Thoughts on IRS Web Page titled "How criminal investigations are initiated" (11/13/24)

The IRS has a web page titled “How criminal investigations are initiated, here” (last reviewed or updated 8/20/24 and visited 11/13/24). It is a “lite” introduction to the topic. I found the concluding “claim” interesting: 

Conviction

The ultimate goal of an IRS Criminal Investigation prosecution recommendation is to obtain a conviction - either by a guilty verdict or plea. Approximately 3,000 criminal prosecutions per year provide a deterrent effect and signals to our compliant taxpayers that fraud will not be tolerated.

Notice how the subject shifts from the first sentence to the second. The first sentence talks about conviction (as does the heading). The second sentence talks about prosecutions which is not the same as convictions unless the implication is that there is a 100% conviction rate. (The conviction rate is not 100% which I address later in this blog post.)

The IRS offers these statistics in its annual Data Book, Table 26 currently titled “SOI Tax Stats - Criminal Investigation Program, by Status or Disposition - IRS Data Book Table 26,” here (last reviewed or updated 8/20/24; viewed 11/13/24). Here is a screenshot of the 2023 Table 26:

Note that the indictments and informations were 1,676, the total for legal source and illegal source financial crimes. The 2022 numbers were 1,670 for legal and illegal source prosecutions. So, the claim of 3,000 prosecutions is incorrect based on the IRS numbers. However, the above statistics are for prosecutions from investigations by IRS CI. Tax prosecutions may come from other sources (e.g., government investigations other than from IRS CI in which tax crimes may be added to nontax crimes for prosecution reasons). So, such nontax prosecutions may account for the difference of about 1,300.

Third Circuit Denies Post-Loper Bright Petition for Rehearing in Case Applying Auer/Kisor Deference (11/6/24)

In United States v. Chandler, 104 F.4th 445 (3rd Cir. 6/11/24), CA3 here and GS here, the Court sustained a sentence based in part on the application of Auer/Kisor deference to the Guidelines Commentary. (See Slip Op. 7, 17-19.) I refer to his panel decision as Chandler I. Chandler I preceded Loper Bright Enters. v. Raimondo, ___ U.S. ___, 144 S. Ct. 2244 (2024), which rejected Chevron deference (as well as, any similar deference that preceded Chevron). But Loper Bright did not address a deference subclass for agency subregulatory interpretations of legislative regulations (such as Guidelines Commentary on Guidelines). See Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Crimes Blog 8/24/24), here; and More on United States v. Boler (Federal Tax Crimes Blog 8/25/24), here.

On petition for rehearing in Chandler, the Court entered a document titled “Sur Petition for Rehearing,” denying the panel rehearing and en banc rehearing but with dissents by Judges Bibas and Matey. United States v. Chandler, 114 F.4th 240 (3rd Cir. 9/22/24), CA3 here and GS here. I refer to this denial of rehearing as Chandler II. Judge Bibas argued that, even if Auer/Kisor deference were otherwise applicable to Guidelines Commentary, deference only applied when the interpretive toolkit was otherwise empty, but that lenity was in the toolkit and applied to preempt ambiguity for Auer/Kisor deference. Judge Bibas said that applying Auer/Kisor deference without first applying lenity, “put us on the wrong side of a circuit split. At least three circuits hold that lenity trumps deference.” (Slip Op. 2-3; note the page numbers are for the pdf because the pages are not numbered.) Judge Matey dissented because he felt that the ordinary meaning of the statutory term was discernible without deference (sort of a Chevron Footnote 9 approach). Neither dissenting Judge reasoned that the Auer/Kisor deference applied in Chandler I (the pre-Loper Bright panel opinion) did not survive Loper Bright.

So, as of now, at least so far as I am aware, we still do not have a definitive ruling on whether Auer/Kisor deference survives Loper Bright, but the courts seem to be deciding cases as if it does survive Loper Bright. Most immediately, that means that the Sentencing Guidelines Commentary interpreting the Guidelines may qualify for deference at least when lenity doesn’t apply. (That sets aside the issue of whether lenity might apply to avoid getting to Auer/Kisor deference for Guidelines Commentary; and conceptually the ambiguity invoking lenity is the same as the ambiguity required for Auer/Kisor deference, lenity might always apply.)

Excellent Article on IRS CI Special Agent and Cryptocurrency (10/2/24)

I post today on an excellent article—Geraldine Brooks, The Cyber Sleuth (WAPO 10/1/24), here. This is one article in a WAPO series on “Who is Government?” where seven writers are said to “go in search of the essential public servant.” The articles in the series with author of each article are:

•  The Canary: Michael Lewis on the Department of Labor
• The Sentinel: Casey Cep on the Department of Veterans Affairs
• The Searchers: Dave Eggers on NASA’s Jet Propulsion Lab
• The Number: John Lanchester on the Bureau of Labor Statistics
• The Cyber Sleuth: Geraldine Brooks on the Internal Revenue Service
• The Equalizer: Sarah Vowell on the National Archives
• The Rookie: W. Kamau Bell on the Department of Justice

Each article in the series (so far) is outstanding. It is appropriate that Michael Lewis starts with the first installment because of his book, The Fifth Risk, which has been described as “a love letter to federal workers -- and a dig at Trump’s ‘willful ignorance’.” See WAPO book review here. Lewis tells a great story of the bureaucracy—the deep state, if you will—and how much the bureaucrats do for the country, keeping the country on an even keel in turbulent times (particularly the first (and hopefully the only) Trump administration where chaos reigned as Trump haphazardly filled the ranks of political appointees to the agencies).

The Cyber Sleuth installment deals with Jarod Koopman, an IRS “Cyber Sleuth.” Koopman is an example of IRS employees and government employees generally who bring dedication and unique skill to the mission of the IRS, an agency that Congress chronically underfunds seemingly to hamper the IRS’s ability to do the tasks Congress assigned it to do. The article says:

Until last year, the staff who work inside had watched their budget get cut for a decade. Their staffing numbers had reached lows not seen since the 1970s, even as the U.S. population swelled and the quantity of tax returns soared. There was no money to update failing technology, or even the software that ran it. The result was a pileup of paper returns that colonized corridors and cafeterias, and an American public vexed by poor service.

That, of course, was the goal: anti-tax activist Grover Norquist’s famous shrink-it-till-you-can-sink-it strategy. So the civil servants who had been valiantly struggling to serve more people with fewer resources found themselves unappreciated — even despised.

And perhaps most despised are the 3 percent of IRS personnel involved in criminal investigation, who have become piñatas for the agency’s critics. Fox News’s Brian Kilmeade characterized agents such as Koopman as dangerous threats who could “hunt down and kill middle-class taxpayers,” while Rep. Lauren Boebert (R-Colo.) accused them of “committing armed robbery on Americans.” Republicans even attached a rider to a spending bill limiting the number of bullets the IRS can buy. “A weapon is rarely discharged by one of our agents,” says a frustrated Werfel. “But you can’t send an agent into a criminal enterprise unarmed, so they have to train, and there’s a minimum inventory required for that.” 

Comments Please (9/26/24)

I have eliminated the past comment tool (Disqus) which proved to be so daunting to readers of the blog who tried to make comments. I have returned to the comment tool provided by Blogger/Blogspot which is the blog tool that I have used since the inception of the blog. The Blogger/Blogspot comment tool seems to be better than it formerly was when I moved to Disqus. In any event, it is much easier to post comments, so I urge those wanting to comment and engage in discussions of the issues presented in the blogs to do so. Comments can provide a useful learning experience for those commenting and those reading the comments and discussion.

I urge readers to review the page to the right titled Guides to Use and Posting of Comments (9/26/24), here. As noted on that page, I moderate the comments, meaning that I read the comments prior to approving them to appear publicly on the particular blog entry. I plan to approve comments liberally, weeding out only comments that are not appropriate under the Guides to Use.

