Articles of Interest for Criminal Tax Practitioners

I have just received a hardcopy of the Tax Practice & Procedure magazine for December 2009 - January 2010 which is dedicated to the 2009 Tax Controversy Institute.  Articles in the magazine of particular interest to criminal tax practitioners are:

Nathan J. Hochman, Everything You Wanted to Know About How to Obtain a Prosecutorial Declination of a Federal Tax Case and Were Afraid to Ask.

Scott D. Michel, Undeclared Foreign Accounts -- Voluntary Disclosures and FBARs After the IRS Settlement Initiative.

Steven Toscher and Barbara Lubin, When Penalties Are Excessive -- The Excessive Fines Clause as a Limitation on the Imposition of the Willful FBAR Penalty.

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Note to readers, I will try to identify recent articles of interest to readers of this blog and, where I can obtain permission, try to have links to the articles for reading or downloading.  If the reader comes across articles of interest to this blog, please let me know by email jack@tjtaxlaw.com.  Thanks.

Court of Appeals Acts on Its Hunch re Flawed Sentencing Tax Loss Estimate Is Harmless (2/3/10)

The key starting component for the required advisory Sentencing Guidelines calculations is the tax loss – the greater the tax loss, the greater the starting point and the greater the ending point in the Guidelines calculations. The Government is required to prove that starting tax loss amount by a preponderance of the evidence. The Guidelines provide that the sentencing court may make a “reasonable estimate based on the available facts” can be used unless the Guidelines can be calculation with more precision. SG § 2T1.1, cmt. n. 1.

Here is what happened in the recent case of United States v. Mehta, 594 F.3d 277 (4th Cir. 2010):

In establishing the tax loss under § 2T1.1 of the Sentencing Guidelines, the government proposed that the district court consider the 4,321 Schedule A returns filed by Mehta over the four-year period under investigation to find a tax loss of $ 2,508,000. The IRS had selected approximately 941 returns for civil audit by scoring each of the Schedule A returns and choosing those most likely to produce additional tax liability. Of these 941, 775 were selected for a correspondence audit, and the remaining returns were accepted as filed. As part of the correspondence audit, the IRS furnished the taxpayers with a computation of what their additional tax liability would be if they did not produce documentation. Approximately 30% of the taxpayers (or 307 returns) signed IRS Form 4549 agreeing to pay the additional tax assessment. The total additional tax liability for these 307 returns was approximately $ 473,000, and the average tax assessed "per agreed-upon audit" was $ 1,531.

Of the 4,321 Schedule A returns filed, the district court considered only 2,500 returns which Mehta filed during the last two years of the investigation. The court extrapolated the loss for these 2,500 returns. It multiplied 2,500 by 30% to equal 750 returns, and multiplied 750 by the $ 1,500 average audited tax loss per return to arrive at $ 1,125,000. Therefore, the court calculated a tax loss between $ 1,000,000 and $ 2,500,000 pursuant to Guideline § 2T4.1, resulting in a base offense level of 22. The court applied a two-level increase because Mehta was in the business of preparing tax returns. U.S.S.G. § 2T1.4(b)(1). The Guidelines range for offense level 24 is 51-63 months, but the district court varied downward and sentenced Mehta to 48 months imprisonment.

The taxpayer first argued that any reliance on returns where the taxpayer signed a Form 4549 was inappropriate because the 4549 is just a waiver of the restrictions on assessment and does not represent the taxpayer’s agreement that the tax is due. The Court rejected that argument in a cryptic analysis that, in my judgment really does not address the point raised:

Collateral Consequences – OPR Suspension

A critical part of federal tax crimes practice is to anticipate and mitigate the collateral consequences of a criminal tax investigation and/or prosecution and/or conviction. We have seen this concern in the pleas for UBS bank accounts where some of the defendants chose to plead to failure to file an FBAR (a 5 year maximum crime) rather than tax perjury (a 3 year maximum crime), with the notion that mere failure to file an FBAR will look better to some licensing and regulatory agencies than tax perjury.  (There are some Sentencing Guideline risks here, but just focus on the cosmetic issue of the "sound" of the crime.)

One of the consequences for tax professionals is OPR disciplinary action that can impede the target’s ability to make a living.

I noticed this news item that OPR has suspended a practitioner for 12 months. His misconduct – preparing false returns and giving false and misleading information to the IRS as follows:

For no legitimate business purpose, Loeser's clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients. Loeser prepared the clients' books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.

The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.

Now, as I see it, the crimes indicated by this description include at least tax evasion (§ 7201, including by aiding and abetting), tax perjury (§ 7206(1), at least by aiding and abetting), false documents (§ 7206(2)), tax obstruction (§ 7212(a)), false statements (18 USC § 1001), and Klein defraud conspiracy (18 USC § 371). These are all felonies with maximum sentences of 3 and 5 years. Yet, the release gives no indication that this practitioner was prosecuted.

For these misdeeds, which seem very serious to me, this practitioner punishment received a rather light 12 month suspension.

I just wonder whether, if a person was convicted and sentenced say for 2 years incarceration, he or she could serve the suspension period contemporaneously with the sentence so that at least by the second year, he or she could earn some extra money in prison by preparing returns?

Another UBS Depositor Pleads

Another UBS Depositor, Jack Barouh, has pled to tax perjury. The plea fits the mold previously created in the plea deals to date. The DOJ Tax press release with some of the details is here.  He funded the account with business skimmings.  He used nominee corporations to own the accounts and then, when he wanted to repatriate to the U.S., a "Swiss attorney, persuaded" him to create a Hong Kong account in the name of a nominee HK corporation which then nominally paid him a bogus consulting fee to push the funds into the U.S. "The Swiss attorney knew the defendant was not going to perform any consulting work." Sounds like the Swiss attorney may have some explaining to do.

Just one comment, in many of these situations where there are not entities involved but only directly owned Swiss accounts, there was often no discussion between the U.S. depositor and the Swiss banker about U.S. tax.  At best or worst (depending upon perspective), there was an unspoked understanding that that was the game being played.  But, as the situation in this plea indicates, at some point the Swiss enablers moved beyond unspoken understandings.

