Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (1/25/24)

 Long-time readers of this blog and the parallel blog Federal Tax Procedure may recall that I have had several postings on the issue of whether § 6501(c) unlimited statute of limitations for fraudulent returns requires (i) the taxpayer's fraud or (ii) may be a third party's fraud that is incorporated in the taxpayer's return without the taxpayer's fraud. The classic case is a preparer's fraud, but could also include fraud on an information return (such as a K-1 for partnership flow-through reporting).

At the end of this blog, I list significant Federal Tax Procedure or Federal Tax Crimes postings on the issue. Basically, the state of play was that the Tax Court held in a precedential decision that the taxpayer's fraud is not required. Allen v. Commissioner, 128 T.C. 37 (2007). The Court of Appeals for the Federal Circuit held that the taxpayer's fraud is required. BASR P'ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015). In Finnegan v. Commissioner, 926 F.3d 1261 (11th Cir. 2019), the Court affirmed the Tax Court's Allen holding that the taxpayer waived the statute of limitations argument in the Tax Court.

In Murrin v. Commissioner, T.C. Memo. 2024-10, TA here, decided yesterday, the Tax Court held that Allen was still the interpretation the Tax Court will apply despite the holding in BASR. The Murrin opinion is 13 pages long and analyzes why BASR was not sufficiently persuasive to justify reconsidering its precedential holding in Allen.

BASR is not binding precedent in Murrin under the Tax Court's Golsen rule because appellate authority is only binding when in the Circuit to which an appeal would be taken in the case (barring stipulation otherwise). Mrs. Murrin lived in New Jersey when she filed the Tax Court petition. Thus, her appeal would be to the Third Circuit which has no authority in point, thus requiring the Tax Court to apply its own authority under Golsen.

Article Recommendation on Sentencing in Tax Cases-Amendment to Guidelines (1/11/24)

I recommend the following post: Evan Davis, Major Sentencing Guideline Changes for Most Tax Offenders, With More on the Way: ABA Sentencing Panel, here. It is short and, for the subject, feature packed, so I will not summarize it here.

DOJ Tax Publicizes Sentencings and Plea Agreements of Syndicated Conservation Easement Enablers; Where Are the Taxpayers (1/10/24)

DOJ Tax issued a press release about sentencing and guilty pleas of enablers in abusive, illegal (maybe redundant) syndication easement tax shelters. Two Tax Shelter Promoters Sentenced to 25 Years and 23 Years in Billion-Dollar Syndicated Conservation Easement Tax Scheme; Two More CPAs Plead Guilty (Press Release # 24-29 1/9/23), here.

The lengths of the sentences are noteworthy.

The two other individuals pled guilty to a single count each of the Klein/defraud conspiracy, thus capping their potential sentences each to 5 years. Of course, they were not the masterminds of the fraudulent tax shelter scheme, but their pleas indicate that they willfully participated.

Of course, it is late in the Syndicated Conservation Easement game, so enablers in the game should be on notice now that they can be caught and punished. How much effect this will have as a future deterrent is unknown because, I suspect, many who know the downside will attempt maneuvers to prevent the IRS or DOJ Tax from discovering their complicity in such conduct. Most economic crime violators (including enablers) do not think they will be caught or their skullduggery will be understood.

My only comment relates to what I call the elephant in the room—the taxpayers willfully participating in such schemes. My experience in these elaborate abusive shelters is that well-heeled taxpayers are also complicit. Those taxpayers who are complicit feel (or at least hope) that the blizzard of paper (including fake opinions and appraisals) and participation of facially expert promoters will protect them from penalties, civil and criminal, thus giving them cost-free access to the audit lottery. But those who consulted independent counsel (and many, probably most, did at least in the Son-of-Boss shelters and, I suspect, in the Syndicated Conservation Easement Shelters) would have known the shelters did not work.