Thank you,

Jack Townsend 

11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (9/4/24)

In United States v. Schwarzbaum, 114 F.4th 1319 (11th Cir. 2024), 11Cir here and GS here [to come], the Court:

(1)  (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2)   (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

The unanimous opinion is quite long (53 pages) and offers a lot of interesting discussion of the history of the FBAR penalties. Those relatively new to the subject, can learn from reading the opinion closely. Those who are veterans to the subject can probably skim through the opinion and understand the holdings.

JAT Comments:

Fifth Circuit Holds Criminal Statute of Limitations is Not Suspended for Equitable Tolling on Government's Alleged Excuses (8/20/24)

In United States v. Plezia, 115 F.4th 379 (5th Cir. 2024), CA5 here and GS here, the Court states the facts relevant to this blog as follows (Slip Op. 1-4, bold face supplied by JAT):

          Richard Plezia (“Plezia”) challenges his convictions of conspiracy to defraud the United States, making false statements, and falsification of records in a federal investigation following a fifteen-day jury trial. He challenges the sufficiency of the evidence for some of the convictions, the district court’s determination that the statute of limitations for one count of making false statements was equitably tolled, and the district court’s decision to allow two witnesses to testify with the aid of prior recorded recollections.

          Because we agree with Plezia that equitable tolling of the statute of limitations in 18 U.S.C. § 3282 is not available, we VACATE Plezia’s conviction under [*2] Count Five and remand with instructions to dismiss Count Five with prejudice. However, the panel’s agreement with Plezia ends there. With respect to every other assignment of error, we AFFIRM.

I. Factual Background

          Plezia was a Houston-based personal injury attorney charged with conspiracy to defraud the United States through falsified reporting on tax returns to the Internal Revenue Service (“IRS”). The alleged falsified gains arise from barratry, the impermissible practice of attorneys soliciting clients that have not invited any contact with prospective counsel. The Government averred that Plezia conspired with a group of personal-injury attorneys and non-attorney case runners (“case runners”) in Houston, Texas to unlawfully reduce the federal income taxes owed by Jeffrey Stern (“Stern”). The case runners were alleged to solicit clients for Stern—in violation of the Texas Penal Code and the Texas Disciplinary Rules of Professional Conduct (“TDRPC”). The charging instrument set out that Plezia worked with case runner Marcus Esquivel (“Esquivel”) to aid Stern in reducing the income taxes he owed from 2011 through 2013. It alleged that Stern “funneled” illegal payments for soliciting and “running” cases to Esquivel by writing checks to Plezia—who subsequently wrote corresponding checks out to Esquivel’s business entities. Stern would then deduct the amounts paid to Plezia as attorney “referral fees.”

A. The Indictments and Pretrial Proceedings

          In August 2019, Stern was arrested and charged with conspiracy to commit fraud against the United States, willfully filing a false tax return, and obstruction of justice. Stern pleaded guilty to the first two counts and agreed to pay over $4.35 million in restitution to the IRS and cooperate with the prosecution and investigation of other attorneys involved in the scheme. On August 6, 2019, the grand jury indicted Plezia on one count of conspiracy to [*3] defraud the United States in violation of 18 U.S.C. § 371 (“Count One”). On January 18, 2022, the grand jury returned a Third Superseding Indictment adding two counts of making false statements to IRS agents in violation of 18 U.S.C. § 1001(a)(2) (“Counts Five and Six”) and one count of falsifying records in violation of 18 U.S.C. § 1519 (“Count Seven”).

          Count One’s allegations against Plezia are limited to his participation in redirecting checks to Esquivel. Count Five sets out that Plezia falsely told an IRS agent in Houston in December 2016 that he had never paid Esquivel any referral fees for clients in violation of the Texas bar rules. Count Six avers that Plezia made another materially false statement to IRS agents in September 2018 when he averred that any payments between him, Esquivel, and Stern were provided solely for the purpose of financing his ongoing benzene exposure toxic tort litigation against BP. Lastly, in Count Seven, the Government alleged that Plezia created a false document supporting or tracking the false statement he made in Count Six with the intent to impede a federal investigation under the jurisdiction of the IRS.

          Plezia pleaded not guilty to all charges and proceeded to a jury trial on January 9, 2023. He moved to dismiss the entirety of the Third Superseding Indictment for constitutional violations. Plezia argued that the Government’s delay in prosecuting all charges violated his Fifth and Sixth Amendment rights. He also filed a separate motion to dismiss Count Five as barred by the five-year statute of limitations in 18 U.S.C. § 3282 because it was filed over five years after the alleged false statement was made. He asserted that Count Five was filed five years and forty-two days after the alleged false statement was made even though the Government had all relevant information to charge him with that offense for at least three years before the Third Superseding Indictment. The Government opposed both motions and argued that the statute of limitations had been tolled due to the delays arising from its compliance with the district court’s COVID orders [*4] and from delays in processing Justice Department approvals during the pandemic. It further argued that the discovery of evidence of Plezia’s involvement in Stern’s scheme was hindered by COVID delays related to several steps of the investigation which prompted the addition of Count Five. 

Trump Superseding Indictment: More on the Defraud / Klein Conspiracy (8/28/24)

The D.C. grand jury approved a superseding indictment against former President Trump (“Trump”). The superseding indictment is on CourtListener here. The principal purpose of the superseding indictment is to eliminate charges that might implicate the President’s immunity as stated in Trump v. United States, 603 U. S. ____, 144 S. Ct. 231 (2024).

The Introduction to the superseding indictment contains a good summary on the issue I discuss in this blog – the defraud conspiracy in 18 U.S.C. §371 (Superseding Indictment pp. 1-3, ¶¶ 1-5).

INTRODUCTION

          1. The Defendant, DONALD J. TRUMP, was a candidate for President of the United States in 2020. He lost the 2020 presidential election.

          2. Despite having lost, the Defendant-who was also the incumbent President-was determined to remain in power. So, for more than two months following election day on November 3, 2020, the Defendant spread lies that there had been outcome-determinative fraud in the election and that he had actually won. These claims were false, and the Defendant knew that they were false. But the Defendant used his Campaign to repeat and widely disseminate them anyway-to make his knowingly false claims appear legitimate, create an intense national atmosphere of mistrust and anger, and erode public faith in the administration of the election.

          3. As a candidate and a citizen, the Defendant had a right, like every American, to speak publicly about the election and even to claim, falsely, that there had been outcome determinative fraud during the election and that he had won. He was also entitled to formally challenge the results of the election through lawful and appropriate means, such as by seeking recounts or audits of the popular vote in states or filing lawsuits challenging ballots and procedures. Indeed, in many cases, the Defendant did pursue these methods of contesting the election results. His efforts to change the outcome in any state through recounts, audits, or legal challenges were uniformly unsuccessful.

          4. Shortly after election day, the Defendant also pursued unlawful means of discounting legitimate votes and subverting the election results. In so doing, the Defendant  perpetrated three criminal conspiracies:

                   a. A conspiracy to defraud the United States by using dishonesty, fraud, and deceit to impair, obstruct, and defeat the lawful federal government function by which the results of the presidential election are collected, counted, and certified by the federal government, in violation of 18 U.S.C. § 371;

                   b. A conspiracy to corruptly obstruct and impede the January 6 congressional proceeding at which the collected results of the presidential election are counted and certified ("the certification proceeding"), in violation of 18 U.S.C. § 1512(k); and

                   c. A conspiracy against the right to vote and to have one's vote counted, in violation of 18 U.S.C. § 241.

Each of these conspiracies-which built on the widespread mistrust the Defendant was creating through pervasive and destabilizing lies about election fraud-targeted a bedrock function of the United States federal government: the nation's process of collecting, counting, and certifying the results of the presidential election ("the federal government function").