UPDATE 2/6/10

I have received the plea and statement of facts and include some of the items I think interested below:

1.  The parties agree to Sentencing Guideline components as follows:  (a) tax loss between $400,000 and $1,000,000 (actually stipulated to be $736,269, but the bracketed amounts are what is important for the guidelines calculations); (b) the crime involves sophisticated means, and (c) Government agrees to the standard acceptance of responsibility downward adjustments (2 or 3 as appropriate, which, of course, 3 is appropriate). The Guideline range I calculate on these components it is 46-57 months, which exceeds the maximum 3 year sentence for the crime of conviction (tax perjury).  The Government does agree "to recommend that the defendant be sentenced at the low end of the guideline range, as that range is determined by the court," provided only that the defendant cooperates and does not misbehave before sentencing.  I don't know what exactly that gets for the defendant other than that the Government signals to the court that the defendant may be a nice guy and perhaps that a downward variance might be appropriate. Of course, the courts have uniformly sentenced lower other offshore account recipients by Booker downward variance, so presumably that is the hope of the defendant.

2.  Defendant is required to cooperate in determination of his liability for taxes, penalties and interest. Further, "[n]othing in this agreement shall limit the IRS in its civil determination, assessment, and collection of any taxes, interest, and/or penalties that the defendant may owe." I wonder if the IRS will require the defendant to go to years earlier than 2002.  (I doubt it, so that to that extent, the defendant has profited from his offshore caper.)  Of course, as noted above, he does cap his FBAR exposure.

3. The defendant began the skimming and depositing in offshore banks since approximately 1976, so he has presumably achieved a substantial tax savings over the years and all of this would easily fall in the concept of relevant conduct that should have entered the tax loss for guidelines purposes.  Yet, it appears that, as usual, the Government and the courts will put blinders on for years earlier than 2002. I guess the Government is here to help.

4. The defendant used offshore enablers who are referred to a Swiss Money Managers #1 and #2 and Swiss Attorney #1. (Alright, technically, in the Statement of Facts, the first is sometimes referred to as Swiss Money Manger #1; but I assume that is a typo; and the reference to Swiss Attorney #1 without any further reference to #2, suggests that there may have been a #2 whose name dropped out in the negotiation process.)

5. Now, we have something really juicy (not sex, but almost as juicy). The Statement includes the following:

Between November 2003 and March 2004, SWISS MONEY MANGER #1 misappropriated more than $5 million from the Domilou account by transferring the funds to a UBS account in the name of another Panamanian corporation which was owned by SWISS MONEY MANAGER #1 and his wife.

Is there no honor among thieves?

6.  I wonder if the defendant got the benefit of an unclaimed deduction in the guidelines calculation of tax loss for the money stolen from him.  As readers have noticed before in my blogs, there is some variance (if that is a fair word) among the circuits as to whether unclaimed deductions can enter the guidelines calculations.

7. This is pretty juicy also:

Beginning in late 2007, the defendant asked SWISS ATTORNEY #1 and SWISS MONEY MANAGER #2 about making a voluntary disclosure and reporting his offshore assets to the Internal Revenue Service. On several occasions, the defendant was discouraged from doing so by SWISS ATTORNEY #1 and MONEY MANAGER #2. MONEY MANAGER #2 told the defendant that it would involve too much paper work to make a voluntary disclosure. SWISS ATTORNEY #1 told the defendant that it was not necessary to consult with a United States tax attorney because a Swiss attorney typically initiates a voluntary disclosure, that he was not on the list of people being reported by UBS, that the best thing to do was to move the money from UBS to another financial institution, and that, if he did not want to receive the "consulting fees" from Amery Investments Ltd., he could purchase a life insurance policy in order to repatriate the money to the United States after his death.

Update on IRS FAQs for Voluntary Disclosure

I have been remiss in advising my readers that the IRS has updated its FAQs effective 1/8/10.  (I do maintain a link to the FAQs in the link section at the right., and this link should get to the updates and amendments as they are made from time to time.)  The 1/8/10 updates add two FAQs at the end as follows:

Q 53. I am an actual or former UBS AG client who submitted a voluntary disclosure application to the IRS. I would like to expedite submission of my UBS AG account information to the IRS by providing a waiver directly to UBS AG. How does this work?

A53. THE UNITED STATES OF AMERICA AND THE SWISS CONFEDERATION ENTERED INTO AN AGREEMENT ON AUGUST 19, 2009, CONCERNING THE REQUEST FOR INFORMATION FROM THE INTERNAL REVENUE SERVICE OF THE UNITED STATES (“IRS”) REGARDING UBS AG, A CORPORATION ESTABLISHED UNDER THE LAWS OF THE SWISS CONFEDERATION (“UBS AG”). SECTION 1.4 OF THAT AGREEMENT PROVIDES THAT THE IRS WILL PROMPTLY REQUEST ALL UBS AG CLIENTS WHO ENTER INTO THE VOLUNTARY DISCLOSURE PROGRAM ON OR AFTER AUGUST 19, 2009, TO GIVE A WAIVER TO UBS AG TO PROVIDE ACCOUNT DOCUMENTATION TO THE IRS. SUCH A WAIVER WILL EXPEDITE THE DELIVERY OF RELEVANT ACCOUNT INFORMATION TO THE IRS.

If you are an actual or former UBS AG client, we are requesting that you give a waiver to UBS AG to provide your UBS AG account information to the IRS.

Should you have any questions regarding how to provide a waiver to UBS AG, you may consult the UBS AG website at www.ubs.com, or call UBS AG at +41 44 237 56 10.

Q 54. I have applied to the offshore voluntary disclosure program and would like to make a payment to stop the running of interest. Where should I send my payment to make sure it is processed properly?
A54. You can make an advance payment on the amount you expect to owe as a result of a voluntary disclosure by sending your check annotated in the note section of your check with your social security number and “advance payment on deficiency-VDP” to the following address:

Internal Revenue Service
Voluntary Disclosure Program
PO Box 934
Austin, TX 78767-0934.

Later, when you and the IRS enter into a closing agreement, the IRS will apply the payment to the appropriate taxes and periods.

Germany May be Lowering Its Sights on Switzerland

The Wall Street Journal reports here that the German Government is considering paying for allegedly stolen Swiss Bank data regarding German tax cheats. The article is a good read, but here is a teaser:

A confrontation with Germany could represent the biggest challenge Switzerland has faced thus far. Though the Swiss clash with the U.S. drew much attention, Americans with offshore accounts in Switzerland represented no more than 5% of Switzerland's $1.8 trillion offshore-banking business, according to KPMG.

German officials say the country's taxpayers have about €175 billion in Swiss bank accounts, or more than 10% of the total. According to KPMG, as much as 80% of European Union account holders' money in Switzerland is undeclared, and experts say Germans are among the biggest groups of tax evaders in Switzerland.

