Failure to Pay Employer's Share of FICA Is Not Included in Tax Loss for § 7202 Convictions for Failure to Withhold and Pay Over Employee's Share (5/27/26)

In United States v. Fecondo (3rd Cir. No. 24-1618 5/26/26) (NonPrecedential), CA3 here and GS here the court held that Fecondo’s crimes of conviction under § 7202 for failure to withhold and pay over the employee share (or portion) of FICA does not include the tax loss from the employer’s failure to pay the employer share.  (The employee share is sometimes called a "trust fund" tax because deemed to be held in trust to pay over to the IRS.) The employer share is not a tax collected from the employee (by deduction from wages) withheld within the scope of § 7202, the offenses of conviction. Thus, the unpaid employer share could not be included in the tax loss for the counts of conviction. Moreover, the Court held that the employer share is not “relevant conduct” for inclusion in the tax loss under the Sentencing Guidelines. The reasoning is that, although the two portions are related in the sense that they arise from the employer’s payment of wages, failure to pay a direct tax (employer’s share) is not related to the crime of failure to withhold and pay over the employee’s share for relevant conduct purposes. They are related but not relevant conduct to the counts of conviction.

I wonder if that works in reverse. Say the defendant was convicted of tax evasion, § 7201, for failure to pay the employer’s taxes (including the employer share of FICA). Could the failure to withhold and pay over the employee share of FICA be relevant conduct? 

District Judge Dismisses Wire Fraud Counts with Overlapping Facts for Tax Counts Because the Lesser Burden of Proof for Wire Fraud Violates Due Process (5/7/26; 5/19/26)

In United States v. Garza (N.D. TX 3:22-CR-0390-8), Memo and Order dated 5/6/26, CL here and GS here, the Court dismissed certain counts in a long-standing indictment. (No speedy trial here.) In broad strokes, the indictment alleges that Garza, a Dallas attorney (at least at the time of the charged conduct) and the other co-defendants participated in promoting a “fraudulent tax shelter plan to clients.” (I have a somewhat fuzzy recall that it was Garza’s version of a BLIPS variant.) They were indicted for tax crimes (§ 7206(1)) and for wire fraud crimes, on some counts related to the charged tax crimes.

The Court describes the defendants’ motion as (Slip Op. 2):

Defendants move to dismiss the Wire Fraud Counts under Federal Rule of Criminal Procedure 12 on the grounds that: (1) the Wire Fraud Counts function as an end-run around the willfulness mens rea requirement for tax fraud in violation of the Fifth Amendment’s Due Process Clause; (2) 26 U.S.C. § 7206(2) (“Tax Fraud Statute”) preempts the application of 18 U.S.C. § 1343 (“Wire Fraud Statute”) “when both rest on the same alleged scheme”; and (3) the Wire Fraud Statute, interpreted according to its text and constitutional footing, does not extend to tax fraud against the  Federal government and cannot be used to prosecute tax conduct.

The Court granted the motion as to the overlapping charges, dismissing the wire fraud counts related to the tax counts but leaving the false tax return counts. The gravamen of the holding is that by charging basically the same conduct (or at least intertwined conduct) as tax crimes with the high “willfully” standard of proof (the Cheek standard) and as wire fraud, the Government was trying to bootstrap a conviction for that conduct under the lesser burden of proof for wire fraud. The Court concluded, somewhat conclusorily, that the phenomenon violated due process, almost as if she knew a due process violation when she saw it. (To paraphrase Potter Stewart’s famous comment on pornography.) She thus says (Slip Op. 3):

In this case, the Government’s prosecution of the same tax conduct under both the Tax Fraud Statute and Wire Fraud Statute violates the Due Process Clause by enabling the Government to avoid proving every fact necessary to constitute tax fraud.

The opinion is short and, since I am leaving Charlottesville for D.C., the primary purpose of this blog (at least as preliminarily offered) is notice. Readers can read the opinion and draw such conclusions as they wish. (I may add to this blog later, likely not until Monday.)

