caveat: this is my inference: Pursley pled to conspiracy. It is not unusual in a one-plea deal that the Government requires that the plea be to conspiracy rather than the tax evasion counts. So that’s not surprising. One consequence, though, I think is that, if the Govt retained authority to assert the civil fraud penalty, it might not have been able to claim some type of preclusion (either res judicata or collateral estoppel) because a criminal tax evaded necessary for civil tax fraud is not an element of the conspiracy conviction. (Note that it is an element of evasion, but the Government dropped the evasion counts.) Except for the language in ¶ 9(a), the IRS could assert the civil fraud penalty and almost certainly could have proved it (although it would have been expensive and time-consuming because the IRS has the burden of proof by clear and convincing evidence). So, it is possible that the IRS gave up the opportunity for a civil fraud penalty to avoid further commotion.

This might particularly be true if there is some reason to believe that Pursley cannot pay the restitution amount awarded. Note that the restitution payments are set at $500 per month, a relatively nominal amount for the amount still outstanding. This small amount of monthly payment may suggest that the Government thinks Pursley can’t pay the outstanding balance or will be very long time in doing so. In that environment, the Government may have seen little to be gained in keeping open the possibility of further assessments. Pursley does have to supply new accurate financial information, so that monthly payment number might be revised and might show his ability to full pay restitution.

3. A Law 360 article, Atty Whose Tax Conviction Was Overturned Enters Guilty Plea, quotes Chip Lewis, Pursley’s lawyer, as saying: “I'm grateful for all the hard work the government's put in to achieve a global resolution for Mr. Pursley,” (Emphasis supplied by JAT.)  I read this in conjunction with par. 9(a) as stating his belief that fraud penalties will not be asserted, but again that is my inference.

4. Finally, as I noted above, this was an FRCrP 11(c)(1)(C) plea, where the judge is constrained to accept or reject the terms. Those pleas are not uncommon. I long ago (2005) picked the following comments from Judge Kopf up from Doug Berman’s excellent Sentencing Law & Policy Blog (United States v. Coney, 390 F.Supp.2d 844, 845 (D. Neb. 2005) here):

Prosecutors and defense lawyers sometimes enter into binding plea agreements that require a judge to impose a particular sentence or apply a particular sentencing range that is above or below that produced by proper application of the advisory Guidelines. When such a plea agreement smells too much like cow manure siphoned from a feedlot after a swampy, summer rain, judges should not pretend the odor is lilac. On the other hand, if the plea agreement stinks, but the stench is more like kitty litter than cow manure, a judge should hold his or her nose and move on. The trick is to discern the difference.

I think generally judges do not like their sentencing discretion circumscribed which forecloses their ability to fashion a sentence that fits the crimes that have been proved and the particular guilty defendant. That is why so many judges complained about the original Sentencing Guidelines that pre-Booker seemed to significantly constrain sentencing discretion. And that is why many cheered Booker that gave sentencing judges considerable discretion, subject only to appeal for abuse of discretion.