I suppose that, in yielding -- or appearing to yield -- to the U.S., the Swiss were simply trying to mitigate the damage.  But with other countries standing in line with equal or larger stakes, the threat to the Swiss way of doing banking business may be irreparable.  I hope so.

Not surprisingly, the article reports that Swiss officials are crying foul that another sovereign would pay for and use data stolen in violation of Swiss law.  I must admit that I previously thought that business of using and even paying for stolen Swiss bank data would be unseemly and inappropriate. No more. And, in any event, just the thought that it could happen should give further incentive to U.S. and other country taxpayers to seek amnesty in whatever form it may come (in the U.S. via voluntary disclosure).  The old attitude of catch me if you can seems foolhardy. 

If this is happening to the Swiss banks, other countries' banks are also at play.

Of course, these countries and the banks they enable could behave, probably a startling concept to them.  More likely than behaving, though, they will try to mitigate the damage while keeping as much as they can of their franchise to enable raids on the fiscs of other countries.

Update on 2/2/10:  The Tax Prof Blog has a blog on this here with helpful links to a number of news sources.  I note that the source for the German Government is an IT specialist.  Think of all those people working in the bowels of the banking industry who are now trying to figure out what they can do to become as rich as some of the people they turn in.  My experience is that persons playing the game of using Swiss banks to cheat on taxes thought that they had controlled the flow of information, but we now find that there are lots and lots of on the books and off the books potential breaches in that dam.

David Cay Johnston's Thoughts on Swiss Criminal Enablers

David Cay Johnston has an interesting column, titled Enabling Tax Thieves, in today’s Tax Notes Today. Johnston “is a former tax reporter for The New York Times. He teaches at Syracuse University College of Law and is the author of two books about taxes, Free Lunch and Perfectly Legal.”

Here are a few quotes to give readers the flavor of the column (my addition in brackets):

Recent developments are making it clear that rather than being a legitimate nation, Switzerland seems not that much different from a criminal enterprise -- a rogue state and a kleptocracy that is a threat to every honest taxpayer in the rest of the world. The Swiss government differs from the usual leader of a thieving gang in one respect: It is not ratting out its partners in crime.

Other than its techniques of enforcement, what makes the Swiss government any different from the mob -- Alabanian, Colombian, Israeli, Russian, Sicilian?

[After reviewing recent developments with his own usual spin on them]

The expectation was that UBS would disgorge names and behave like a civilized institution. It would give up the tax cheats it helped and stop soliciting cheats. Instead the Swiss government has run interference on behalf of UBS -- and arguably all Swiss banks.

* * * *

However, this agreement [between the U.S. and the Swiss] never anticipated that the Swiss would lack honor, that their word is unreliable. The reason for this shortcoming is obvious -- no one at the DOJ believed that they were dealing with a rogue government.

* * * *

The American government should begin shutting down Swiss access to the American economy. The first step would be to announce that a grand jury is being impaneled to indict UBS and every officer and employee suspected of involvement in the cheating.

* * * *

And there is a symbolic gesture that President Obama could make that would probably be just as effective in scaring the Swiss into being honest: Pardon Bradley Charles Birkenfeld, who blew the whistle but is now serving 40 months because he was not entirely candid with the DOJ.

The point of pardoning Birkenfeld would be entirely practical. It would send a signal that in the interests of justice, the American government will overlook conduct by those who bring in major tax criminals and their enablers.

* * * *

The American government has long taken action against rogue states that threaten its interests -- from a nearly half-century economic embargo against Cuba to overthrowing regimes that harbor threats physical and financial to seizing Iranian assets.

The U.S. government deals with extraordinary harshness when the working poor, especially single mothers, make errors on their tax returns. Congress has given the IRS authority to deny the earned income tax credit for 10 years, more than half of a child's formative years.

Why do we treat the Swiss differently? Why do we show any tolerance to calculated crimes facilitated by greedy Swiss bankers?

So here is the question I ask my readers. What is the difference between the Swiss bankers and the Somali pirates?

Further on Use of Sentencing Tax Loss Findings in Later Proceedings (1/10/10)

This blog addresses excellent comments by Anonymous to a prior blog here. 

I focus on Anonymous' comment as follows: "But that admission [of the sentencing tax loss stipulation] itself is very persuasive and direct evidence that could clearly support a much higher burden of proof." First, let me say that stipulations are simply the basis for findings that the judge would otherwise be required to make on the basis of other evidence. Hence, for this purpose, there should be no difference between findings based on stipulations and findings based on other evidence. Paraphrasing your comment, I think you are saying that the sentencing tax loss finding could alone support a finding in a later civil (including immigration proceeding) where the Government must prove fraud and / or an amount by clear and convincing evidence. (Notice that the amount is an element of the statute for immigration purposes.)

So stated, there is actually considerable authority in the civil tax area as to the limited effect of sentencing tax loss findings. Predicate to understanding this authority, we must first focus on what the tax loss number is. The tax loss number is that number that the defendant / taxpayer intended to defraud the Government of. It is not the civil tax loss number which, in criminal tax cases, can be and often is much larger than the sentencing tax loss number (i.e., the civil tax loss, typically called the deficiency, is never less but can be more than the sentencing tax loss number). Moreover, the tax loss number is often not a crisp easily determined finite amount. Particularly when the result of stipulations, there is considerable negotiation about what the tax loss is – with the defendant’s counsel and the Government negotiation over what really was the object of criminal intent. Frequently, the amounts the Government originally asserted are whittled down substantially, and the reason that happens is often not because the tax is not due but because the Government has doubt that it can prove even by a preponderance that the disputed amount was due to fraud.  So the Government's preponderance burden plays a critical role in determining the tax loss amount and, by the same token, if the Government's burden in the sentencing phase were to prove tax loss by clear and convincing evidence, the tax loss number would or at least could be whittled down even further.

Now, let’s turn to the civil fraud tax case where this issue could arise routinely. I will assume a criminal conviction for § 7206(1). In that civil tax fraud penalty case that usually follows criminal conviction, the mainstream and universal holding is that the conviction itself is not preclusive of fraud, because all the conviction determines is that the taxpayer lied on the return and does not determine that he intended to defraud the Government of tax. But, in the sentencing hearing, the sentencing judge is required to find the tax loss and does so by a preponderance of the evidence. The tax loss has two important elements -- (1) an amount and (2) a relationship between the amount and some related (aka relevant conduct) intent to defraud the IRS of tax. The question, as in the immigration proceeding, is whether the finding of the tax loss as the first step in the Guidelines calculations is preclusive or even persuasive evidence in the civil fraud penalty proceeding where the Government must prove civil fraud by clear and convincing evidence. The answer to that question is no; the Government may introduce the sentencing finding in order to present full context for its other clear and convincing evidence of crime, but the Government could not prevail by just introducing the sentencing tax loss finding to met its burden by clear and convincing evidence that (1) the taxpayer did intend to defraud the Government and (2) the amount he or she intended to defraud.