Quick questions:

Tax Court Sustains Deficiencies Equaling Restitution with No RBA (4/4/26)

In Thody v. Commissioner, T.C. Memo. 2026-30, the Court sustained the deficiencies asserted against Thody with respect to the tax loss that had been subject to a restitution order against Thody in an earlier criminal tax prosecution. The Thody opinion can be viewed at TC No. 27415-21, here, at #50 dated 3/30/26 and GS here. Actually, the original notices of deficiency exceeded the amount in the restitution order, but the IRS conceded (pp.. 4-5) the excess deficiencies asserted in the notice of deficiency, so that with that concession, the amounts of deficiencies the IRS asserted in the case equaled the amounts in the criminal restitution order. The Court then sustained the deficiencies based on the evidence.

One unexplained apparent oddity is that the IRS did not make a restitution-based assessment (“RBA”) allowed by § 6201(a)(4). The Court offers no explanation and treats the case as a straight-forward deficiency case permitting Thody to contest the amounts. If the IRS had made the RBA in the same amounts, Thody could not have contested the amounts of the RBA. In that regard, the IRS can assert deficiencies in amounts exceeding the amounts of restitution, whether or not asserted in an RBA. I don’t know why the IRS conceded the excess amounts. The IRS may have known or believed that it could not sustain that excess, so that this would be a normal concession in a deficiency case. But, if as a straight deficiency case, the IRS could have sustained the excess deficiency amounts, there was no reason to concede them. The IRS may have conceded just to move the case to a prompt decision with less hassle. A related question is whether, once the IRS decided to concede the excess before the trial level consideration was concluded, the IRS could have made an immediate RBA which would preclude Thody from contesting the amounts. I am not sure that there is a statute of limitations on RBAs because I have not researched that issue. And I am not sure that the Court would have treated such a belated RBA as mooting the deficiencies case.

Moreover, the Court seems not to have not the distinction between a tax deficiency and restitution. Thus, at p. 3, the Court says that the Government reduced the restitution (not the RBA) to judgment. In doing so, the Court cites in fn. 4 the IRM for the purpose of suits to reduce tax claims to judgment is to extend the statute of limitations. The IRM provision, I think, relates to tax assessments rather than criminal restitution. Of course, if there is a statute of limitations on restitution (likely), the reason to reduce restitution to judgment may be for the same.

Thody made the argument that the payments he had made for restitution should reduce the amount of the deficiencies. The Court (pp. 7-8) did correctly find that Thody’s argument was incorrect. The Court notes that, although in collecting on any resulting deficiencies approved by the Tax Court, the IRS would have to credit the restitution payments against the tax liabilities.

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

Prominent Convicted Tax Shelter Lawyer Fails on Appeal in CDP Case Involving Restitution Based Assessments (4/1/26)

I start with a caveat: although this posting is on April 1, sometimes called April Fools Day, this is intended as a serious discussion.

In Daugerdas v. Commissioner, ___ F.4th ___ (7th Cir. 2026), CA7 here and GS here, the Court held that § 6201(a)(4)(A), which authorizes the IRS  to assess and collect restitution awarded in a criminal proceeding for unpaid tax, was a stand-alone collection authority unaffected by the payment schedule the district court imposed for the restitution behind the tax assessment. The assessment is sometimes called “restitution based assessment,” and acronymed to RBA which I use here. The holding seems like a straight-forward holding. But there are some issues lurking in the case that tax procedure enthusiasts may enjoy or at least understand.

First, I offer background worthy of note:

1. Daugerdas, a lawyer, is a notorious promoter of bogus tax shelters who was convicted. The Court says (pp. 2-3, emphasis supplied by JAT):

          In 2013 a federal jury in Manhattan found Daugerdas guilty of one count of conspiracy to defraud the IRS (18 U.S.C. § 371), one count of mail fraud (18 U.S.C. § 1341), four counts of client tax evasion (26 U.S.C. § 7201), and one count of obstructing the internal revenue laws (26 U.S.C. § 7212(a)). His sentence brought with it an obligation to pay restitution of $371,006,397 jointly and severally with his co-conspirators for the tax losses resulting from the fraud perpetrated on the U.S. Treasury. The district court established a schedule of payments requiring Daugerdas to pay 10% of his gross monthly [*3] income starting 30 days after his release from prison. The Second Circuit affirmed Daugerdas’s convictions and sentence. See United States v. Daugerdas, 837 F.3d 212 (2d Cir. 2016).