More on United States v. Boler (8/25/24)

Yesterday, I wrote a blog entry on United States v. Boler, 115 F.4th 316 (4th Cir. 2024). Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (Federal Tax Crimes Blog 8/24/24), here. (The blog entry was cross-posted on my Federal Tax Procedure Blog, here.) I think there is more that can and should be said about Boler. This post will be more of a “notice” post (like the fabled notice pleading lawyers at least of my generation learned about early in our law school careers).

1. The structure of the Federal Sentencing Guidelines. The 2023 version of the U.S. Sentencing Guidelines is here. The Guidelines (with accompanying Commentary and Policy Statements) are promulgated by the U.S. Sentencing Commission which is “a bipartisan, independent agency located in the judicial branch of government, was created by Congress in 1984 to reduce sentencing disparities and promote transparency and proportionality in sentencing.” See website here. So, we know at the outset that it is a strange creature in our constitutional framework—the only agency located in the judicial branch. 

JAT Side Note: Readers of this blog will surely have some passing acquaintance with the difficulty going back to the 1940s of determining precisely what the Tax Court was, even though the statute said since its earliest days (then the Board of Tax Appeals) that the Tax Court was an independent agency in the Executive Branch. As I have noted, the nature of the Tax Court was an issue was much discussed with more heat than light in the 1940s, including in the consideration of the APA; the Supreme Court in Dobson v. Commissioner, 320 U.S. 489 (1943), reh. den., 321 U.S. 231 (1944), a unanimous opinion authored by Justice Jackson, the most tax procedure savvy Justice ever, held that the Tax Court was an agency rather than a court and applied Chevron-like deference to its statutory interpretations. I cover these issues in John A. Townsend, The Tax Contribution to Deference and APA § 706 (SSRN December 14, 2023), pp. 5-23)   https://ssrn.com/abstract=4665227.

2. Guidelines treated as Legislative Rules; Commentary Treated as Interpretive Rules. As an agency, albeit a Judicial Branch agency, the issue underlying Boler was the authority of the Guidelines and the Policy Statements and Commentary. In Stinson v. United States, 408 U.S., 36 (1993), GS here, the Court treated the Guidelines as analogous to legislative rules which make law pursuant to Congress’ delegation and treated Commentary as an interpretive rule interpreting the law (the law being the Guidelines). The Court said (p. 44-45, cleaned up to omit most case citations):

Although the analogy is not precise because Congress has a role in promulgating the guidelines, we think the Government is correct in suggesting that the commentary be treated as an agency's interpretation of its own legislative rule. The Sentencing Commission promulgates the guidelines by virtue of an express congressional delegation of authority for rulemaking, and through the informal rulemaking procedures in 5 U. S. C. § 553, see 28 U. S. C. § 994(x). Thus, the guidelines are the equivalent of legislative rules adopted by federal agencies. The functional purpose of commentary (of the kind at issue here) is to assist in the interpretation and application of those rules, which are within the Commission's particular area of concern and expertise and which the Commission itself has the first responsibility to formulate and announce. In these respects this type of commentary is akin to an agency's interpretation of its own legislative rules. As we have often stated, provided an agency's interpretation of its own regulations does not violate the Constitution or a federal statute, it must be given "controlling weight unless it is plainly erroneous or inconsistent with the regulation." Bowles v. Seminole Rock & Sand Co., 325 U. S. 410, 414 (1945). 

Bowles v. Seminole Rock is the predicate for Auer deference which I now call Auer/Kisor deference because of the authoritative treatment of Auer deference in Kisor v. Wilkie, 588 U.S. 558 (2019). As I discussed in yesterday’s blog on Boler, the issue was the application of Auer deference to Guidelines’ Commentary (Application Note) defining the Guidelines term “loss” to include “intended loss.”

3. Did Auer/Kisor Deference Survive the Demise of Chevron. One of the issues I presented in yesterday’s blog was whether Auer/Kisor deference survived the demise of Chevron deference. I just want to make a few bullet points about that issue.

Fourth Circuit Applies Auer/Kisor Deference to Include in Guidelines "Loss" the Commentary Inclusion of "Intended Loss" (8/24/24)

 In United States v. Boler, 115 F.4th 316 (4th Cir. 2024), CA4 here and GS here [to come], the Court held that the term loss included the pecuniary loss that Boler intended from filing false refund claims with the IRS. Boler filed six returns claiming false refunds; the IRS paid refunds on only four of the returns. Boler wanted the loss to be calculated using only the amounts actually refunded and thus to exclude the refund amounts claimed but not refunded. The district court held that Sentencing Guidelines inclusion of loss included intended loss. Since the pecuniary loss is a principal driver of the Sentencing Guidelines calculations, the inclusion of the intended loss increased the advisory Guidelines sentence and factored into the resulting sentence. On appeal, Boler argued that the Guidelines required inclusion of the loss, which facially does not include intended loss and that, the Guidelines Commentary interpretation of “loss” to include intended loss was an invalid interpretation of the Guidelines term “loss.” The Court of Appeals held that loss included the intended loss. (This is perhaps a moot issue in the future, because the definition of loss in the Guidelines was changed effective November 1 to include intended loss.)

The issue, as framed by the majority, turned on the application of Auer/Kisor deference. So, what is Auer/Kisor deference? As interpreted in Kisor v. Wilkie, 588 U.S. 558 (2019), GS here, the Court updated and constricted Auer deference, but, as constricted, held that in some cases courts should defer to agency interpretations of ambiguous agency legislative regulations. The majority in Loper Bright did not mention Auer/Kisor deference, although it cited Kisor several times; the dissent said (S.Ct. at 2306-2307) that Kisor approved Auer deference “which requires judicial deference to agencies' interpretations of their own regulations.” (Hereafter, whenever I use the term regulations, I mean agency notice and comment regulations required for legislative regulations and permitted for interpretive regulations.) The Loper Bright opinions make no statement that Auer/Kisor deference is affected.

I should note that, in my thinking, the Court analogized Auer/Kisor deference to Chevron deference which applied to agency regulations’ interpretations of ambiguous statutory text. The analogy is logical: Chevron deference applied to agency regulations interpretation of law (there statutory law); Auer deference applied to agency interpretations of law (legislative regulations that function like statutes to impose the law); so both forms of deference apply to agency interpretations of law.

Taxpayer Liable for Willful FBAR Penalties Despite Alleged ADHD, Stress, Depression, and Stage 3 Prostrate Cancer (8/10/24)

In United States v. Rund (E.D. Va. No. 1:23-cv-00549 Memo Opinion & Order 8/6/24), CL here and GS here, the Court granted the Government summary judgment on Rund’s liability for FBAR willful penalties and ordered judgment for “$2,915,663 as of April 30, 2021, consisting of an assessment against him under 31 U.S.C. § 5321(a)(5), plus pre- and post-judgment interest and penalties accruing on that assessment in accordance with 31 U.S.C. § 3717.”

Significant features of the opinion:

1. Rund “participated in OVDP from 2010 through 2016” and apparently either withdrew or was terminated. (Slip Op. 6.) While in OVDP he apparently did not fully disclose offshore accounts and even failed to file FBARs as due. (Id.) He alleged as a defense “improper termination and/or denial of entry from the OVDP program.” (Slip Op. 7 n6.) There is no further discussion of that adventure, and  Rund apparently failed to address the defense in his motion for summary judgment. (Id.)

2. More significantly, Rund claimed certain personal characteristics that he felt negated willfulness. The Court addressed that claim as follows (Slip Op. 13-14):

Sentencing Guidelines under the Loper Bright Non-Deference Regime (8/7/24; 10/15/24)

Three leading authorities on federal sentencing have co-authored an article that might be of interest to those interested in the confluence of federal sentencing and the demise of deference in Loper Bright Enterprises v. Raimondo, 603 U. S. ____, 144 S. Ct. 2244 (2024), SC Slip Op. here & GS here. The article is Mark Allenbaugh, Doug Passon, and Alan Ellis, Post-Chevron, Good Riddance To The Sentencing Guidelines (Law 360 7/15/24), here. I learned from the article and made appropriate changes to the federal crimes section of the 2025 working draft of my Federal Tax Procedure book.