I have addressed related themes in my article John A. Townsend, Collateral Estoppel in Civil Cases Following Criminal Convictions, 2005 TNT 4-28. My points in the article, bottom line, were (i) I accepted the universal holdings that the Government must prove by clear and convincing evidence that the taxpayer intended to defraud the Government of tax and must do so by something other than the mere sentencing findings of tax loss amount and (ii) that, once the Government shows fraud, then the sentencing tax loss finding could -- and should be -- be preclusive as to the amount. In both the civil and criminal proceedings, the amount determination is by a preponderance of the evidence. Now, as to the latter point, there is a razor-thin difference in the preponderance determinations in these proceedings -- i.e., in the sentencing proceeding, the Government is required to prove the amount by a preponderance but in the civil proceeding, the taxpayer is required to prove the amount not attributable to fraud. In my article, I argued that this razor thin difference (i.e., the difference being the state of equipoise which almost never is outcome determinative in the real world) is not significant enough to justify further litigation on the amount of the tax loss attributable to fraud.

No court has accepted my arguments (in burden language, I have not met my burden), so the state of the law as I understand it now is that, in the subsequent civil tax proceeding after a § 7206(1) conviction, (i) the IRS must prove fraud by clear and convincing evidence, (ii) (and this is my reading of the tea leaves), the IRS cannot rely only on the sentencing tax loss finding (whether the result of stipulation or an evidentiary proceeding), but must put on evidence of that breathes some persuasive life into the fraud, and (iii) if the IRS does breathe life into the taxpayer’s alleged fraud by clear and convincing evidence, the taxpayer must then whittle down the amount of the total deficiency (or the amount the IRS asserts as fraud) by the preponderance of the evidence.

The point of all this is that the stipulated tax loss, although containing both necessary “prepnderance” holdings as to the amount and as to the taxpayer's fraud, is not considered evidence sufficient alone to meet the IRS burden to prove fraud by clear and convincing evidence.

Now, moving back to Kawashima, I think the Court mouthed the right words in saying that the amount could be in play in the immigration proceeding (i.e., no preclusive effect), but I disagree with the suggestion that the stipulation / sentencing finding could alone be clear and convincing evidence as to the fraudulent amount.  I could agree that the sentencing amount determinations should be preclusive or perhaps even evidence standing alone without rebuttal of the amount if the Government in the immigration proceeding otherwise proved fraud, but as I noted, in the related context of civil tax proceedings, that is not the way the law has developed.

Truly Offshore Solutions to Offshore Bank Accounts May Not Be So Good

In the latest highly publicized spate of IRS initiatives against the use of offshore accounts to mitigate U.S. tax liability (that sounds better than to cheat on U.S. tax liability, although it is semantics), some U.S. persons decided that they would just avoid the problem (including past problems) by leaving the U.S. There are some downsides to that U.S. tax mitigation strategy.  One was a topic of comment at the recent ABA tax section meeting in San Antonio.  Practitioners were cautioned to make sure those persons who are or become their clients are advised about the potential tax costs of leaving the U.S. See § 877A. So, I pass this tip on to my readers.

The IRS has recently provided guidance under Section 877A in Notice 2009-85. And, the ABA Tax Section Newsquarterly has a point to remember article discussing this new guidance - Michael A. Spielman, Service Issues Guidance on Section 877A Exit Tax. Here is some excerpts from the article to whet your appetites (I have cut and paste this out of order for readability purposes here, but it is all in the article except as I indicate in brackets).

Under new section 877A [enacted in June 2008], Tax Responsibilities of Expatriation, covered expatriates (generally, U.S. citizens or long-term residents with a five-year average income tax liability exceeding $124,000 as indexed for inflation ($145,000 in 2009 and 2010) (“tax liability test”) or net worth of $2 million or more (“net worth test”), are immediately taxed on the net unrealized gain in their property exceeding $600,000 ($626,000 in 2009 and $627,000 in 2010) as if they sold the property for fair market value the day before relinquishing U.S. citizenship or terminating their U.S. residency (“expatriating”). This mark-to-market tax regime applies to all property of the covered expatriate, other than deferred compensation items, specified tax deferred accounts, and interests in a nongrantor trust of which the covered expatriate was a beneficiary on the day before the expatriation date. Separate provisions apply with respect to these items.

In addition to section 877A, HEART also introduced a new succession tax under section 2801 that imposes a tax on U.S. persons who receive a gift or bequest from an expatriate who was subject to the rules of section 877A. Generally, the rules under section 2801 require the recipient of the gift or bequest to pay tax on the fair market value of the property received at the highest gift or estate tax in effect on the date of receipt. Gifts or bequests to a qualified charity or U.S. spouse are exempt from the tax if made in a form that would be eligible for a deduction under the relevant estate or gift tax Code section. Although Notice 2009-85 does not provide guidance on section 2801, it indicates that future guidance on section 2801 will be issued separately.

Prior to the enactment of HEART, covered expatriates were subject to a 10-year alternative tax regime (1) on their U. S. source income and gain under section 877 and (2) a modified estate and gift tax regime under sections 2107 and 2501. In its most recent incarnation, as modified by the American Jobs Creation Act of 2004 (“AJCA”), section 877 became applicable solely on the basis of objective tests that measured an expatriating individual’s net worth and net income tax liability, without regard to whether the individual had a tax avoidance purpose for expatriating. AJCA also added a third test, which caused expatriating individuals to become subject to the 10-year alternative tax regime if they failed to certify compliance with all U.S. federal tax obligations for the five preceding taxable years. In addition, AJCA added section 877(g), which caused covered expatriates to be treated as U.S. citizens for all federal tax purposes for any year during the 10-year period in which they spent 30 days or more in the U.S. This 30-day rule was not carried over to new section 877A.

Ninth Circuit Joins the Parade on 7206(1) as Deportable Crime

In Kawashima v. Holder, 615 F.3d 1043 (9th Cir. 2010), here, decided 1/27/10, the Court held that Section 7206(1), tax perjury, was a deportable crime and that, depending upon the circumstances, Section 7206(2), aiding and assisting, may be a deportable crime. [Note: Kawashima was affrirmed by the Supreme Court in Kawashima v. Holder, ___ U.S. ___, 132 S. Ct. 1166 (2012), which is discussed in a subsequent blog titled Supreme Court Rules Tax Perjury and Aiding & Assisting Are Deportable Aggravated Felonies (2/21/12), here.]