If the IRS and DOJ Tax want to discourage abusive tax shelters, it should prosecute the taxpayers involved (or at least enough of them, the more egregious ones, to send the message to the abusive tax shelter taxpayer community that there is risk of a criminal reckoning). Even where the enablers of the abusive tax shelters put together a package that facially seems to support the tax benefits claimed, most well-heeled tax shelter investors have their own independent legal counsel. Good advice would certainly include enough warning that the gambit is illegal and that their participation is willful. Prosecuting and convicting taxpayers would send the message of risk to all participating in abusive shelters and could substantially reduce the number of players involved by reducing the market for abusive tax shelters.

Posted to Wrong Blog

This afternon I erroneously posted a blog here that should have been posted to the Federal Tax Procedure Blog. I have deleted the blog on FTCB and posted it to FTPB.  The blog entry may be viewed here:

Update on Supreme Court Deference Case (with Speculation) and New Supreme Court case on General 6-year Statute for Challenging Regulations Interpretations (Without Speculation) (Federal Tax Procedure Blog 10/1/23), here.

6th Circuit Holds Excessive Restitution Cannot Be Reduced thus Denying IRS Authority to Reduce Excessive Restitution-Based Assessment (5/23/23)

In United States v. Asker,  2023 FED App. 0223N, 2023 U.S. App. LEXIS 11662, 2023 WL 3370440  (6th Cir. 2023) (Nonpublished) (CA6 here and GS here), the court held that where the restitution for tax loss ordered by the sentencing court for tax crimes was allegedly higher than the actual tax due, the district court had no authority to reduce the amount. At sentencing, there was confusion among the players as to the actual tax loss for restitution purposes.* In trying to determine the amount in the confusion, the court has this Q&A with counsel:

          During sentencing, however, the court asked what would happen if it were later determined he owed less than $2.5 million in taxes:

Court: You don’t anticipate that what is owed will be more than 2.5?

Government: It is hard to say at this point. It is going to depend—

Court: What if it is? Do you anticipate that 2.5 precludes your client from paying back the rest?

Asker’s Counsel: I wouldn’t think that if it comes out—I would not think that this Court’s restitution award would be conclusive on the IRS. In fact, if there was some civil basis to seek additional penalties or interests, the IRS could do that.

I suppose if it turns out the number is less, we may probably come back and apply to the Court for some relief from the restitution amount.

Government: That is correct, Your Honor.

Court: I just—my concern is that if it turns out to be more, I think that is owed.

Asker’s Counsel: Yes, Ma’am. We don’t disagree with that.

Court: Okay.

The sentencing court assessed $2.5 million in restitution.

In due course, the IRS made a restitution-based assessment ("RBA") for $2.5 million. The IRS has no authority to reduce the RBA.

After Asker's criminal appeal affirmed the judgment, Asker filed amended returns showing a $1.1 million aggregate tax liabilities, which the Government did not contest because it decided not to allocate resources to an audit of the amended returns.  

Asker then moved the district court to reduce the restitution award which would then permit the IRS to reduce the RBA.

The sentencing  court sat on the motion for 3 years and then denied it based on the Government's argument that it had no authority to grant the motion.

The Court of Appeals affirmed.

Third Circuit Holds That Tax Loss for Tax Crimes Sentencing Calculations is the Intended Loss Rather than Actual Loss (5/10/23)

In United States v. Upshur, 67 F.4th 178 (3rd Cir. 5/8/23), CA3 here and GS here, the Court held that the loss driving the Tax Table at U.S.S.G. § 2T4.1, here, is the intended loss rather than the actual loss to the Treasury.  The holding is driven by the language in the Guideline itself: “the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).” § 2T1.1(c), here

That only became an issue because the Third Circuit held in United States v. Banks, 55 F.4th 246 (3d Cir. 2022) that, for larceny and related financial crimes in U.S.S.G. § 2B1.1, the “loss” (meaning actual loss) is the measure. Both results were driven by the plain meaning of the respective terms in the Guidelines.

 The case highlights a possible disconnect between the sentencing for the two types of financial crimes. It is not apparent from the Guidelines why there is a difference, but as the plain text of both Guidelines provisions establishes, there is a difference.

