Two Tax Crimes Cases on Plea Rejections After Previously Accepted (6/10/16)

Plea agreements are contracts, well like contracts anyway.  Contracts (or like contracts) in order to be enforceable require a meeting of the minds (certainly as indicated by the words of the "contract" (or like contract)).  Today, I discuss, by referring to another article, that aspect of a plea bargain in an earlier case in which the judge withdrew a plea pursuant to a plea agreement where there probably was a meeting of the minds as to the matters covered in the plea agreement but the parties clearly were not in agreement as to a critical component of the plea agreement (the tax loss which is the principal driver of the guidelines sentencing range in tax cases).  I also discuss a case where the judge withdrew a plea pursuant to a plea agreement because, in his mind, the parties' agreement did not establish the elements of the crime to which a plea was made.

The ABA's Tax Times for June 2016 has this article:  John Colvin and Claire H. Taylor, U.S. District Judge Rejects Tax Promoters’ Plea Agreement in United States v. Crithfield: A Rare Event, but a Warning to Defense Counsel (June 2016), here or, if that does not work, here.  I will try to summarize the case, hoping to do justice to the longer presentation by two very good attorneys.  The conduct involved in the criminal indictment involved promotion by two  defendants of an abusive captive insurance scheme, called a Business Protection Plan (BPP).  Essentially, the product they promoted was an investment scheme wrapped up in a package made to appear as insurance.  The indictment charged one count of conspiracy (defraud/Klein conspiracy under 18 USC 371, here, a five-year count), and two counts of aiding and assisting (26 USC 7206(2), here, each 3-year counts).  As is typical, the resulting plea agreement dropped two counts in return for the defendants plea to another count -- aiding and assisting, a 3-year count.  So, under the plea agreement, the defendants could not be incarcerated for more than 3 years, but they could be incarcerated for less, all the way down to no incarceration, depending upon the judge's Booker sentencing discretion after respectful consideration of the guidelines calculations.

As readers of this blog know, the principal driver in the advisory guidelines sentencing range is the tax loss.  The more tax loss (within certain brackets), the more the guidelines sentencing range.  Often the prosecutor and the defendant reaching a plea agreement will stipulate all or certain key factors, including tax loss.  See e.g., Fourth Circuit Holds Defendant to His Tax Loss Stipulated in the Plea Agreement (Federal Tax Crimes Blog 7/24/13), here. In this case, the parties did not stipulate as to the tax loss.  The sentencing court is required, in any event, in reaching the sentence to make the tax loss calculation to make the sentencing guidelines calculation and is not necessarily bound by the parties' agreements as to sentencing factors.  Where the parties do not agree, they essentially are leaving it up to the Court, with the assistance of the Probation Officer and the parties, by a sentencing hearing if necessary, to determine the sentencing factors.  But, provided the plea agreement or the agreed colloquy at the plea hearing is otherwise sufficient to justify the plea, even without agreement as to the sentencing factors, the plea should be accepted and should stand. Perhaps the only exception to that would be a plea that was a result of ineffective assistance of counsel. (That's a bigger subject than I can address right now, so just assume that that is not directly the issue in the case discussed in the linked blog, although it might be at heart of the court's decision to reject this plea.)

In the case, the defendants wanted to limit the tax loss at sentencing to the tax loss attributable to the conduct involved in the count of conviction.  But, as every lawyer representing criminal clients in financial crimes cases knows, the loss for sentencing guidelines purposes can include loss attributable to the count of conviction (in this case the single aiding and assistance count) and the loss from "relevant conduct."  Therein lies the rub.  The defendants here insisted that only the loss from the count of conviction was included in the tax loss calculation for sentencing guidelines purposes.  The prosecutor insisted that the relevant conduct tax loss -- and there was a lot of loss attributable to relevant conduct -- was includible in the calculation.  That would result in a high guidelines range calculation, limited to the three years maximum for the count of conviction pursuant to the plea.  The spat during the sentencing phase as to whether the relevant conduct was includible probably alerted the Court that an ineffective assistance of counsel issue was in the making, so that it just reversed its acceptance of the plea agreement and sent the parties back to square one.  As the authors of the blog entry note, that may or may not be good for the defendants, for if they go to trial and are convicted or all counts, the overall tax loss would be includible either directly as conspiracy tax loss or as relevant conduct tax loss.

I refer readers to the discussion by Colvin and Taylor for a lot more nuance.