I have previously written here on a petition for certiorari that was filed on the tax perjury issue. That discussion gives more detail, so I will just be more summary on the general issue and develop a nuance that I find interesting.

The petitioners in Kawashima had pled guilty as follows: (1) the husband to tax perjury and (2) the wife to aiding and assisting. At sentencing, Mr. Kawashima stipulated that the "total actual tax loss" was $245,126.  Using this evidence, the Board of Immigration Appeals ordered deportation upon finding that the crimes were "aggravated felonies."  The petitioners appealed.

The Ninth Circuit crisply states the interpretational issue as follows (the words are the Ninth Circuit's but I divide the words into subparagraphs to highlight the issue):

We are faced with the task of determining whether Mr. Kawashima's conviction for willfully making and subscribing to a false statement on a tax return, in violation of § 7206(1), and Mrs. Kawashima's conviction for aiding and assisting in the preparation of a false tax return, in violation of § 7206(2), constitute aggravated felonies.

Section 1101(a)(43)(M) defines an "aggravated felony" to include "an offense that

(i) involves fraud or deceit in which the loss to the victim or victims exceeds $ 10,000; or

(ii) is described in section 7201 of Title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $ 10,000." 8 U.S.C. § 1101(a)(43)(M)(i)-(ii).

The KPMG Enabler Convictions -- The Role of the Absent Taxpayers (1/26/10)

In the Larson/Pfaff/Ruble case, currently on appeal to the 2d Circuit, the trial Judge instructed the jury:

In order to establish that a transaction lacks economic substance, the government must prove beyond a reasonable doubt both of two factors. The first factor is that the relevant taxpayer had no business purpose for engaging in the transaction apart from creating the tax deduction. The second factor is that there was no reasonable possibility that the transaction would result in a profit.

(See here for the complete instruction.)

I want to focus again on the first element -- the proof beyond a reasonable doubt that the relevant taxpayer had no business purpose for engaging in the transaction apart from creating the tax deduction. (I refer in this blog to this purpose as just business purpose without repeating the formulaic words "apart from the tax deduction.") That instruction, in effect, tells the jury that the jury can convict the indicted enabler defendants of tax evasion if -- and only if -- the jury finds that the unindicted taxpayers were also guilty of tax evasion.

To some, that statement may not seem inevitable. Why can the enabler defendants in the case be convicted only if the unindicted taxpayers were guilty of tax evasion? Well, first off, no one could be convicted of tax evasion unless there is a tax due and owing. I have addressed concerns about tax due and owing in the case before, but I accept that, for purposes of this blog, the Government proved tax due and owing so as to be able to convict the indicted enablers for tax evasion. I now focus on the economic substance charge given above -- that the Government prove beyond a reasonable doubt that the taxpayers involved had no business purpose. Each of those taxpayers represented that they had such a business purpose. So, if the jury could make the finding that each of the taxpayers did not in fact have such a business purpose, they necessarily had to find beyond a reasonable doubt that they had committed tax evasion. They may not have brought back a guilty verdict against those taxpayers (who were not and never have been charged) but that is the inevitable conclusion of the jury's verdict under the instructions given by Judge Kaplan.

The question I now ask is whether the Government really proved a tax evasion case against each of those taxpayers as a necessary, but unstated, requirement to make the finding of guilt of tax evasion against the indicted enablers. I have previously suggested that, at least for some of the counts of conviction for evasion, the Government showed precious little about the subjective intent of the taxpayers and, in fact, only showed that, perhaps, a reasonable taxpayer could have had the intent.

One can fight over the fair inferences from the proof at that particular trial, but I ask you to assume with me now that the gravamen of the proof was as follows: (i) the underlying investment play wrapped into the BLIPS program was such that there was no objectively reasonable possibility of profit (let's not fight either about what reasonable is, or is is for that matter), so that it is fair to infer that a reasonable business-purpose motivated taxpayer would not enter the deal; (ii) Taxpayer B entered into the deal; (iii) Taxpayer B had a lot of income that was sheltered by the deal; (iv) Taxpayer B was a very successful businessman, at least in terms of his ability to earn lots of income as reflected on his returns; and (v) Taxpayer B represented in the deal documents that he did have a subjective business purpose apart from the tax benefit.

I think the question no those bare assumptions is whether there is a criminal jury issue on Taxpayer B's subjective business purpose. Stated otherwise, the question is whether there is sufficient evidence that a reasonable jury could find beyond a reasonable doubt that Taxpayer B did not have the subjective business purpose he represented he had in the deal documents. I think on the bare facts I have posited, the evidence would not be sufficient.

This point can best be made by adding an additional assumed fact -- that it is Taxpayer B who is charged with evasion.  I suggest that tax evasion trials require a whole lot more essential background and proof bearing upon the taxpayer's subjective intent before the jury is permitted to determine whether a taxpayer is guilty of tax evasion. Ultimately, the Government will have to prove that the taxpayer knowingly lied in making the business purpose representation, from which the jury could infer that he intentionally violated a known legal duty. And in order to do that the Government would have to make an individualized showing about the particular taxpayer involved, his education, his business savvy, his advisors on the deal, and other facts from which, in the context of a complete picture about that taxpayer, the jury could infer the lie and the corresponding intent to violate a known legal duty. If all the jury had was the spare facts I have assumed, I doubt that the case would survive a motion for acquittal.

Moreover, there is at least a risk of great unfairness to making an unindicted taxpayer's subjective motives essential to a conviction of other parties.  The indicted parties have little ability to mount an effective defense -- particularly as to charges of tax evasion which required a host of detailed knowledge and proof about a particular taxpayer's motivations.  The Government can get its view of the proof by hauling those unindicted taxpayers into proffer sessions and grand juries and otherwise browbeating them into submission with threat of prosecutions and even inducement -- ultimately promises or, wink-wink, suggestions of nonprosecution -- to admit their culpability and convict others based on the taxpayers' alleged subjective beliefs which might be very malleable with the right inducements / or threats.  The indicted parties, however, can provide no such inducements for the taxpayers' cooperation nor even effectively pursue any discovery from them to make a defense to the essential claim that the taxpayers, by lieing about their business purpose, committed tax evasion.
What do the readers of this blog think about these concerns?