I have not tried to break down the components of the restitution amount. Specifically, I have not tried to determine whether the restitution relates to Daugerdas’ tax liabilities (he did make a whopping amount of gross income that he likely attempted to shelter with similar bullshit strategies) or includes in whole or in part the liabilities of other persons reporting on the basis of bullshit tax shelters he promoted with legal opinions and related services. I don’t know that the difference makes a difference in terms of the RBA.

I have written on Daugerdas several times on my Federal Tax Crimes Blog, here (the results are initially by relevance but may be sorted by date).

Second Circuit Rejects Tax Court's Fahry Holding That IRS Can't Assess and Collect the § 6038(b) Penalty (2/27/26)

I have written on the issue of whether the § 6038(b) penalty can be assessed (with the assessment collection tools available) or must be collected by a collection suit in the district court. See posts here. The Tax Court held in  Farhy v. Commissioner, 160 T.C. 399 (2023), GS here, that the IRS could not assess and collect but rather must sue and collect. The D.C. Circuit reversed. Farhy v. Commissioner, 100 F.4th 223 (D.C. Cir. 2024), CADC here**, and GS here. The Tax Court stuck to its Farhy holding in cases appealable to Circuits other than the D.C. Circuit under its Golsen rule, feeling that its original Farhy holding was correct.

Today, the Second Circuit has now aligned with the D.C. Circuit, saying that the IRS can assess and collect the § 6038(b) penalty.  Safdieh v. Commissioner, ___ F.4th ___ (2d Cir. 2/27/26), CA 2 here, TN here, and GS here. Other than to say that I think the D.C. Circuit and the Second Circuit are correct, I can’t add any discussion not evident from my earlier posts linked above. Thus, this is a notice-only blog.

This post is cross-posted in my Federal Tax Procedure Blog, here.

9th Circuit Holds that Documents Delivered to Government Attorneys in Response to Grand Jury Subpoena Grand Jury Matters Subject to FRCrP Rule 6(e)'s Secrecy Requirement (2/3/26; 2/4/26)

I write today on facets of Rule 6(e)(2), Federal Rules of Criminal Procedure, relating to grand jury secrecy. Rule 6 may be viewed here. Rule 6(e)(2) in part relevant to this blog entry requires that Government personnel participating in a grand jury investigation “must not disclose a matter occurring before the grand jury." Rule 6(e)(2)(B).

In Kalbers v. Volkswagen AG, ___ F.4th ___ (9th Cir. 1/30/26), CA9 here and GS here [to come], the Court held in a FOIA proceeding that Rule 6(e)(2) applies to documents delivered in response to a grand jury subpoena. Professor Kalbers sought Volkswagen’s Counsel’s responsive “file” containing millions of documents that Volkswagen, a target or subject, delivered in response to the grand jury subpoena. I think the case assumes that at least some portion of the documents were never presented to, summarized, or otherwise considered by the grand jury. The Court held that subpoena-responsive documents are grand jury matters subject to Rule 6(e)’s secrecy requirement and therefore are not disclosable under FOIA. The reasoning appears solid to me. I won’t track the reasoning here because it is not necessary for the focus of this blog entry.

 An issue I have spent time on is whether documents delivered by a subject or target of a grand jury investigation to attorneys for the Government conducting a grand jury investigation without a grand jury subpoena can be subject to Rule 6(e). Would it matter whether the attorneys for the Government asked nicely (pretty please) or threatened a grand jury subpoena (or some shade of gray between those extremes)? Would it matter if the Government sent the request in a letter (like the Branerton letter that must precede formal discovery in Tax Court proceedings)? What if in such a letter (or other communication), the Government mentioned that the person from whom the documents were sought was a target or subject of a grand jury proceeding? What if the person from whom the documents were sought had earlier received a letter notifying of grand jury target or subject status and the Government attorneys' participation in that investigation (i.e., no notice that the DOJ attorneys were also conducting an independent investigation)?