The authors engage Loper Bright over the Sentencing Guidelines. The authors note that there are two key categories within the Guidelines.

• The Guidelines which “are the equivalent of legislative rules adopted by federal agencies,” quoting Stinson v. United States, 508 U.S. 36. 41, 45 (1993). The Guidelines are thus like, in the Treasury context, the consolidated return regulations under § 1502 which contain many rules (including interpretations of the rules). They are the law if within the legislative rulemaking authority conferred by Congress.
• What I call Sub-Guideline Rules which are Policy Statements and Commentary (including Application notes). Sub-Guidelines rules are not legislative rule-equivalents but more like interpretations of the regulations-equivalent Guidelines. Since they are not law but interpretations, they can be tested for validity of the interpretation.

As I said, legislative rules are the law if within the scope of the authority delegated and thus are not tested as to whether “reasonable” (under Chevron) or “best” (under Loper Bright). They are the law if within the scope of the legislative rulemaking authority granted. While an unreasonable definition in a legislative rule would likely be rejected as arbitrary and capricious (which could overlap but was never the same as the reasonableness test under Chevron), so long as the interpretation in a legislative rule is reasonable, it should be the law, just as interpretations and definitions in the consolidated return regulations under § 1502 are the law. (I know, this sounds like smuggling in Chevron deference, but I am just applying the traditional distinction between legislative rules and interpretive rules which Loper Bright did not reject.)

Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (8/3/24; 8/6/24)

In United States v. Lingat, (S.D. N.Y. No. 1:21-cr-00573 Dkt # 191 Opinion & Order 7/30/24), CL here & GS here [to come], the court rejected the defendants’ motions for acquittal after conviction. The defendants asserted as a principal basis for the motions United States v. Coplan, 703 F.3d 46 (2d Cir. 2012), here, cert. den. 571 U.S. 819 (2013) which questioned the Klein defraud conspiracy (the § 371 defraud conspiracy) for which the defendants were convicted. In affirming the Klein defraud conspiracy convictions, Coplan strongly questioned the validity of the Klein conspiracy but was compelled to follow Supreme Court opinions approving the broad interpretation of the defraud conspiracy. 

I believe that most readers of this blog are familiar with the Klein conspiracy and perhaps even the saga of Coplan. The Second Circuit in Coplan was concerned that, through an expansive reading of the text of § 371, the Supreme Court had judicially created the Klein conspiracy crime to include an object to impair or impede the function of Government without any fraud in its traditional meaning for criminal statutes to deprive another of money or property. In short, the defraud conspiracy does not require fraud, at least fraud as the word is used in other criminal statutes. For readers wanting a short summary, I link a section of my Federal Tax Procedure Book (Practitioner Ed. 2024), pp. 318-319, here. I have posted a number of blogs on the issue presented in Coplan, but here will just link to some of the more prominent blogs. Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here; Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here; and Oral Argument in Supreme Court Case on Trump Immunity Discussing the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 4/26/24), here.

The key troubling aspect of the Klein conspiracy is that the precedent going to Hammerschmidt v. United States, 265 U.S. 182 (1924) and even earlier is now certainly “settled law,” a refrain we have heard so much over the last few years as the Court’s current conservative super-majority court has “unsettled’ much “settled law.” I think the Court’s super-majority has been unsettling too much settled law. But, if the Court's super-majority really wants to fix something worth fixing, it could not find a more worthy issue than the proper interpretation of the defraud conspiracy. Since first wading into the issue in the late 1990s and early 2000s, I have been convinced that the Court went too far in Hammerschmidt and its ilk and now should fix the issue simply because the defraud conspiracy can sweep too broadly. For my ruminations on that concern, see John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here, and its online appendix with examples Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? Online Appendix, 9 Hous. Bus. & Tax L.J. A-1 (2009), here.

Fifth Circuit Reversal of Count of Conviction Based on Statute of Limitations May Permit the Reversed Count Conduct as Relevant Conduct for Affirmed Count (7/28/24)

In United States v. Boswell, 109 F.4th 36 (5th Cir. 2024), CA5 here and GS here, the Court reversed Boswell’s conviction for bankruptcy-fraud conviction (Count One) and affirmed his conviction for tax evasion (Count Two).

The Court reversed the bankruptcy-fraud conviction based on the indictment being untimely under the 5-year statute of limitations. When Count One was originally indicted as a one-count indictment, the indictment was obtained within the 5-year period but the Government sought and obtained a sealing order for the indictment. Then, about 6 months after the 5-month period expired, the Government obtained a superseding indictment adding tax evasion (Count Two), and the indictment was unsealed. The tax evasion statute of limitations is 6-years, so that Count was clearly timely.

The Court reversed the bankruptcy-fraud conviction because the Government failed to adduce a satisfactory reason for the Government to obtain an order sealing the original indictment. The Court relied principally upon the reasoning United States v. Gigante, 436 F. Supp. 2d 647 (S.D.N.Y. 2006) which dismissed because the Government’s claims for need of a superseding indictment were rejected. Hence, the Court reversed the bankruptcy-fraud charge (Count One) for failure to satisfy the required statute of limitations.

The conviction on the tax evasion count (Count Two) was affirmed. The Court rejected Boswell’s various claims on Count Two, holding: (i) the two convictions were not inextricably intertwined so that improper conviction on Count One required reversal on Count Two, (ii) the trial court properly rejected Boswell’s request for a bill of particulars on Count Two; (iii) there was no variance between the evidence and the tax evasion crime charged in Count Two, so Boswell was not surprised by the evidence at trial; (iv) there was no constructive amendment of Count Two as charged; (v) the evidence was sufficient to support the jury verdict; and (vi) the errors, if any, did not support application of the “cumulative error” doctrine permitting reversal for individual nonreversible errors which in the aggregate impaired the right to a fair trial.

All of this is fairly routine. I post on the case to address a related issue regarding sentencing calculations.

Federal Tax Procedure Book 2024 Editions on SSRN (7/26/24)

The 2024 versions of the Federal Tax Procedure Book are now posted on SSRN. SSRN still has to approve them, but those interested can view or download them in the interim. See here.

Fourth Circuit Rejects Defendant's Collateral Attacks on Tax Perjury and Obstruction Convictions (6/8/24)

In United States v. Sutherland, 103 F.4th 200 (4th Cir. 2024), CA4 here and GS here, the Court rejects the criminal defendant’s collateral attacks on convictions for filing false tax returns and obstructing an official proceeding. (The latter conviction was for delivering false documents to the government attorney assisting the grand jury in the tax crimes investigation.) The collateral attacks were mounted by a petition under 28 USC § 2255 and a petition for the writ of coram nobis. The principal claim for both methods of collateral attack was an alleged ineffective assistance of counsel (“IAC”) at the criminal trial where the defendant was convicted. The defendant appealed the convictions, and the Fourth Circuit affirmed. United States v. Sutherland, 921 F.3d 421 (4th Cir. 2019), GS here; see also Obstruction Conviction Affirmed for Presentation of False Documents to AUSA Serving as Attorney for Government for Grand Jury (Federal Tax Crimes Blog 4/26/19), here.