Developments on the Swiss Tax Cheat Front

I suppose all readers of this blog probably already know about last Friday's decision by a Swiss court that holds illegal under Swiss law the agreement between the U.S. and Switzerland to turn over account information for a key category of U.S. taxpayers. For those who have not, I just point them to a some articles (see here and here) and make a few comments below.


I find it interesting the hyperbole that is surrounding this topic. For example, this posting on swissinfo.ch says that the president of Switzerland's Federal Administrative Court is looking to Parliament to resovle the issue of "whether tax evasion was a criminal offence." The reference is the interface of the Swiss law with the exchange of information provision in the double tax treaty with the U.S. The interesting quote is:

Bandli stressed that the cabinet was not the proper body to make that decision, which would effectively quash the principle of banking secrecy.

As I read this, the startling claim is that Swiss bank secrecy is all about enabling depositors to evade tax in other countries. I would have thought that there are plenty of rogues and brigands who have nontax reasons to hide assets (people do find other ways than tax to cheat and steal) and that Switzerland would continue to be a safe haven for them. But, of course, enabling depositors to cheat the fiscs of other countries is a major part of Swiss banks business. So, opening the kimono for tax cheats could have a major economic effect on Switzerland's ability to charge more for services than they are worth without the value added service of assisting them to cheat on their taxes.

More on Legal Uncertainty and, More Importantly, the Subjective Prong of the Economic Substance Test (1/19/10)

I have previously discussed here the economic substance instruction that Judge Kaplan gave in the skinnied down KPMG trial that resulted convicted three defendants of multiple tax evasion crimes and is currently on appeal to the Second Circuit. I blogged about the Government’s outsized brief filed last Friday (see the brief here). My topic of focus was the effect of legal uncertainty in the law.

Today, I carry that discussion further in the context of the Government’s claims about the role of the economic substance doctrine in a criminal tax case. To set the stage, there clearly is some uncertainty in the civil cases about the economic substance doctrine. Two tests have been developed, which the Government calls (Br. 55) and most practitioners call a subjective prong and an objective prong. The subjective prong is whether the taxpayer engaging in the transaction had a nontax profit or business objective. Under this test, tax can be a consideration but the taxpayer must have an actual business or profit object or intent; further, there is no requirement that the taxpayer's objective be reasonable. The objective prong is whether the transaction has some – perhaps limited to some reasonable – possibility of profit. The major uncertainty from the civil cases is whether the tests are in the conjunctive or disjunctive. That is, whether a taxpayer desiring to sustain his claim of tax benefits must prove (i) both that he had the profit objective (however unreasonable) and that it was a reasonable profit or business objective or (ii) either of those prongs. (For tax coneheads (among whom I number myself), this objective / subjective inquiry, if indeed conjunctive, may be analogized to the relief from the substantial understatement penalty for tax shelter transactions if the taxpayer had a belief that the transaction will more likely prevail and the belief is objectively reasonable.) The courts in the civil cases are split on that conjunctive / disjunctive issue for the economic substance test.

To state the obvious, criminal cases are not civil cases and different policies are implicated that requires some role reversal. The criminal case asks whether the Government has proved beyond a reasonable doubt that the civil tax result is certain and was willfully violated. Accordingly, in instructing the jury, as he should in a criminal case, Judge Kaplan adopted the most defendant friendly version of the split – that is, he advised the jury that the Government had to both that there was no taxpayer profit or business objective and no reasonable profit or business objective. I have doubts about turning over the economic substance test under either formulation to a jury in a criminal case, but if it must be turned over (and Second Circuit authority says it must), I think Judge Kaplan made the right choice by requiring the conjunctive application of the test. (It is important at this stage to note that the Government argued to Judge Kaplan that the jury should be instructed in the disjunctive – i.e., the jury can convict if either (i) under the subjective prong, the Government proved beyond a reasonable doubt that the taxpayers involved had no profit or business motive, or (ii) under the objective prong, the Government proved beyond a reasonable doubt that there was no possibility – or, in the Government’s mind reasonable possibility -- of profit; that notion is just goofy in a criminal case, but I won't digress further here.)

Epic Tales - the Government Brief in KPMG Criminal Case and Uncertainty in the Law

The Government's long awaited epic (209 pages to conclusion) brief to the Second Circuit in the KPMG criminal case is now out. Readers of the blog may review and download it here.

There is a lot in the brief. I quickly spotted length and healthy doses of what appears to be both wheat and chaff. I also found many rhetorical flourishes (probably chaff, but making for a good read to grab interest).  I am not yet certain whether the rhetorical flourishes have much substance, but that is beyond my pay grade anyway.

I did find one Government claim in the brief with hyperbole and error. The claim is (pp. 103-104):

Larson concedes that the trial evidence sufficed to demonstrate that he “subjectively did not believe that the BLIPS transaction had a ‘reasonable possibility of profit.’” (Larson Br. 16). He contends, however, that this concession is of no moment — that the jury, instructed as it was on “willfulness,” was nonetheless not entitled to find that he intentionally evaded taxes because his subjective intent to intentionally violate the tax laws was irrelevant. Larson asks this Court to hold that “as a matter of law. . . a defendant cannot intentionally violate a known legal duty if the substance of that duty would have been objectively unclear to a fully informed lawyer or judge at the time.” (Larson Br. 16, 38 emphasis added); see also Pfaff Br. 29-30; Ruble Br. 25-26). According to the defendants, the economic substance doctrine was sufficiently murky at the time of their conduct, objectively speaking, to foreclose willfulness.

Put simply, the defendants argue that the fact that they intentionally broke the law and knew that they were intentionally breaking the law — facts that the jury found beyond a reasonable doubt — are irrelevant, because in 1999 other people might not have known that their conduct was against the law. This breathtaking argument confounds law and common sense. This precise claim has been rejected by this Court and is hence foreclosed.

 I think that Government's claim is just flat out wrong. I have previously discussed this issue both in my book (pertinent portions here) and in some blogs here, so will not repeat the details. I just summarize my claim of hyperbole and error.

In James v. United States, 366 U.S. 213 (1961), here, the Supreme Court held that legal uncertainty -- i.e., actual uncertainty in the state of the law -- is a bar to prosecution for a tax crime which requires willfulness. In James, the defendant had been prosecuted and convicted, meaning that the jury had determined that he had intended to violate a known legal duty. The problem was that he only thought he knew the law he intended to violate. The Supreme Court held that, regardless of his intent to violate the law, the law in question was legal sufficiently uncertain that James could not be convicted regardless of his intent. 

That is pretty much it.  (The summary is heavily dependent upon understanding the intramural dispute among the Justices evidenced in the various opinions in James, so that is the best place to start.)