The Court also said (Slip Op. 6 n.1):

   n1 Because we conclude that the text of § 2T1.1(c)(1) is unambiguous, we need not go further and examine its “structure, history, and purpose” or determine if the relevant Guidelines Commentary merits Auer deference. See Kisor, 139 S. Ct. at 2415.

Auer deference in the Guidelines context would be Commentary interpretation of the Guidelines (which for deference is treated like a notice and comment regulations).

Tax Crimes Outline for UVA Law Tax Procedure Class (5/2/23)

On March 31, 2023, I taught Tax Crimes session for Jim Malone's Tax Procedure Class at UVA Law School. I prepared an outline that may be useful for others, so I link it here. The outline is from my Federal Tax Procedure Book published annually in early August. The outline is updated with major developments through about March 11, 2023. Keep in mind that the outline is an overview appropriate for one session in a semester class on tax procedure.  It is not definitive on Federal Tax Procedure. For more definitive discussion of tax crimes, I refer readers to Chapter 12: Criminal Penalties and the Investigation Function in Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, as updated three times a year. I am the principal author of that Chapter and the updates.

Updated DOJ Tax Voluntary Disclosure Policy (4/14/23; 4/30/23)

Caveat on 4/30/23 3:00pm: The Disclosure Policy was updated on 4/25/23. I have not had a chance to determine whether any material changes were made and will do so when I have a chance. The updated web page in HTML is here.

DOJ components, including DOJ Tax, have updated their respective corporate voluntary disclosure policies. While an attorney representing corporations having a potential federal criminal problem should familiarize themselves with appropriate component policies, I focus here on the DOJ Tax updated policy (in HTML here and pdf here). The DOJ Tax update "supplements" the Tax Division's existing policy by providing much more detail as to the requirements for the policy. For background, I include verbatim the DOJ Tax voluntary disclosure policy in CTM 4.01, here:

4.01 VOLUNTARY DISCLOSURE

4.01[1] Policy Respecting Voluntary Disclosure

 Whenever a person voluntarily discloses that he or she committed a crime before any investigation of the person’s conduct begins, that factor is considered by the Tax Division along with all other factors in the case in determining whether to pursue criminal prosecution. See generally USAM, § 9-27.220, et. seq.

If a putative criminal defendant has complied in all respects with all of the requirements of the Internal Revenue Service’s voluntary disclosure  Practice, n1  

   n1 See United States v. Knottnerus, 139 F.3d 558, 559-560 (7th Cir. 1998) (holding that prior visit by special agent disqualified defendant from voluntary disclosure program); United States v. Tenzer, 127 F.3d 222, 226-28 (2d Cir. 1997), vacated in part and remanded on other grounds, 213 F.3d 34, 40-41 (2d Cir. 2000) (taxpayer must pay or make bona fide arrangement to pay taxes and penalties owed to qualify for consideration); and United States v. Hebel, 668 F.2d 995 (8th Cir. 1982).

 A person who makes a “voluntary disclosure” does not have a legal right to avoid criminal prosecution. Whether there is or is not a voluntary disclosure is only one factor in the evaluation of a case. Even if there has been a voluntary disclosure, the Tax Division still may authorize prosecution. See United States v. Hebel, 668 F.2d 995 (8^th Cir.), cert. denied, 456 U.S. 946 (1982).

I discuss certain (but not all) aspects of the Update. I provide this discussion in the order of the presentation of the Update (and not necessarily in the order of importance). The alphabetical paragraph references (e.g., ¶ A) are to the paragraphs in the policy; the numbered paragraphs are to my points and are sequential through all paragraphs:

Update on Wartime Suspension of Limitations Act ("WSLA"), 18 USC 3287, and Tax Crimes (4/1/23; 4/2/23)

Caveat: Although authored and published on 4/1/23, this blog is not an April Fool's Joke.

