Fifth Circuit Joins Majority Decisions that § 7212(a) Requires No Pending Investigation (5/28/17)

In United States v. Westbrooks, ___ F.3d ___, 2017 U.S. App. LEXIS 9073 (5th Cir. 2017), here, the Fifth Circuit held that (1) § 7212(a), here, tax obstruction, requires no pending investigation and (2) restitution for a tax crime based solely as a condition of supervised release cannot require restitution prior to the supervised release.

All the commotion was created by the Sixth Circuit's holding in See United States v. Kassouf, 144 F.3d 952, 955-58 (6th Cir. 1998), subsequently reaffirmed in United States v. Miner, 774 F.3d 336, 345 (6th Cir. 2014).  But, since Kassouf, every court other than the Sixth Circuit that has addressed the issue has disagreed with Kassouf.

There is nothing particularly newsworthy in the holding other than the Fifth Circuit joining the majority of courts which it lists as follows (bold face supplied by JAT):

United States v. Floyd, 740 F.3d 22, 32, 32 n.4 (1st Cir. 2014) ("A conviction for violation of section 7212(a) does not require proof of either a tax deficiency . . . or an ongoing audit," so "the filing of false tax documents" or "concealment of income or other assets from the IRS can form the basis for a violation of the statute"); United States v. Marinello, 839 F.3d 209, 222 (2d Cir. 2016) ("[S]ection 7212(a)'s omnibus clause criminalizes corrupt interference with an official effort to administer the tax code, and not merely a known IRS investigation."); United States v. Massey, 419 F.3d 1008, 1010 (9th Cir. 2005) ("[T]he government need not prove that the defendant was aware of an ongoing tax investigation to obtain a conviction under § 7212(a); it is sufficient that the defendant hoped 'to benefit financially' from [his] conduct."); United States v. Sorensen, 801 F.3d 1217, 1232 (10th Cir. 2015), cert. denied, 136 S. Ct. 1163, 194 L. Ed. 2d 176 (2016) ("7212(a) does not require an ongoing proceeding . . . .'").

The Court also rejected the argument that the holding rendered § 7212(a) unconstitutionally vague.  That was a concern that contributed to the Kassouf holding.  The Fifth Circuit rejected it, reasoning in part:

Westbrooks rightly argues that, after Johnson v. United States, 135 S. Ct. 2551, 192 L. Ed. 2d 569 (2015), section 7212(a) is not saved by the fact that some conduct clearly falls within a statute's prohibition. Id. at 2561. But as several circuits have held, Johnson did not change the rule that a defendant whose conduct is clearly prohibited cannot be the one making that challenge. See United States v. Bramer, 832 F.3d 908, 909 (8th Cir. 2016) ("Though Bramer need not prove that § 922(g)(3) is vague in all its applications, our case law still requires him to show that the statute is vague as applied to his particular conduct."); Arrigoni Enters., LLC v. Town of Durham, 629 F. App'x 23, 26 (2d Cir. 2015); Maages Auditorium v. Prince George's Cty., 2017 U.S. App. LEXIS 4532, 2017 WL 1019060, at *6 (4th Cir. Mar. 15, 2017); United States v. Huff, 630 F. App'x 471, 487 (6th Cir. 2015); United States v. Zagorovskaya, 628 F. App'x 503, 504 (9th Cir. 2015); Miranda v. U.S. Att'y Gen., 632 F. App'x 997, 1000 (11th Cir. 2015); Flytenow, Inc. v. FAA, 808 F.3d 882, 895 (D.C. Cir. 2015).

Finally, as to the restitution issue, the Court held that Title 26 tax crimes do not permit restitution unless agreed to in a plea agreement or as a condition for supervised release.  The sentencing court had ordered restitution as a condition of supervised release after incarceration but ordered restitution to commence while incarcerated.  The Fifth Circuit said that was not consistent with the condition.

Eighth Circuit Opinion on Cheek Good Faith Defense and Conditions of Supervised Relied (8/3/16)

Leslie Book has a great Procedurally Taxinging Blog entry on a recent 8th Circuit case, United States v. West, ___ F3d ___ (8th Cir. 2016), here.  The Blog entry is 8th Circuit Strikes Down Restrictions on Internet and Computer Use Special Conditions for Convicted Tax Evader (Procedurally Taxing Blog 8/3/16), here.