I post to this blog primarily to refer readers to the excellent discussion of the collateral attack remedies under § 2255 and coram nobis. Readers wanting the nuance should read the opinion (19 pages, but worth the read). Key summary points are:

1. The principal IAC claim was that defendant’s trial counsel in the criminal trial gave inadequate representation at trial and at sentencing because of failure to present expert tax testimony that would have shown he did not owe the amount of tax claimed by the Government. The Court of Appeals describes this testimony at sentencing as (Slip op. 4-5):

Seeking to mitigate the U.S. Sentencing Guidelines loss calculation in his presentence report, Sutherland presented testimony from Jayne Frazier, a certified public accountant. Frazier reviewed Sutherland’s tax returns for the years 2007 to 2010 and testified that Sutherland had underreported his income by hundreds of thousands of dollars in the relevant timeframe. Despite that fact, she testified that Sutherland’s total tax liability for that period was less than the Government alleged because Sutherland failed to claim various business-expense deductions in 2008, 2009, and 2010, which, if claimed, would have reduced his taxable income for those years. Notably, however, Frazier did not independently audit Sutherland’s tax returns, and her calculations were based largely on information provided by Sutherland, much of which could not be corroborated by itemized receipts or other documentation. See, e.g., J.A. 1230 (Frazier testifying that her calculations included hundreds of thousands of dollars of unclaimed business expenses that were “all cash”). She [*5] also stated that her income calculations for Sutherland excluded approximately half of the $2 million in transfers from STS to Sutherland’s companies because it was her “understanding” that those funds came from a line of credit in favor of STS and thus would be “treated as loan advances” and not “taxable income.” J.A. 1209.

          The district court overruled Sutherland’s objection to the presentence report’s loss calculation, finding that Sutherland’s “self-reported information” to Frazier “was not reliable.”

2. In February 2021, after completing the period of supervised relief on the tax convictions but before completing the period of supervised relief on the obstruction conviction (not sure why they would be different), the defendant filed (1) the “§ 2255 petition [which] targets the obstruction conviction” and (2) the coram nobis petition which “targets the tax fraud convictions.” (Actually, the convictions were for filing false tax returns, commonly called tax perjury, rather than “tax fraud” which is commonly called tax evasion.) The Court explains why defendant chose the two collateral attack procedures (Slip Op. 6 n. 1):

Sentencing Guidelines Amendment Eliminates Acquitted Conduct from Sentencing Calculations (6/6/24; 6/11/24)

Effective 11/1/24, the U.S. Sentencing Commission has eliminated acquitted conduct as relevant conduct under §1B1.3 to enhance sentencing calculations. See Sentencing Commission web page titled "2024 AMENDMENTS IN BRIEF: Acquitted Conduct," here. 

Of course, because the Guidelines were advisory, a sentencing judge did not have to consider acquitted conduct as relevant conduct in imposing sentence, although the judge might feel compelled to include acquitted conduct in calculating the advisory Guidelines sentence. Under the prior rules, the acquitted conduct could be considered only if the judge found the acquitted conduct by a preponderance of the evidence.

The announcement caveats that “This amendment does not comment on the use of uncharged, dismissed, or other relevant conduct as defined in §1B1.3.” What does that mean? Well, for example, it means that a plea bargain dismissing counts permits the sentencing judge to consider the dismissed counts as relevant conduct, provided that by sentencing the judge is convinced by a preponderance of the evidence that the defendant committed the relevant conduct crimes. Same for uncharged conduct. (PSRs often note, particularly for dismissed counts, that the sentencing calculations are the same as if the dismissed counts were counts of conviction.)

There are other amendments that are potentially applicable in tax crimes or FBAR crimes cases. Readers might want to review the Sentencing Commissioner web page titled “Amendments in Brief,” here.

Added 6/11/24 10:00 am:

I offer more on the amendment to prohibit conduct behind “not guilty” verdicts from the Guidelines sentencing calculations. I picked up this blog on the Sentencing Commissions decision: Ellen Podgor, Sentencing Commission Change - Acquitted Conduct - "Not Guilty Means Not Guilty" (White Collar Crime Blog 5/24/24), here. I just wanted to clarify why the Guidelines ever included acquitted conduct as relevant conduct and what the practical effect of the elimination of acquitted conduct in the formal Guidelines calculations may be.

On Unanimity - the Trump NY False Documents Conviction and Federal Conspiracy Law (6/5/24)

I will post at least this blog dealing with conceptual overlaps from the Trump trial and conviction in the New York Supreme Court (trial level).

Readers surely recall that Trump’s false records case, generally a misdemeanor, was elevated to a low-level New York felony if the records were falsified with an intent to commit or conceal another crime. The other crimes are called “predicate’ crimes. See Josh Gernstein, Judge: To convict Trump of felonies, jury does not need to unanimously agree on what 'predicate' crime he committed (Politico 5/21/24), here. At trial, the prosecutors asserted three possible other crimes: “a tax crime and violations of state or federal election law.” Id. Readers of this blog should be thoroughly familiar with use of falsified records as tax crimes. The backdrop of the underlying facts made “state or federal election law” crimes possibilities. The judge ruled and so instructed the jury that, in order to convict for the felony, the jury had to find for each count a predicate crime but need not be unanimous as to the predicate crime.

There is an analog to this holding in federal criminal law of conspiracy. Conspiracy requires, among other elements, an object to commit an offense (offense conspiracy) or defraud the Government (defraud/Klein conspiracy. 18 USC § 371, here. In the infamous Leona Helmsley criminal tax trial, the indictment charged a single count alleging both an offense conspiracy and a defraud conspiracy. United States v. Helmsley, 941 F.2d 71, 91 (2d Cir. 1991), cert. denied, 502 U.S. 1091 (1992), here.  The Court rejected the argument that, as charged, the jury did not have to be unanimous as to the type of conspiracy. The Court held that any confusion was cured by the jury instructions requiring unanimity  on “the specific object the defendant agreed to try to accomplish”). See Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters), current online edition at ¶ 12.03[1][c][vi][A].

There is another analog federal conspiracy law. Conspiracy requires, among other elements, an overt act. I quote the following from Michael Saltzman and Leslie Book, ¶ 12.03[1][c][vi][A] General conspiracy statute:

Federal Tax Crimes Blog Total Pageviews Hit 10 Million + and Thoughts on Comments to Blogs (5/25/24)

I just noticed in the innards of this Federal Tax Crimes Blog that the blog has had over 10 million pageviews. I went into the design features and found a “gadget” that I added to the right-hand column with the total pageviews which, as of this posting, was 10,092,710.

On Blog Comments:

The comments feature (by Disqus) for some reason unknown to me does not seem now to work for readers of this blog anymore. I don’t have the technical skills to make the nested comments feature work, so I will soon go back to the Google blogspot comments feature which will work without nesting offered by Disqus. Nesting, by the way, permits responses to particular comments rather than simply first in first out,. When I do make that change, I think that all of the prior comments will go away and be lost forever. But, on an ongoing basis, this should permit comments for those wishing to share comments with readers.

Swiss Bank Spins on Facilitating U.S. Tax Evasion (5/23/24)

 I link to a new posting summarizing one Swiss view of the Swiss-U.S. tax dispute. The power the US wields over the Swiss financial centre (Swissinfo.ch 5/22/24), here. The article emphasizes the U.S. political power that resulted in Swiss banks disclosing and paying the price for conspiring with U.S. taxpayers to evade their U.S. tax obligations. The latter activity was not forced on Swiss banks. They could have refused to participate (conspire with) the U.S. taxpayers. They did not so in order to earn more profits. They were called out and made to pay the piper. Not much sympathy there.

I guess the message is that, if the U.S. had not had such financial power, their assisting in U.S. tax cheating was OK.

Fourth Circuit Affirms Criminal Tax Sentences in Unpublished Opinion that Is Good for Teaching (5/162/24)

In United States v. Rice, 2024 U.S. App. LEXIS 11329, 2024 WL 2078454 (4^th Cir. 5/9/24), CA4 here and GS here, an unpublished opinion, the Court affirmed the Rices’ convictions and sentencing. Normally, I don’t write on unpublished opinions, but I thought this opinion had some interesting facets which are good teaching opportunities for students or relatively new tax crimes practitioners.

First, the opinion says at the opening (slip op. 3):

James and Susan Rice (collectively, Appellants) appeal their conviction and sentence on ten counts relating to their failure to file tax returns and failure to pay employment taxes to the Internal Revenue Service (IRS). Finding no error, we affirm.

Second, the Court provides a short summary of the facts, among which was the following (slip op. 4):

Appellants were jointly represented by trial counsel.