I have written before about the Wartime Suspension of Limitations Act ("WSLA"), 18 USC  § 3287, here, that suspends certain criminal statutes of limitations while "the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b))." The statutes of limitations are suspended in relevant part for crimes "(1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not." My blogs on this subject discussing the potential application of this WSLA suspension for tax crimes are collected by relevance here and reverse chronological order here. In those blogs, I have noted that the WSLA's literal application to certain tax crimes involving "fraud" would mean that the WSLA could have a pervasive effect permitting the charging of tax crimes far before the normal suspensions often encountered for tax crimes. See also, Michael Saltzman & Leslie Book, IRS Practice and Procedure, ¶ 12.05[9][a][iii] Suspension and tolling (discussing normal suspensions and discussing § 3287 at n. 933); and John A. Townsend, Federal Tax Procedure (2022 Practitioner Ed.) 317-387 (August 3, 2022). Available at SSRN: https://ssrn.com/abstract=4180710.

1. The blog supplements those discussions until the next revisions of those respective books (note that I am the principal author of the Saltzman and Book chapter). Since I have already brought the discussion up to date in the 2023 working draft for the Federal Tax Procedure Book (2023 Practitioner Ed.), I will just offer the following from the 2023 draft (which should be finalized by early August 2023). The last sentence in the carryover paragraph will be changed to and a footnote added as follows (note that I link the blog entries and key case entries in this blog but will not link them in the book):

This provision [WSLA] might apply to the Iraq and Afghanistan engagements, but its application to tax crimes with elements of fraud or attempted fraud is notable only because of the many cases in which it could have been applied but is rarely, very rarely, asserted where statute of limitations defenses are asserted. fn

Houston Lawyer Closes the Criminal Case by One Count Plea (3/29/23)

I have written before on the prosecution, conviction, appeal and remand in United States v. Pursley (S.D. Tx – No. 18-cr-00575). See blogs here sorted by relevance and here sorted by date. Pursley, a Houston lawyer, was originally convicted of one count of conspiracy and three counts of tax evasion. The Fifth Circuit remanded for retrial on the original counts based on errors not related to guilt or innocence of the original counts. Yesterday, Pursley pled guilty to one count of conspiracy. The DOJ Tax press release is here. The plea agreement is here; the docket entries are here. (Note, according to the Texas State Bar site, here, as of today, Pursley has an “interlocutory suspension entered 11/16/20.)

The plea agreement is pursuant to FRCrP 11(c)(1)(A) and (C), here. The key feature of that type plea is described in the Plea at p.5 ¶ 8:

If the Court accepts this Plea Agreement, this sentencing provision is binding on the Court. Pursuant to Federal Rule of Criminal Procedure 11(c)(5), if the Court rejects this Plea Agreement, Defendant will be allowed to withdraw his guilty plea. If Defendant declines to withdraw his guilty plea, the disposition of the case may be less favorable than that contemplated by the Plea Agreement.

 I will discuss this type of plea at the end of this blog, but I first discuss some terms of this plea that I feel are a bit unusual.

1. Many plea agreements have a more or less standard paragraph saying that the IRS can assess more tax liability (including penalties and interest) beyond restitution. So, for example, in a tax evasion case related to willful understatements of tax liability on a return, restitution normally covers the tax loss (also sometimes called the criminal number) related to the evasion. Sometimes the civil number is larger (never less than the criminal number but sometimes more). Moreover, and more importantly, restitution can only cover the criminal tax number related to the Count of Conviction and sometimes interest on the criminal number. Restitution usually does not include the civil tax number if larger or, more importantly, the civil fraud penalty under § 6663. The reason is that the taxpayer attempts to evade the underreported tax, and not the civil fraud penalty, which would not be in the criminal number/tax loss determined by what he should have reported on the returns. And that is why plea agreements involving return tax evasion (as here, although presented in a conspiracy conviction) normally have a paragraph permitting additional assessments through the IRS normal assessment procedures (notice of deficiency, et al.). The most obvious additional assessment would be the civil fraud penalty, § 6663. There could conceivably also be some civil tax liability that was not included in the criminal number and thus not included in restitution, but the civil fraud penalty potential would remain after sentencing, at least normally. Two provisions of the CTM suggest that plea agreements should, if anything related to the civil fraud penalty, include agreement to the penalty but certainly should not  foreclose IRS post-sentencing assertion of the civil fraud penalty. DOJ CTM 6-4.360 - Compromise of Criminal Liability/Civil Settlement, here; and DOJ CTM 5.01[7] Compromise of Criminal Liability/Civil Settlement, here.