The Government's only reference to James is on page 109 to the fact that defendants cite the case and some notion that it is "nothing like this case" because it involved ambiguity "from dueling Supreme Court opinions, which were directly in conflict on the specific tax question at issue in that case."  The Government does not explain and I cannot fathom how the principle of James that uncertainty in the law is a legal barrier to prosecution and conviction is a special rule requiring uncertainty caused by the Supreme Court.  The issue is one of certainty in the law such that a citizen can be criminally prosecuted and proper notice to all citizens; that not dependent upon the Supreme Court's failings or timidity.

Fourth Circuit Cites S.G. Tax Sentencing Policy in Reversing Sentencing Variance (1/16/10)

In United States v. Engle, 592 F.3d 495 (4th Cir. 2010), here, decided 1/13/10, cert. den. 131 S. Ct. 165 (2010), the Fourth Circuit remanded an exceptional sentencing variance emphasizing the Sentencing Commission's introductory comment in S.G. Ch. 2, Pt. T:

The criminal tax laws are designed to protect the public interest in preserving the integrity of the nation's tax system. Criminal tax prosecutions serve to punish the violator and promote respect for the tax laws. Because of the limited number of criminal tax prosecutions relative to the estimated incidence of such violations, deterring others from violating the tax laws is a primary consideration underlying these guidelines. Recognition that the sentence for a criminal tax case will be commensurate with the gravity of the offense should act as a deterrent to would-be violators.

The Court also noted the following policy statement that the Guidelines

classify as serious many offenses for which probation was frequently given and provide for at least a short period of imprisonment in such cases. The Commission concluded that the definite prospect of prison, even though the term may be short, will serve as a significant deterrent, particularly when compared with pre-guidelines practice where probation, not prison, was the norm.

The factual background was this (at least the parts I feel most material):

The criminal information charged Engle with tax evasion for the 1998 tax year only, although the information alleged that Engle had evaded taxes for sixteen years between 1984 and 2002 and owed taxes of more than $600,000. With interest and penalties included, Engle's total tax liability exceeded $2 million. Engle's actions to avoid taxes included providing false information to the Internal Revenue Service, placing assets in others' names, and funneling income through shell corporations that he controlled.

Engle pleaded guilty to the information in 2004 and proceeded to sentencing almost two years later, in February 2006. Based on a total offense level of 17 and a category II criminal history, the presentence report calculated Engle's advisory sentencing range as 27-33 months. The district court concluded that Engle's criminal history was overstated and therefore reduced Engle's criminal history to category I, yielding an advisory sentencing range of 24-30 months.

The sentencing court clearly wanted a variance -- granting it not once but twice and chastising the Government attorney for wanting blood rather than money. The second time the sentencing court said:

Tenth Circuit Summarizes Double Jeopardy in Rejecting the Argument (1/16/10)

In United States v. Farr, 591 F.3d 1322 (10th Cir. 2010), decided 1/11/10), the Tenth Circuit rejected a double jeopardy argument under the following facts:

Skoshi Thedford Farr was convicted by a jury of evading taxes in violation of 26 U.S.C. § 7201. We reversed her conviction on appeal because the proof presented at trial and the district court's jury instructions constructively amended the indictment. She was subsequently indicted for violating the same statute based on the same conduct. The district court denied her motion to dismiss on double jeopardy grounds. For the reasons that follow, we AFFIRM the district court's decision.

The Court's discussion of double jeopardy is short and sweet (p. 1325, case citations and quotation marks omitted for readability):

The [double jeopardy] clause only creates an impediment to subsequent prosecution when there was previously a judgment of acquittal on the charge.

The successful appeal of a judgment of conviction, on any ground other than the insufficiency of the evidence to support the verdict, poses no bar to further prosecution on the same charge, but a judgment of acquittal, whether based on a jury verdict of not guilty or on a ruling by the court that the evidence is insufficient to convict does bar future prosecution on the same charge. Whether a judgment or reversal constitutes an acquittal is not controlled by the form of the court's decision. Instead, `we must determine whether the ruling of the judge, whatever its label, actually represents a resolution, correct or not, of some or all of the factual elements of the offense charged.

Neither the district court nor this court made factual findings tantamount to a judgment of acquittal.

Criminal Statute of Limitations and the Timely-Mailing, Timely-Filing Rule

In Luparella v. United States, 335 Fed. Appx. 212, 2009 U.S. App. LEXIS 12440 (3d Cir. 2009) (unpublished), the defendant was convicted of tax crimes (conspiracy, aiding and assisting and, apparently, tax perjury). In relevant part, defendant signed his tax return on 9/24/96. Defendant alleged that he mailed the return on 9/25/96. The IRS received the return by mail on 10/2/96, "six postal days after Luparella allegedly mailed the return." The indictment was returned on 9/25/02, There are no other relevant facts recounted in the opinion. The issue in this habeas corpus case was whether the indictment was untimely.

Defendant argued that, under the timely mailing, timely filing rule in Section 7502, since he filed the return on 9/25/96, the indictment on 9/25/02 was one day short of the 6 year statute of limitations. Here's how the court handled / mishandled the argument:

Luparella argues that a tax return is "filed" on the date it is mailed, and insists that his tax return was mailed on the date it was signed, September 25, 1996. Since the Indictment was not returned until September 25, 2002, he contends that it is untimely by one day, and that his counsel was ineffective for failing to object to the admissibility of the tax return and for failing to move to strike Count 2 as untimely.

We are not persuaded. This is because Luparella has offered no relevant support for his assertion that a tax return is considered "filed" for statute of limitations purposes on the date it is mailed. He cites to 26 U.S.C. § 7502, which states that "[t]imely mailing [is] treated as timely filing and paying" for the purposes of processing a tax return. This provision does not speak to when the statute of limitations begins to run for a charge of criminal tax fraud. n5

n5 Although we do not reach the merits of this issue, we note that the Government's position -- that the statute of limitations begins to run on the date the return is filed with the IRS (which is also the date of receipt by the IRS service center) -- finds support in caselaw. See United States v. Matis, 476 F.Supp. 1287, 1293 (S.D.N.Y. 1979) (noting that the statute of limitations began to run in a tax fraud case on the date the return was received by the IRS); United States v. Stella, 745 F. Supp. 195, 197 (S.D.N.Y. 1990) (stating that the date of the "receipt" stamp by the IRS indicates the date at which the receipt was filed, and begins the statute of limitations for a tax fraud prosecution).