In my experience joint representation in a criminal case is very unusual. The concern is that the two defendants might have different interests which would compromise the joint representation. For example, one defendant may have an interest in obtaining the benefits of cooperation (such as no prosecution or a better plea deal) or presenting evidence of a defense which might not be in the other defendant’s interest. I entered such a joint representation with two family members once. After extensive discussion with the defendants, I satisfied myself that there was nothing other than a theoretical possibility of conflict; and they waived the possibility of conflict. Nevertheless, the judge expressed displeasure. Recognizing that it was not in the defendants’ interests to displease the judge, at my advice that it was not worth the hassle, one of the defendants quickly engaged new counsel (a former colleague) and, as often in tax prosecution, both defendants took the same plea deal (without any actual conflict between the defendants).

The joint representation was raised in the ineffective assistance of counsel (“IAC”) claim on appeal, to which I now turn.

Third, the opinion rejected an IAC claim on this direct appeal. The Court noted (slip op. p. 4-8):

Oral Argument in Supreme Court Case on Trump Immunity Discussing the Defraud / Klein Conspiracy (4/26/24)

I have written many blogs over the years on the defraud conspiracy (aka Klein conspiracy) in 18 USC § 371, here. I collect at the end of this email some of the more noteworthy (in my imagination) of those blogs on the subject I discuss today. That subject is the potential breadth of the defraud conspiracy, particularly when the Supreme Court interpreted the word “defraud” in § 371 to not be limited to fraud in the usual federal law criminal sense to require some taking or intent to take property. In Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), the Court held that the defraud conspiracy certainly means to cheat or attempt to cheat the Government out of property or money, but it also means to interfere with or obstruct lawful governmental functions “by deceit, craft or trickery, or at least by means that are dishonest” even if no fraud in its normal meaning is the object. As interpreted, that means defraud includes simply an object of the conspiracy to impair the lawful functions of Government. The Hammerschmidt interpretation of defraud was an outlier from the normal interpretation and was not based upon any objective indication that Congress meant the broader interpretation. But, as noted, Hammerschmidt is a long-ago case that is now entrenched in jurisprudence (perhaps even settled law, as some Justices used the term to get past confirmation hearings). (Note, however, that in the current Supreme Court settled law may not be settled after all.)

In yesterday’s oral argument in Trump v. United States, No. 23-939 (4/25/24) (Transcript here; and docket here), the defraud conspiracy came up at least briefly. That is perhaps not surprising because the indictment, CL here, alleged the defraud conspiracy as Count One. The oral argument focused on Presidential immunity for conduct alleged in various counts (including the defraud conspiracy and the two counts under 18 USC § §  1512 (Counts Two and Three). The focus was on presidential immunity rather than the contours of the statutes. 

I don’t propose to discuss the issue of presidential immunity here. My purpose is to relate the discussions of the potential scope of the defraud conspiracy, § 371, aka Klein conspiracy.

Justices Alito, Gorsuch, and Kavanaugh engaged at least glancingly with Michael R. Dreeben, Counselor to the Special Counsel, Jack Smith. I offer the excerpts (with some surrounding potentially relevant content; page numbers are indicated in brackets with asterisk (e.g. [*97]]):

[*97]

JUSTICE ALITO:

* * * *

MR. DREEBEN:

* * * *

[*98]

And making a mistake is not what lands you in a criminal prosecution. There's been some talk about the statutes that are at issue in this case. I think they are fairly described as malum in se statutes, engaging in conspiracies to defraud the United States with respect to one of the most important functions, namely, the certification of the next president.

JUSTICE ALITO: Well, I don't want to dispute the particular application of --of that, of 371, conspiracy to defraud the United States, to the particular facts here, but would you not agree that that is a peculiarly open-ended statutory prohibition? In that -that fraud under that provision, unlike under most other fraud provisions, does not have to do --doesn't require any impairment of a property interest.

Good Article on Lesser Included Offense Strategy in Trump Criminal Trial in NY Court Next Week (4/11/24)

I have written on several occasions on the concept of lesser included offense, including the strategies involved for defense counsel in seeking a lesser included offense instruction. See e.g., Defense Request of Lesser Included Offense Instruction Precludes Questioning Sufficiency of Conviction (Federal Tax Crimes Blog 10/3/17), here; and Court Affirms Conviction, Rejecting Lesser Included Offense Instruction Request (Federal Tax Crimes Blog 7/17/19; 7/18/19), here; for the complete list sorted by relevance see here and sorted by date see here.

I thought readers might like the following Politico article:  Ankush Khardori, The Surprising Strategy Trump Could Use to Win His Manhattan Trial (Politico 4/11/24), here. The author, a former federal prosecutor, has a good discussion of Former President Trump’s potential use of the lesser included offense in his upcoming criminal trial in New York state court set to commence on April 15, 2024.

One key risk for the defendant is that a jury who thinks the crime(s) charged are too harsh for the conduct or might have some other reason to not convict where the binary choice is guilty or not guilty of the more serious offense charge might settle back (compromise) on a lesser included offense whereas, had the choice remained binary, the jury would acquit. 

Report on IRS CI Use of BSA Filings in Financial Crime Investigations (4/6/24)

The IRS has posted this report on the use of the BSA filings.  IRS CI, Primary subject in nearly 88% of investigations opened by CI in FY23 had a BSA filing, here(1/17/24; last reviewed or updated 1/18/24 and viewed 4/6/24). The posting mentions specifically third-party reports such as suspicious activity reports and currency transaction reports. The report is short but I copy and paste a couple of key paragraphs:

The primary subject in nearly 88% of investigations opened by CI during fiscal year 2023 (FY23) had a BSA filing. From FY21 to FY23, BSA data was instrumental in securing average prison sentences of 39 months and seizing $7.4 billion in assets tied to criminal investigations. BSA data during this same timeframe also resulted in restitution orders totaling $434 million and forfeited assets totaling $629 million, nearly double and triple the amounts, respectively, from FY20 to FY22.

* * * *

Under the BSA, financial institutions must notify the federal government when they encounter instances of potential money laundering or tax evasion. Of the CI investigations that originated from BSA data in FY23, 77% used information from suspicious activity reports, and 63.6% used information from currency transaction reports. Additionally, 16.5% involved fraudulent Small Business Association loans tied to COVID relief programs, 7.1% involved skimming where the primary subject steals funds from a business or charity and 4.7.% involved employment tax fraud where taxes due were not paid.

The key information relates to “financial crime investigations” which is defined at the end to include “tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more.” (Bold-face supplied by JAT.) I wonder whether the data set from which the 88% figure derives includes garden-variety tax crimes. My question is whether garden-variety tax crimes would generate such a high number of third-party BSA reports. Or, maybe the 12% remainder accounts for most of the garden-variety tax crimes.

A similar report came out last year. BSA data serves key role in investigating financial crimes, here (1/18/23, last reviewed or updated 11/9/23, and viewed 4/6/24),. That report showed an 83% figure over the past 3 years. The FY23 report mentioned above was at 88% but only related to a single year.

Attorney General Jackson Famous 1940 Speech on the Role of the Federal Prosecutor (4/1/24; 4/3/24)

I have recently written an article featuring Justice Robert H. Jackson’s contributions to tax law and to administrative law, The Tax Contribution to Deference and APA § 706 (SSRN 4665227 January 17, 2024), here. I am a Justice Jackson fan, heavily influenced by his contributions to the discussion of deference in tax cases and other contributions to tax as IRS Chief Counsel, Assistant Attorney General for Tax, Solicitor General, Attorney General, and then as Supreme Court Justice authoring the famous unanimous opinion in Dobson v. Commissioner, 320 U.S. 489 (1943), here, reh. den. 321 U.S. 231 (1944), here. (Note: many citations to Dobson omit the opinion denying rehearing, but the opinion on denial of rehearing is important for understanding Dobson.; one interesting feature of the opinion on rehearing is that Justice Douglas dissented in the denial of rehearing without explaining his position (not uncommon for Douglas in tax cases) but Justice Douglas had not dissented from the original opinion. See * below)

Correction 4/3/24 4:40pm: I have corrected the bold-face to say Douglas rather than Jackson. I apologize for that error.