A tangentially related issue to this is whether, in a tax crimes case, DOJ Attorneys have authority to conduct at the same time (i) a grand jury investigation of potential tax crimes; and (ii) an independent DOJ investigation of the same tax crimes? Such a parallel investigation would necessarily involve grand jury matters bleeding into the so-called independent DOJ tax crimes investigation. Is that an improper use of grand jury matters in violation of Rule 6(e)?

Convicted Defendant After Sentencing in Seeking Third Delay to Report to Prison Files an Unusual Document (1/22/26)

I write today on one of the more unusual documents I have seen filed in a criminal tax proceeding. By jury verdict, Richard Brasser and a co-defendant (Gregory Gentner), co-officers of rFactr (a software company) were convicted of 5 counts of § 7202 willful failure to account for and payover trust fund taxes and acquitted of 2 counts each of § 7201 false returns and one count (for Brasser) of §7201 tax evasion. The judge sentenced Brasser and the co-defendant to incarceration. The co-defendant started and completed his prison time. By contrast, Brasser strung out the time to report to prison, but that time fell due this month (January 2026).

As noted Brasser filed usual motions upon conviction but did not succeed. Finally, seeking the third delay to report to prison, Brasser, acting pro se, filed the document I discuss here. The document is at #161 of the docket entries. (The CL docket entries are here.) Unfortunately, the particular document is not available on CL, but I have posted it to my Google Docs here. At the point of filing the document, the issue before the court was whether the court would allow the third requested extension of time to report to prison.

The document is a letter dated June 9, 2024 from Mark Matthews to “Whom It May Concern” with a Re caption “Richard Brasser – Tax Matter.” The body of the motion says that the author had consented to its filing. The body of the letter is important so I copy and past it here (bold-face supplied by JAT):

I am writing on behalf of Richard Brasser to provide important context in connection with his conviction for what are commonly referred to as employment tax violations (while being acquitted of the more commonly known charges of false tax returns and evasion).

I have significant experience within our criminal tax system, having served as an Assistant US Attorney in the Southern District of New York, the Deputy Assistant Attorney General for the Department of Justice's Tax Division where I was responsible for all tax prosecutions nationwide, the Chief of IRS Criminal Investigation (which is the sole investigative agency for suspected federal criminal tax violations), and the Deputy Commissioner of the IRS (or the #2 official), responsible for all examination, collection, and investigation activities as well as taxpayer services. I have been involved in many hundreds of tax investigations and prosecutions for over 30 years on both sides of the table - as a prosecutor, investigator and as a defense attorney. Based on my experience the indictment of Mr. Brasser was entirely unwarranted and one of the most egregious examples of prosecutorial discretion I have ever encountered.

Propublica Article on Trump's Pardon of Alleged Tax Cheat, Roger Ver (1/22/26)

I wrote on the pardon of Roger Ver, the self-described Bitcoin Jesus who fled the country and renounced his U.S. citizenship rather than face justice for his alleged tax crimes. A Sad Event for the Country’s Criminal Tax Enforcement System (Federal Tax Crimes Blog 10/15/25), here. Propublica today offered a reasonably in depth article on Ver’s pardon. Avi Asher-Schapiro & Molly Redden, How “Bitcoin Jesus” Avoided Prison, Thanks to One of the “Friends of Trump” (Propublica 1/22/26), here.

I don’t think I can add anything that would be meaningful to readers of this blog. I just strongly recommend the article.

One minor quibble. The article quotes me but erroneously states that I am a former federal prosecutor. While with DOJ Tax, I was not a prosecutor; rather I handled civil tax appeals and the civil tax trials.

Court Denies Rule 33 Motion Based on Alleged (But Unproven) Potential and Actual Conflicts from Benefactor Payments (1/12/26)

In United States v. Lemay (S.D. N.Y. No. 1:21-cr-00573 Opinion & Order dated 1/2/26), CL here, GS here, TN here, the Court denied the convicted defendant’s Rule 33 motion based on alleged ineffective assistance of counsel. Lemay and another defendant had been convicted  in SDNY of conspiracy to defraud the U.S. under 18 USC 371. Lemay was originally indicted for tax evasion as well, but the evasion counts were severed and moved to New Jersey based on his residence. At the end of the SDNY trial, the Court denied a Rule 29 motion for judgment of acquittal. Shortly prior to sentencing, Lemay filed his Rule 33 motion. The Court then held an evidentiary hearing on the motion; this Opinion & Order is the result of the hearing.