TIGTA Recommendation for Legislation Consideration to Make Failure to File a 2-Year Felony (3/9/23)

TIGTA released a report titled The IRS Has Not Adequately Prioritized Federal Civilian Employee Nonfilers (TIGTA Rept No. 2023-30-011 3/6/23), here. The report discusses that category of nonfilers and the Federal Employee/Retiree Delinquency Initiative (FERDI) started in 1993. The report criticizes the IRS for its low compliance enforcement. Of course, most IRS compliance initiatives are weaker than they could be because of resource constraints. But TIGTA urges the IRS to focus more on that program.

TIGTA makes a number of recommendations based on its findings. One of the recommendations, a recommendation to consider legislation, sweeps broader than Federal Employee noncompliance and would have a major effect on tax crimes generally (particularly IRS charging recommendations and DOJ Tax charging decisions). The recommendation is (Recommendation 5, p. 14):

The IRS Commissioner should:

Recommendation 5: Share this report and recommendation with the Treasury Department Office of Tax Policy to consider a legislative proposal to amend IRC § 7203 by replacing “misdemeanor” with “felony,” and additionally, by replacing the time for potential imprisonment from “one year” to “two years,” thereby making willful nonfiling a felony. Management’s Response: IRS management agreed with this recommendation. The IRS will share TIGTA’s report and this specific recommendation with the Treasury Department Office of Tax Policy. The IRS does not formally propose legislation.

As I understand the proposal, it would not change the current elements of the failure to file crime, which already requires willfulness. It would change only the maximum incarceration period to make the crime a two-year felony.

I have no idea how much traction that recommendation will get within the IRS and the Office of Tax Policy and ultimately in Congress. But if it were to gain traction, I think it will materially affect the criminal tax arena from both the charging side (DOJ Tax and IRS) and the defense side.

Paul Manafort "Settles" His FBAR Civil Willful Penalty Case in Full (3/6/23)

I report today on Paul Manafort’s “settlement” of his FBAR civil willful liability. I had earlier decided not to report on the “settlement” because the only noteworthiness was that the penalty was imposed on Paul Manafort, a person of some public notoriety resulting in the FBAR “settlement” achieving some public press. E.g., Azi Paybarah and  Devlin Barrett , Paul Manafort agrees to pay $3.15 million to settle with Justice Dept. (WAPO 3/5/23), here.

 The number is large, but there have been large FBAR civil willful penalties that were more or less routine, which I have not deemed worthy of posting to the blog. Why do I post now?

I do so because of the press about the "settlement." As I read the motion to enter this “settlement,” it was not a settlement in the way I think of settlements with mutual concessions. The Joint Motion for Entry of Consent Judgment and Notice of Settlement, here, says “As part of the settlement, Mr. Manafort has consented to an entry of judgment in full in this case, with interest accruing.”

Note, for some reason, the link to the Joint Motion seemed to be spotty in working. Readers can retrieve the document from Court Listener service for the docket entries at docket number 29 here,

I suppose that there may have been some costs that the Government gave up. And, I suppose, that it Manafort committed misconduct to hide assets or some other form of obstruction, the “settlement” might include the Government foregoing any further investigation or prosecution of that.  

JAT Comments:

Supreme Court Holds in Bittner that FBAR Nonwillful Penalties are Per Form Rather Than Per Account (2/28/23; 3/5/23)

In Bittner v. United States, 598 U. S. ____ (2/28/2023), here, the Court held that the best interpretation of the nonwillful FBAR penalty is that it applies per form rather than per unreported account. The nonwillful penalty is in 31 U. S. C. §§5321(a)(5)(A) and (B)(i). Five Justices (Gorsuch, the author of the Court opinion, joined by Justices Jackson, Roberts, Alito, and Kavanaugh, so held. Justice Gorsuch included in the opinion a section on the application of lenity (referred to as II-C), in which only Justice Jackson, joined. The opinion of the Court joined by 4 Justices addresses only the interpretation of the nonwillful penalty provision and not Justice Gorsuch’s lenity discussion.