Justice Jackson did so much more than tax; indeed, his major contributions to the country were not tax contributions; those major contributions should not eclipse his tax contributions though.

Today, I received an email from a Jackson scholar, John Q. Barrett, professor of law at St. John’s University (bio here). The bio mentions that his emails for his “Jackson List” go to more than 100,000 readers.  In today’s email, Professor Barrett quotes in full Justice Jackson’s famous speech on April 1, 1940 as Attorney General titled “The Federal Prosecutor.” Readers of this blog may read the entire speech on the Jackson Center site, here (with a link to its original publication in  ); and on DOJ site here. Sprinkled through the speech are some real gems of wisdom about the prosecutor’s role. I will not “cherry-pick” the best or my favorite quotes because all are good and are really appreciated best in the full context of the speech. (I do alert that he does not mention the word “tax” in the speech; perhaps that alert may induce some to read the speech.)

Enjoy!

 

* On Justice Douglas’ propensity to offer no opinion for his dissents in tax cases, see Bernard Wolfman, Jonathan L.F. Silver, & Marjorie A. Silver, The Behavior of Justice Douglas in Federal Tax Cases 122 U. Pa. L. Rev. 235 (1973), later turned into a book titled Dissent Without Opinion: The Behavior of Justice Douglas in Federal Tax Cases (1975).

Based in Part on NYT Article, Senators Request Information from AG Garland about Possible Political Intervention in Caterpillar Tax Investigation(s) (3/20/24)

In the past, I offered two blog entries on a tax and other agency investigation of Caterpillar’s use of a Swiss company transfer pricing diversion of U.S. income from the U.S. tax base. In reverse chronological order, they are:

• Caterpillar Shareholder Suit For Fraudulent Disclosures from Tax Civil and Criminal Investigation Dismissed (Federal Tax Crimes Blog 9/28/18; 3/20/24), here;
• The Whistleblower Behind Caterpillar Tax Commotion (Federal Tax Crimes Blog 6/2/17), here.
• Search Warrant Executed Against Caterpillar HQ, Apparently Related to Tax (Federal Tax Crimes Blog 3/6/17; 3/20/24), here

There is current reporting that there may have been political influence that stopped the criminal investigation and ended in a quite favorable civil tax resolution. See Jesse Drucker, How Trump’s Justice Dept. Derailed an Investigation of a Major Company (NYT 3/9/24), here. Following that article, on March 13, Senators Wyden (D. Oregon) and Whitehouse (D. Rhode Island), who serve as Chairs of the Senate Finance Committee and the Senate Budget Committee, respectively, wrote a letter here to Attorney General Garland requesting information about the handling and conclusion of the investigation. The facts as alleged in Drucker’s article and in the Senators’ letter (as to which I cannot personally attest) raise issues that, at least facially, require investigation (or at least answers) regarding the handling of the Caterpillar investigation that seems to have been resolved very favorably to Caterpillar.

Note: The Senators' letter linked above as posted on the Senate website as of today asks for a return date for the requested answers of "no later than____." (Letter physical p. 6; the letter does not have pagination.) Perhaps, that means that the return date is to be negotiated.

Recent Tax Enforcement Volume of DOJ Journal of Federal Law and Practice (3/19/24)

I recently discovered the recent Tax Volume of DOJ Journal of Federal Law and Practice, Vol. 71, number 4 here dedicated to Tax Enforcement. The following articles are in the volume (with page numbers indicated).

Recent Tax Volume of DOJ Journal of Federal Law and Practice (3/19/24)

• Elissa Hart-Mahan, Restitution in Criminal Tax Cases: Common Pitfalls and Practical Strategies 5 
• Todd Ellinwood & Caryn Finley, Investigating Legal Source Income Tax Cases 23 
• Howard J. Zlotnick, Twelve Rules for Presenting Accomplices 71 43 
• Andrew H. Kahl, Follow That Lead! Obtaining and Using Tax Information in a Non-Tax Case, 47 
• David Zisserson, Tax Fraud Involving COIVD-Relief Provisions 63 
• Larry Wszalek & Stuart Wexler, Attorney-Client Privilege in the Context of Tax Preparation and Tax Planning 79 
• Gregory S. Knapp & Joseph B. Syverson, Prosecuting Tax Obstruction under 26 U.S.C. 7212(a) 97 (2023)
• Stanley J. Okula, Jr. & Matthew Hicks, Sentencing Advocacy in Criminal Tax Cases - Making the Government's Case for the Appropriate Sentence 109 
• Katie Bagley & Melissa Siskind, A Fool for a Client: Legal and Practical Considerations When Facing Pro Se Defendants 129 
• Sean Beaty & Wilson Stamm, A Taxing Dilemma: Navigating the Crime- Fraud Exception in Criminal Tax Cases 155 
• Sarah Kiewlicz & Thomas F. Koelbl, Prosecuting Fraudulent Tax Return Preparers 175 
• Kimberle E. Dodd & Nanette L. Davis, Gathering and Using Foreign Evidence in Tax Cases 199 
• Jason Bergmann & Richard J. Markel, Monetary Claims Against the Government: When Are They Tax Refund Cases? 223 
• Marie E. Wicks & Michael W. May, They Don't Make 'Em Like They Used to: Statutory Jurisdictional Requirements in the Age of the Clear-Statement Rule 241

Excellent Article by Former Tax Crimes Prosecutor About How the Tax Crimes Prosecution Decisions Are Made in Politically Charged Cases (3/14/24)

This blog entry will alert Tax Crimes fans to an article about, well, tax crimes. Andrey Spektor, Opinion: What Hunter Biden and Donald Trump have in common (CNN 3/13/24), here. Spektor is identified in the article as “Having worked with the Department of Justice Tax Division and prosecuted tax offenses.” His law firm bio, here, mentions only AUSA experience for EDNY and does not mention DOJ Tax Division experience; I infer that, as a prosecutor on tax cases in USAO EDNY, he would have “worked” with the Tax Division which is common. So he has credibility to speak to the how criminal prosecution decisions are made (or not made) in politically charged cases such as Hunter Biden’s and Donald Trump’s.

The article is fairly short, engaging, well-written, and, based on my experience in the tax crimes area, very credible. As to Hunter Biden, Spektor claims (rightly, I think) that Hunter Biden would not have been prosecuted on the facts had he not been related to Joe Biden, the President, and decisions influenced by the press and politics.  I offer the conclusion in the hope that offering the conclusion will not discourage anyone from reading the article:

          Hunter Biden has been treated differently from almost any other person save for, perhaps, Trump – at least in New York, where the former president has been indicted on a novel and shaky legal theory reserved for it seems, Trump. That doesn’t mean that Trump or Hunter Biden are [sic - is] innocent; indeed, the former has more serious cases to contend with. But unequal treatment of our citizens, no matter how unethical or despicable they may be, is just as immoral.

Taxpayers Should Be Prosecuted Along with Enablers of Abusive Tax Shelters (3/8/24)

This blog entry is an opinion piece. Individual taxpayers should be prosecuted along with their enablers who promote and implement the abusive shelters (particularly enablers from the tax professions).

The following is from a report of Attorney General Garland's comments (Kerry K. Walsh Deborah A. Curtis Amy Jeffress, “Swift” Justice: Attorney General Garland Vows To Uphold DOJ Priorities in Fireside Chat (Arnold & Porter 3/6/24), here):

Additionally, AG Garland explained how DOJ’s three co-equal priorities — upholding the rule of law, keeping America safe, and protecting civil liberties — implicated corporate accountability. AG Garland stressed that the greatest deterrent of white collar crime is holding individual corporate executives to account. AG Garland also reiterated the importance of applying the rule of law equally, regardless of rank or position of power.