The case involved an appeal by West who had been convicted of tax evasion.  West was what is commonly referred to as a tax protestor or tax defier, arguing that he believed that the law did not apply to him.  This is often called the Cheek defense, after Cheek v. United States, 498 U.S. 192, 201 (1991), a defense that is frequently discussed in this blog.  (Actually, as I note below, the Cheek defense is not a defense at all, so see below.)  As background, as noted by the panel "West proselytized his beliefs in an e-book self-published and sold through Amazon.com, entitled Are You a Taxpayer? Really? Prove It!."  (Readers may purchase the Kindle edition of the e-book here for just $7.77; the picture with the Kindle offering shows a man, presumably West, dressed ruggedly (perhaps as some type of patriot which is a cloak that many tax protestors/defiers adopt) with a gun, a look that might resonate with the anti-tax population.)  West made similar claims on his websites.  West represented himself at trial.  He lost (i.e., was convicted), despite his Cheek defense.

On appeal, the panel considered his arguments that (i) in the case in chief, the trial court had excluded certain evidence and argument generally addressed to a good faith defense and (ii) imposed certain conditions of supervised relief (banning creation of websites and use of computers).

Les -- with a contribution from Peter Hardy of Ballard Spahr, here -- does a great job discussing the holding on the conditions of supervised release holding, so I won't repeat that here.

Rather, I will focus on the common issue of the Cheek defense.  West's claim on appeal is that he was not allowed to present the Cheek defense properly -- or at least the way he wanted to.  Normally, the defendant will have to take the stand to present the most credible Cheek defense.  The defense after all is about what the defendant subjectively believed; the defendant is almost always the best witness on that issue and is in the courtroom and available to enlighten the jury.  But, it is often -- indeed usually -- dangerous for a defendant in a white collar crime case (of which a tax crimes case is a subset).  Apparently, although representing himself (which often blindsides the pro se litigant as to dangers of trial strategies), West made the right call on this and did not take the stand.  So, according to the panel opinion:

West presented his defense almost entirely through cross-examination of the government's witnesses. One of these was IRS agent Richard Troester, a so-called "summary" witness, who discussed application of the tax code generally to the particular facts of West's case. See United States v. Ellefsen, 655 F.3d 769, 780 (8th Cir. 2011) (describing role of summary witness in tax evasion case). West cross-examined Troester and attempted to impeach his knowledge ofthe IRC and contradict his testimony by referencing the IRC's definition of "United States" and "employee." The district court sustained the government's objection to each of these lines of questioning and did not permit West to recite the IRC's definitions of "United States." During his case-in-chief, West called his son Brandt, who had assisted West in writing his e-book. When West attempted to enter the e-book into evidence, the district court sustained the government's objection on relevance.

Fifth Circuit Reverses Sentencing Court on Conditions of Restitution and Prohibition of Employment (1/14/16)

In United States v. Thody, 2016 U.S. App. LEXIS 298 (5th Cir. 2016) (unpublished), here, the defendant (Thody) was convicted of "multiple counts of tax evasion."  The Fifth Circuit panel holdings seem fairly routine, which is why the decision is unpublished.  Nevertheless, I offer some comments on the opinion.

First, although not further addressed in the opinion, the Court makes this factual statement:

Thody believed he was a "sovereign citizen" not subject to federal law. He therefore believed that the Internal Revenue Code did not require him to pay taxes. 

Did the Court really mean what it said?  Specifically, since a bona fide belief that a defendant does not owe tax is a complete defense to a crime requiring willfulness, as tax evasion surely does, the Court stated a complete defense for Thody.  See Cheek v. United States, 498 U.S. 192, 201 (1991). The Court could have said that Thody claimed that he did not believe the the Internal Revenue Code did not require him to pay tax, but that the jury did not accept that claim and therefore he acted willfully.  But, that is not what the Court said in the quote.  Maybe that is implicit, so maybe I am just too picky.

OK, moving on.

Second, the opinion holds that the sentencing court can stack sentences (make them run consecutively) to achieve the appropriate sentence, whether in the Guidelines range or outside it (here by variance upward, as noted below).  In the case, the court imposed a 90 month sentence comprised of two 45 month sentences for counts one and two (tax evasion counts with aggregate sentences of 60 months each).

Third, the Court reversed the sentencing court's imposition of restitution for the tax crimes convictions.  Restitution is not available for Title 26 convictions except as a condition of some benefit offered the defendant, such as supervised release.  The court remanded to have the district court determine whether to impose restitution as a condition of supervised release.

Fourth, the Court reversed the sentencing court prohibition "from contracting with the Government as a condition of his supervised release."  Although contracting with the Government produced the income involved in the case, the condition here did not meet the criteria as follows (footnote omitted):