Further, even if Luparella's legal argument had legal support, he has provided no evidentiary support for the assertion that his return was mailed on the date it was signed. In the absence of such support, his assertion is unconvincing, particularly since the IRS did not receive the tax return until October 2, 1996 -- six postal days after Luparella allegedly mailed the return.

The Court got the right result -- timely indictment -- but for the wrong reasons. Section 7502(a), the timely-mailing, timely-filing rule, provides in pertinent part:

If any return * * * required to be filed * * * on or before a prescribed date * * * is, after such period or such date, delivered by United States mail to the agency * * * with which such return, claim, statement, or other document is required to be filed, * * * the date of the United States postmark stamped on the cover in which such return * * * is mailed shall be deemed to be the date of delivery* * * *.

The provision is a relief provision designed to treat a return that is otherwise untimely when filed (i.e., the date received by the IRS) as timely filed. Stated otherwise, this provision applies only if the return is untimely filed (for this purpose, received by the IRS) but timely mailed, in which case it is deemed timely filed. If the return is timely filed (i.e., received by the IRS during the period that it is required to be filed), then it is filed on the date that it is received and 7502 does not apply. For example, if the taxpayer mails his 01 return to the IRS on 4/1/02 and it is received and filed 4/4/02, then it is actually filed 4/4/02. (There is another rule that says that a return received before the original due date for the return, in this case 4/15/02, is deemed filed on the original due date (4/15/02); this rule does not apply during extensions.) So for all purposes, including criminal prosecution purposes, the starting due date in this example is 4/15/02. But the taxpayer in Luparella did not mail or file by the original due date (4/15/02 in the example and 4/15/96 in the actual case).

So we now look to the rules that apply to returns filed after the original due date. Keep in mind that the actual filing date is the date the IRS receives it. In Luparella, the taxpayer could benefit only if the timely-mailing, timely-filing rule permitted an earlier filing date. We have two possible scenarios.

1. If the taxpayer applied for and obtained an extension (let's say the usual one through 10/15/02 in the example and 10/15/96 in the case), then the IRS would have received the return within the filing date as extended and 7502 would not apply. (When teaching this, I encourage my students to think about why that is the case -- that taxpayer, having timely filed, does not need timely-mailing, timely-filing relief and the statute thus does not provide the relief.)

2. If the taxpayer did not file for the extension and thus was not timely when he mailed the return or it was received by the IRS, § 7502 simply does not apply because it requires a timely mailing in any event.

Under either of these scenarios (the only two possible), the taxpayer loses on a straight-forward application of the statute. The Court just did not get it. (I have not read the briefs, so do not know whether the Government served it up to the Court.) For more reading on this, I offer my current draft of the relevant portion of my Tax Procedure book here (note that in my book materials I discuss the § 7502 timely-mailing, timely-filing rule and the common law mailbox rule (which also would not apply in the Luperella facts) and provide extended examples).

Notable Decision in SDNY Criminal Tax Shelter Case (1/14/10)

I have previously blogged that John B. Ohle was an unindictead alleged co-conspirator in the Daugerdas et al. indictment.  See here.  Ohle was indicted apart from that indictment.  He was indicted along with a guy named Bradley.  That indictment generated a significant decision from Judge Leonard Sand in United States v. Ohle, 2010 U.S. Dist. LEXIS 2150 (SDNY No. S2 08 Cr. 1109 (LBS)).  The following are the points that attracted my particular attention:

1. The Court rejected a challenge to the wire fraud count (Count One). Ohle argued that "Count One of the indictment impermissibly uses the wire fraud statute to reach an alleged criminal tax conspiracy, citing United States v. Henderson, 386 F. Supp. 1048 (S.D.N.Y. 1974)." The Court essentially took the life out of Henderson. Prosecutors have their choice of how to charge tax conspiracies. Why does it matter if a conspiracy is a conspiracy and there is a single punishment scheme in 18 U.S.C. § 371? Ah, but there are other potential consequences of wire and mail fraud -- forfeiture and even ramping up to money laundering or RICO -- which are not available for tax crimes and tax conspiracy (either offense or Klein defraud conspiracy). See fn. __ on page __. For the DOJ Tax Division policy for prosecutors to make the choice, see Directive No. 128 here (noting that virtually all tax crimes can be charged as mail or wire fraud, and attempting to provide guidance and preclearance directives so the mine-run tax cases are not willy-nilly charged as mail or wire fraud). Thus, these charging decisions are not tweedle dum / tweedle dee from the defendant's perspective.

2. The Court rejected a challenge to another conspiracy (Count Five) as duplicitous. The indictment contained a "boilerplate" allegation that appeared to allege a single conspiracy. The overt acts, however, seemed to suggest multiple conspiracies. Yet, because the apparent multiple conspiracies were related and involved players not acting in a vacuum, with compensation flowing around, the Court concluded that the allegation is of a single conspiracy and not multiple conspiracies so as to implicate duplicity concerns. In the process of getting to that holding, the Court had a nice discussion of the concerns that are implicated by duplicity in counts (case names and quotation marks omitted to easier see the logical flow):

An indictment is duplicitous if it joins two or more distinct crimes in a single count. Duplicitous pleading is not presumptively invalid; rather, it is impermissible only if it prejudices the defendant. Duplicity is only properly invoked when a challenged indictment affects one of the doctrine's underlying policy concerns: (1) avoiding the uncertainty of a general guilty verdict, which may conceal a finding of guilty as to one crime and not guilty as to other, (2) avoiding the risk that jurors may not have been unanimous as to any one of the crimes charged, (3) assuring the defendant has adequate notice of charged crimes, (4) providing the basis for appropriate sentencing, and (5) providing the adequate protection against double jeopardy in subsequent prosecution.

The Court of Appeals for the Second Circuit has recognized that application of the duplicity doctrine to conspiracy indictments presents "unique issues." In this Circuit, it is well established that [t]he allegation in a single count of a conspiracy to commit several crimes is not duplicitous, for the conspiracy is the crime and that is one, however diverse its objects. A single conspiracy may be found where there is mutual dependence among the participants, a common aim or purpose or a permissible inference from the nature and scope of the operation, that each actor was aware of his part in a larger organization where others performed similar roles equally important to the success of the venture. Each member of the conspiracy is not required to have conspired directly with every other member of the conspiracy; a member need only have participated in the alleged enterprise with a consciousness of its general nature and extent. If the Indictment on its face sufficiently alleges a single conspiracy, the question of whether a single conspiracy or multiple conspiracies exists is a question of fact for the jury. Accordingly, courts in this Circuit have repeatedly denied motions to dismiss a count as duplicitous.