Four Justices dissented—Justices Barret (writing the dissenting opinion) joined by Justices Thomas, Sotomayor, and Kagan and would have held that the best interpretation of the nonwillful penalty was per account rather than per form.

The holding that the nonwillful penalty is per form rather than per account is a significant holding for all with multiple foreign reporting accounts potentially subject to nonwillful penalties. Beyond deciding that issue—per form vs. per account—the opinions merely interpret the statute. I see nothing of systemic value beyond the resolution of the bare issue of per form or per account that is of ongoing importance.  (It is interesting to note that avowed textualists came down on both sides of the issue.)

This is the type of case where it is important to deal with conflicts among the Circuits and, like the doctrine of stare decisis, "because in most matters it is more important that the applicable rule of law be settled than that it be settled right." Burnet v. Coronado Oil & Gas Co., 285 US 393, 406 (1932) (Brandeis dissenting in a tax case). I am mostly agnostic as to the "right" answer to the question of per form or per account. I think I could have credibly argued it both ways. Still, if I were the decider, I think I would have gone with per form rather than per account. My point here, though, is that it is good to have a settled answer.

As a bit of an aside, I note the part of Justice Gorsuch’s opinion—II-C—relating to lenity that attracted only one other Justice and hence is not part of the opinion of the Court. I am reminded of Justice Gorsuch's famous rant in his concurring opinion describing Chevron “elephant in the room” diatribe while on the Tenth Circuit in Gutierrez-Brizuela v. Lynch, 834 F.3d 1142, 1149 (10th Cir. 2016), here. Then Judge Gorsuch wrote the opinion of the panel but then authored a separate concurring opinion with which the other Judges did not agree.

Interesting Motion to Dismiss Government FBAR Willful Penalty Collection Suit (2/6/23)

In United States v. Lisenby (N.D. Ga. Case number 1:22-cv-04579), CL docket entries here, on November 17, 2021, the Government sued Lisenby for recovery of FBAR willful penalties for multiple years. (Dkt entry 1.) On January 31, 2023, Lisenby responded with a motion to dismiss. (Dkt entry 9, here.)  I write here about the memorandum in support of the motion to dismiss.

The memorandum seems to provide a well-written summary of the Government’s claims. The motion to dismiss makes the following claims:

1. The original FBAR assessments were based on the method of calculation that the 11^th Circuit rejected in United States v.  Schwarzbaum, 24 F.4th 1355 (11th Cir. 2022). As explained in the motion (p. 6):

The Government alleges that at some unspecified time following the Eleventh Circuit’s decision in United States v. Schwarzbaum, 24 F.4th 1355 (11th Cir. 2022), the IRS determined it would sua sponte recalculate the penalties assessed against Mr. Lisenby based upon that decision. (Compl. ¶ 61). Despite determining that the Government’s initial assessment was not in compliance with the law (Compl. ¶¶ 61-62), the Government has not alleged that it ever reassessed Mr. Lisenby or gave him an opportunity to pay based upon what it now asserts is the correct assessment.

The motion makes further arguments based on that claim (pp. 7-8). My sense is that the best that can come from this claim is to put Lisenby in the position of Schwarzbaum that, once having made an invalid assessment, the statute has expired on making a recalculated assessment. I think that, while that may be a good argument in Schwarzbaum on its current appeal, the 11^th Circuit is unlikely to accept it because it will certainly know that it screwed up the original Schwarzbaum opinion that they did not realize would give Schwarzbaum an opportunity to escape the penalty. Two mistakes may do rough justice. I have no idea what the court will do in the Lisenby case.