I supplied the bold-face to emphasize the point. There has been a perception that, by delivering up the corporation (or other entity) for criminal consequences, the people in the corporations (collectively, the executives) could escape accountability.

A similar perception and resulting phenomenon exists in the tax area where the promoters of abusive tax shelters (think, for example, the Son-of-Boss shelters in the late 1990s and early 2000s) were prosecuted, but the taxpayers generally were not. Yet all of those taxpayers or at least most of them knew that they were violating the law and participated in the fraud. For example, the abusive shelters wrapped in complex structures and voluminous more-likely-than-not opinions, required at the minimum that the taxpayers represent to the promoters that they had a nontax profit motive when, in fact, they did not. That was a lie that was essential to abusive tax shelter. Moreover, most of those wealthy taxpayers had independent counsel (other than the ones supplied or recommended by the promoters) before buying into the deal. Assuming that most of those independent counsel were competent, those taxpayers knew that the deals were bogus, but nevertheless sought to buy fraud insurance through the legal opinions rendered by the promoter’s supplied or recommended counsel (as opposed to their own independent counsel). That worked as insurance.

My argument has been that the way to discourage abusive tax shelters is to prosecute the taxpayers along with the promoters. This would discourage the tax professional penalty insurance industry and abusive tax shelters generally.

This blog entry is cross-posted on the Federal Tax Procedure Blog here.

District Court Holds Indicatively While Case on Appeal That Remand of FBAR Willful Penalty to IRS Did Not Vacate the Timely Assessments (2/27/24)

 In United States v. Kerr (D. AZ Dkt O. 2:19-CV-05432 Order dtd 2/23/24), TN here and CL here, the district court ruled indicatively clarifying the intended effect of the district court termination of the case after remand to the IRS of willful FBAR penalties for certain years. The intended effect was not to vacate those penalties but to provide a procedure to reconsider and modify the amount of the penalties for future district court judgment. In other words, the remand did not require a new assessment of FBAR willful penalties (for which the assessment statute of limitations had run). Rather, any IRS action would adjust the previously timely assessed FBAR penalties. After this indicative ruling, the appeal of the case can proceed in the Ninth Circuit.

Links to items related to this blog are:

• FRCP 62,1, titled Indicative Ruling on a Motion for Relief That is Barred by a Pending Appeal, here,
• FRAP 12.1, Remand After an Indicative Ruling by the District Court on a Motion for Relief That Is Barred by a Pending Appeal, here,
• Kerr docket entries for this civil case (FBAR penalty enforcement case): CL, here.
• Ninth Circuit Order staying Ninth Circuit proceedings pending the district court’s indicative ruling, here.

Prior blogs involving Mr. Kerr are (reverse chronological order):

Tax Court Denies WB Claim Made Contemporaneously With Target Taxpayer’s Voluntary Disclosure (2/23/24)

In Whistleblower 14376-16W v. Commissioner, T.C. Memo. 2024-22, GS here, the Court held that the Whistleblower (“WB”) was entitled to no relief from the Whistleblower Office’s denial of an award. The opinion establishes no new precedent, which is why it is a Memo opinion. The opinion does offer some interesting aspects, which I will discuss here.

1. The WB claim targeting several taxpayers was made a couple of months before some of the taxpayers made a request to CI to participate in an IRS voluntary disclosure program.  (It is not clear whether the request was under one of the offshore variants or was under the general voluntary disclosure program (see p. 3 n. 6); it makes no difference, however, for the point I discuss here, so I will just call it a VDP request.) The VDP request was made before any submissions (amended returns, etc.) required to complete voluntary disclosure; those submissions were delayed a substantial period. After the voluntary disclosure request, the WBO processed and sent to the field the WB claim after CI received the VDP request. The IRS subsequently undertook the work required to determine and collect substantial tax based on the taxpayers' submissions. The IRS says that, although its examination function received the WB information, it took no action based on the information. The record before the Court (essentially the record related to the WB claim and related items) supported the IRS’s claim that the proceeds generated from its activity did not rely on the WB claim and information in the WB claim.

2. The Court denied the WB’s sweeping and broadly written discovery requests designed to ferret out all documents and information that could test even tangentially the IRS’s narrative that no collected proceeds resulted from the WB information (including whether the record the IRS submitted to the Court was complete). In part, the WB requested documents and information in the voluntary disclosure package that, it claims, was “indirectly considered” in collecting the proceeds. (See pp. 33-37.) In part, the Court reasoned:

          Petitioner contends, however, that the WBO “indirectly considered” the VDP materials. As one court has aptly observed, “it is not entirely clear what it means to indirectly consider documents or materials.” Amgen Inc. v. Hargan, 285 F. Supp. 3d 397, 404 (D.D.C. 2017) (treating the “indirect consideration” concept as “captur[ing] materials that are necessary to understand the documents that the agency directly relied upon” and denying motion to supplement the administrative record with documents intended to test a decision by the Food and Drug Administration for consistency with previous decisions). The caselaw provides no general test.24 But it does suggest some guiding principles. One court has observed that if an agency's final decision was based “on the work and recommendations of subordinates, those materials should be included as well.” Amfac Resorts, L.L.C. v. U.S. Dep't. of Interior, 143 F. Supp. 2d 7, 12 (D.D.C. 2001) (collecting cases), aff'd in part, rev'd in part 282 F.3d 818 (D.C. Cir. 2002), vacated in part sub nom. Nat'l Park Hosp. Ass'n v. Dep't of Interior, 538 U.S. 803 (2003). On the other hand, it is not always necessary to include in the administrative record source information upon which agency staff relied in making their recommendations to the agency decisionmakers if other information in the record obviates the need to consider the source information independently. See, e.g., James Madison Ltd. by Hecht v. Ludwig, 82 F.3d 1085, 1095 (D.C. Cir. 1996) (affirming denial of discovery and record supplementation with respect to source documents that bank examiners had relied upon in making their bank-insolvency reports to the Comptroller of the Currency, where “detailed contemporaneous reports from the examiner-in-charge and members of her examination team explain[ed] how and why they reached their conclusions regarding the banks' reserves”); Cape Hatteras Access Pres. All., 667 F. Supp. 2d at 114 (denying motion to supplement the record with a biological report that the National Park Service had relied upon [*35] in developing an interim strategy that was before the Fish and Wildlife Service when it designated certain critical habitats, even though the biological report was referenced by several other documents in the administrative file).

Sixth Circuit Affirms Summary Judgment on FBAR Willful Penalty on Conduct Objectively Reckless (2/14/24)

I report this morning on United States v. Kelly, ___ F.4th ___ (6th Cir. 8/8/24), CA6 here and GS here. Kelly affirms the district court's approval of the FBAR willful penalty on motion for summary judgment.

I first offer the MS CoPilot (MS’s version of AI) explanation of the case:

Case Title: United States v. James J. Kelly, Jr.

Background:

• James J. Kelly, Jr., a U.S. citizen, opened an interest-bearing account at Finter Bank in Zurich, Switzerland in 2008.

• He designated the account as “numbered” to keep his name off the statements and requested that Finter retain account-related correspondence instead of mailing it to him.

Legal Context:

• Under the Bank Secrecy Act, individuals with foreign bank accounts containing $10,000 or more must annually file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Department of the Treasury.

• Failure to file an FBAR by the deadline can result in civil penalties. The penalty amount depends on whether the failure was accidental or willful.

Case Details:

• The government sued James Kelly, alleging that he willfully failed to timely file FBARs for the years 2013, 2014, and 2015.

• The district court granted summary judgment in favor of the government.

• Kelly’s failure to file was deemed a willful violation of the Bank Secrecy Act.

Outcome:

• The court affirmed the judgment, emphasizing that Kelly’s actions constituted a willful violation of the law.

• In summary, James Kelly’s failure to file FBARs for his foreign bank account led to civil penalties due to willful non-compliance with the Bank Secrecy Act.