The gravamen of the motion is that a person allegedly agreeing to pay Lemay’s costs of defense in the investigation and prosecution caused Lemay to have ineffective assistance of counsel because of conflicts created by that arrangement and the relationship of Lemay’s counsel (2 different attorneys, one in the investigation prior to the indictment and the other in the criminal trial) to other counsel for other targets or defendants with allegedly competing interests under an alleged joint defense agreement ("JDA"). The facts are more detailed and well worth reading by students and practitioners to see the types of problems that might arise when a defendant is represented by counsel being paid by someone else. The Court calls those arrangements “benefactor payments.” Lemay’s counsel (2 of them) targeted in Lemay’s claims denied Lemay’s claims. After holding an evidentiary hearing in which the Court observed and assessed the credibility of Lemay and other witnesses (including the 2 counsel), the Court rejected Lemay’s claims and denied the Rule 33 motion.

Some points:

1. Perhaps the major point is that, for some reason, Lemay’s counsel (2 of them) allegedly failed to meet the requirement of “The Court’s Individual Rule” that stated "[w]henever defense counsel has received, or will receive, a benefactor payment that subjects counsel to a conflict of interest, he or she must immediately inform the Court and request a Curcio hearing." (See Slip Op. 8.) The Curcio hearing is named for United States v. Curcio, 680 F.2d 881 (2d Cir. 1982), here. At a Curcio hearing, the court can consider the nature of any conflicts the attorney may have and advise a defendant of the risks of the conflict, determine that the defendant understands those risks through questioning, and "give the defendant time to digest and contemplate the risks after encouraging him or her to seek advice from independent counsel. For a good discussion of the Curcio hearing in the Second Circuit, see United States v. Arrington, 941 F. 3d 24,  (2d Cir. 2019), here.

More on the Goldstein Trial; Herein of Lying and Cheating, Good Guys and Bad Guys (1/10/26)

I have written about the Tom Goldstein prosecution. Tom Goldstein--SCOTUSblog founder, Prominent Supreme Court Advocate, and High-Stakes Gambler--Indicted for Tax and Related Crimes and False Statements to Mortgage Lenders (Federal Tax Crimes Blog 1/17/25; 1/19/25), here; Two Recent Tax Crimes Cases Involving Bitcoin (Federal Tax Crimes Blog 1/19/25; 2/9/25), here; Free CourtListener Docket Sheet and Documents for Major Tax Crimes Case (Also Major White Collar Crimes Case) (Federal Tax Crimes Blog 7/3/25), here.

I offer a new article and some comments. The article is Holly Barker, Tom Goldstein’s Defense Hinges on Giving the Jury Good Guy Vibes (BloombergLaw 1/10/26), here. Key excerpts for purposes of this blog relate to the general tax crimes element of willfulness, which per Cheek is the voluntary intentional violation of a known legal duty.

          Tom Goldstein—the former US Supreme Court advocate and blogger with a years-long ultra-high-stakes gambling habit—heads to trial Monday in a case that may turn on whether the jury thinks he’s “a good guy or a bad guy.”

          That’s from Goldstein himself.

          The government rejected that framing at Friday’s final pretrial conference: What the jury will decide is whether Goldstein is guilty of tax evasion and making false statements, prosecutor Sean Beatty said. But there might be something to Goldstein’s point.

          Tax cases generally require a showing of willfulness—the knowing and intentional violation of an understood legal duty. In theory, proving that willfulness or an absence of good faith can be difficult due to the confusing nature of the tax code. But the precise standard might not make a practical difference, said Jeff Neiman, a former Assistant US Attorney and founder of Neiman Mays Floch & Almeida.

          “The jury will either conclude that Mr. Goldstein is a liar and a cheater, or that he simply made mistakes that led to erroneous filings,” he said.