2. The motion claims (pp. 9-11) that, in any event, the assessments (original or recalculated) are out of time. Lisenby’s argument is that the Government's reliance on consents/waivers to extend the time for assessment are invalid because key consents/waivers were signed at some point after the statute of limitations had expired. Lisenby seeks to morph the clear statutory text of § 6501(c)(4) requiring that consents for tax purposes be signed while the statute is still open. The problem Lisenby must overcome is that there is no such statute applicable to the FBAR penalties, so the general rule applies that waivers to statute of limitations defenses can be made at any time. See Court Rejects Government Summary Judgment Motion in FBAR Willful Penalty Collection Suit (Federal 8/28/19), here, on a rejection of a similar defense in the district court Schwarzbaum.

Does Tax Perjury, § 7206(1), Require Some Act of "Filing" Beyond Receipt By The IRS? (1/28/23)

In United States v. Abramson, (N.D. Ill Case: 1:18-cr-00681 Doc 119 Memo Opinion and Order 1/20/23), TN here and CL here, Abramson was indicted for various counts of tax perjury, § 7206(1), for original personal income tax returns and original and amended corporate tax returns. Abramson moved to dismiss the counts related to amended corporate tax returns received by the IRS but, he alleges, not "filed" because not accepted by the IRS.

The key facts alleged by Abramson for purposes of the motion are:

Abramson states that in August 2014 he sent the Forms 1120X along with a letter on behalf of LES "requesting a determination that LES and its subsidiaries be allowed an extension of time to file an election under § 1.1502-75 of the Income Tax Regulations which would allow the affiliated group to file amended consolidated returns for the years 2006-2012." (Dkt. 80 at 3). He later received a letter dated March 16, 2015, from the IRS's Office of Associate Chief Counsel (Corporate) that, in Abramson's words, indicated the IRS had "expressly rejected the request to file them." (Id. at 1).

The Court denied the motion on the following bases:

1. the indictment counts alleging that Abramson had filed the amended corporate income tax returns were legally sufficient on their face to state a violation of § 7206(1).

2. Abramson's defense requires consideration of facts outside the indictment, which the Court held was legally sufficient (see par. 1). Accordingly, on the motion as framed, the Court could not consider the evidence outside the indictment. The evidence Abramson submitted had markings that might indicate that, although the IRS received the amended corporate income tax returns, it had not "filed" the amended corporate income tax returns. The Court said (Slip Op. 7):

            Abramson's defense requires considering and weighing evidence to make factual determinations regarding these documents' meanings. It is not self-evident that the March 2015 letter "rejected" Abramson's returns; there are other possible interpretations of this letter, including that the IRS simply decided not to issue a private letter ruling based on inadequate information. It is even less clear what "D" means on the proffered forms. The government offers an alternative explanation. (Dkt. 91 at 4 n.2). The Court cannot resolve factual disputes about such evidentiary issues on a Rule 12(b) motion. Sampson, 898 F.3d at 281; United States v. Schafer, 625 F.3d 629, 635 (9th Cir. 2010) ("[I]f the pretrial motion raises factual questions associated with the validity of the defense, the district court cannot make those determinations.").

3. Even if Abramson's evidence were considered, the Court held that (Slip Op. 12):

Supreme Court Denies Cert in FBAR Willful Penalty Case With Justice Gorsuch Dissenting on Excessive Fines Issue (1/23/23)

I previously blogged about United States v. Toth, 33 F.4th 1 (1st Cir. 4/29./22), CA1 here and GS here, the Court affirmed the district court’s grant of summary judgment which had imposed a willful determination as a discovery sanction. See First Circuit Sustains Willful Penalty Where Willfulness Found as Discovery Sanction (Federal Tax Crimes Blog 5/2/22), here. Toth petitioned for writ of certiorari. Toth v. United States (Dkt No. 22-177), docket entries here.

The question presented in the petition was:

The question presented is whether civil penalties imposed under 31 U.S.C. § 5321(a)(5)(C)-(D)—penalties that are avowedly deterrent and noncompensatory—are subject to the Eighth Amendment’s Excessive Fines Clause.

Today, the Supreme Court denied a petition for writ of certiorari, with Justice Gorsuch issuing a three-page dissenting opinion, here. Justice Gorsuch sets up his argument with the 1^st Circuit’s holding:

It [the 1^st Circuit] held that the Constitution’s protection against excessive fines did not apply to Ms. Toth’s case because the IRS’s assessment against her was “not tied to any criminal sanction” and served a “remedial” purpose. 33 F. 4th 1, 16, 17–19 (2022).

Justice Gorsuch then states his case in three paragraphs spanning two pages. It is short, so I recommend readers read his version rather than an inadequate summary I might make.

JAT Comments:

Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted (1/23/2023; 1/25/23)

I recently reported on the Supreme Court  Oral Arguments in In Re Grand Jury (Sup Ct. No. 21-1397), docket entries here.  See On Supreme Court Oral Argument in In Re Grand Jury On Issue of Principal or Significant Purpose for Attorney-Client Privilege (1/10/23; 1/11/23), here.

Today, the Supreme Court entered the following order “Writ of certiorari DISMISSED as improvidently granted. Opinion per curiam.”  See the docket entries linked above and the opinion here.

The Supreme Court does not explain why it dismissed, but I anticipated that dismissal as a possibility based on the comments at oral argument. See the blog above at paragraph 2 as follows:

Justice Jackson’s point is that, if the parties wanting the test to be “significant” rather than “primary” and the courts are already doing "significant" (or less than primary) in practice even when articulating a primary purpose test, shouldn’t the Supreme Court just let the issue alone because there has been no upswell of complaint from the district courts applying the test. Mr. Levin expressed concern that a Supreme Court statement that the test is “primary” (which the courts already stated they were applying even which in actuality applying a significant-type test) will add gravitas to the primary test and cause courts to change their practice to strictly limit the privilege. Does that mean that Mr. Levin’s client was imprudent in asking for cert in the first place? Perhaps, the Court could do a win-win for both parties simply by ducking the issue by saying that cert was improperly granted. As Justice Kagan said (Tr. 33): “I -- I'm wondering if  you would just comment on, you know, the ancient legal principle, if it ain't broke, don't fix it.”

Note, I said improperly granted rather than improvidently granted, but it was the same point.  Technically, the writ was not improperly granted but was improvidently granted. So my choice of words was poor.

Update on Use of Acquitted Conduct to Enhance Guidelines Calculations (1/19/23)

Today, I alert readers of potential action on the Sentencing Guidelines' use of acquitted conduct as "relevant conduct" to increase the sentencing offense level and incarceration range. Technically, all the acquittal meant was that the Government had not proved guilt beyond a reasonable doubt. However, the Government could theoretically still prove, either on the trial record or perhaps with new evidence at the sentencing hearing, that the guilty conduct was proved by a preponderance of the evidence (the standard at sentencing) and could even use otherwise inadmissible evidence (e.g., hearsay) in determining preponderance.

1. The Supreme Court may consider the issue of whether use of acquitted conduct in sentencing is constitutional. See John Elwood, Acquitted-conduct sentencing and "offended observer" standing (SCOTUSblog Relist Watch 1/19/23), here. In this article, the author advises

a. The Supreme Court has relisted five cases involving “the controversial practice of sentencing criminal defendants based on offenses that juries acquitted them of.” (For links discussing the Supreme Court practice of relisting and inferences/speculations from relisting, see citations and links in paragraph 4 of my comments below.)

b. A divided Supreme Court had approved the use of acquitted conduct in United States v. Watts, 519 U.S. 148 (1997). Based on Watts, “essentially every federal court of appeals and many state courts have read the opinion to have conclusively resolved the constitutionality of acquitted-conduct sentencing.”

c. The relisted petitions “argue that Watts should be overruled or limited and that the due process clause of the Fifth Amendment and the jury-trial guarantee of the Sixth Amendment prohibit imposing sentencing enhancements on criminal defendants based on conduct of which the jury acquitted them.”

2. On January 12. 2023, the US Sentencing Commission released proposed amendment limiting the use of acquitted conduct to enhance sentences. See USSC, Proposed Amendments to the Sentencing Guidelines (Preliminary) (1/12/23), here.