Fourth Circuit Rejects Two-Inference Jury Instructions in Criminal Case (1/29/17)

In United States v. Blankenship, 2017 U.S. App. LEXIS 961 (4th Cir. 2017), here, the Court sustained Blankenship's conviction for conspiring to violate federal mine safety laws and regulations.  Although not a tax case, the case is noteworthy here because of the Court's holding that the two-inference jury instruction, although inappropriate, was harmless error.

So, what is the two inference instruction?  The two inference instruction given was that if the jury "view[ed] the evidence in the case as reasonably permitting either of two conclusions—one of innocence, the other of guilt—the jury should, of course, adopt the conclusion of innocence."

In United States v. Khan, 821 F.2d 90, 92 (2d Cir. 1987), here, cited by the Fourth Circuit in Blankenship, the Second Circuit held (bold-face supplied by JAT):

In our view, trial judges should not include any variation of the "two-inference" language in their charge. See Sand, Siffert, Loughlin Reiss, Modern Federal Jury Instructions ¶ 4.01, at 4-5 (1986). The "two-inference" language, that if the jury believes the evidence permits either the inference of innocence or of guilt, the jury should adopt the former, is obviously correct as far as it goes. But such an instruction by implication suggests that a preponderance of the evidence standard is relevant, when it is not. Moreover, the instruction does not go far enough. It instructs the jury on how to decide when the evidence of guilt or innocence is evenly balanced, but says nothing on how to decide when the inference of guilt is stronger than the inference of innocence but no strong enough to be beyond a reasonable doubt. In a charge that properly instructs the jury on reasonable doubt, the "two-inference" language "adds nothing." Id., ¶ 4.01, at 4-9. Therefore, we want to make clear now that the "two-inference" language should not be used because, standing alone, such language may mislead a jury into thinking that the government's burden is somehow less than proof beyond a reasonable doubt.n1 In addition, we expect the government, as well as defense counsel, to assume responsibility for bringing these comments to the attention of trial judges.
   n1 This opinion was circulated to all active judges of the Court prior to filing.

Following that lead, in Blankenship, the Court said (bold-face supplied by JAT):

Although this Court has not had an opportunity to pass judgment on the two-inference instruction, our Sister Circuits disfavor it. See, e.g., United States v. Dowlin, 408 F.3d 647, 666 (10th Cir. 2005); United States v. Jacobs, 44 F.3d 1219, 1226 (3d Cir. 1995); Khan, 821 F.2d at 93. In Khan, the Second Circuit explained that, although correct as a matter of law, the two-inference instruction "by implication suggests that a preponderance of the evidence standard is relevant, when it is not. . . . It instructs the jury on how to decide when the evidence of guilt or innocence is evenly balanced, but says nothing on how to decide when the inference of guilt is stronger than the inference of innocence but no[t] strong enough to be beyond a reasonable  doubt." 821 F.2d at 93. We agree and therefore direct our district courts not to use the two-inference instruction going forward.

JAT Comments:

Sixth Circuit on Deliberate / Willful Ignorance Instruction as Harmless Error (1/28/17)

I posted a few days ago on willful blindness.  The Willful Blindness Concept -- What Does It Do? (Federal Tax Crimes Blog 1/23/17), here.  I had not yet picked up the Sixth Circuit decision in United States v. Asker, 2017 U.S. App. LEXIS 1057 (6th Cir.  2017) (unpublished), so I offer it here.  The defendant, Happy Asker, was convicted for conspiracy, tax perjury and tax obstruction.

Asker was a successful pizza chain owner and franchiser entrepeneur.  The DEA began a drug investigation based on credible tip information of individuals associated with the operation.  Based on the investigation, the DEA obtained a wiretap authorization.  The wiretap resulted in additional information that was used to obtain a search warrant.  The grand jury thereafter charged Asker and some associates  with income tax offenses related to income and payroll taxes for which Asker was ultimately convicted.

Asker raise several  arguments on appeal.  I deal only with the argument related to the willful blindness instruction.  The Court sets up the background (bold-face supplied by JAT):

As trial neared its conclusion, the government submitted proposed jury instructions that included an instruction for "Deliberate Ignorance." The instruction, which was modeled after the Sixth Circuit Pattern Criminal Jury Instruction § 2.09, read as follows: 

(1) Next, I want to explain something about proving a defendant's knowledge. 

(2) No one can avoid responsibility for a crime by deliberately ignoring the obvious. If you are convinced that the defendant deliberately ignored a high probability that the returns at issue that the defendant filed or aided or assisted in filing were false, then you may find that the defendant knew that they were false. 

(3) But to find this, you must be convinced beyond a reasonable doubt that the defendant was aware of a high probability that the claims were false, fictitious or fraudulent, and that the defendant deliberately closed his eyes to what was obvious. Carelessness, or negligence, or foolishness on his part is not the same as knowledge, and is not enough to convict. This, of course, is all for you to decide. 

Asker objected to the giving of this instruction, arguing that the evidence in the record failed to satisfy the "factual predicate" necessary for the instruction to be given. Asker believed that the record reflected that his attention was focused elsewhere in the business during the perpetration of this tax fraud, not that he had "purposely contrived to avoid learning the truth." Nonetheless, Asker conceded that Sixth Circuit law suggested that the giving of such an instruction even where the factual predicate has not been met can only amount to harmless error. 

Judge Hood took Asker's objection under advisement, but ultimately gave the contested instruction to the jury. She, too, acknowledged that the giving of this instruction could only amount to harmless error in the Sixth Circuit, but further reasoned: 

[I]t can be given . . . when the Defendant claims lack of guilty knowledge or when the facts and evidence support an inference of deliberate ignorance[,] and there are some statements made during the course of the Government's proofs and by the Defendant that I think may raise a question about whether or not there was some inference of deliberate ignorance. 

I think it is also appropriate where the evidence establishes that the Defendant deliberately chose not to inform himself of critical facts[,] and the [c]ourt may find based on the Defendant's testimony that he didn't look to critical facts relative to the amount of his income and whether or not there was unreported gross receipts and underreporting of payroll paid by cash. 

In addition, I think whether the Government can prove willfulness or whether the Defendant's actions constitute deliberate ignorance are all for the jury to decide in this particular case. 

Consequently, Judge Hood gave the proposed instruction to the jury. At the conclusion of the nine-day trial, and with this proposed instruction in hand, the jury convicted Asker on all counts. The district court sentenced him to fifty months of imprisonment, and he brings this appeal.

The Sixth Circuit then discussed and rejected his argument as follows:

Contempt Sanctions Continued in GJ Subpoena for Required Records (1/25/17)

In In re Various Grand Jury Subpoenas, 2017 U.S. Dist. LEXIS 9697 (SD NY 2017), here, the Court continues a prior sanction order against a person, identified as Subject E.  In 2014, Subject E previously responded with two document totaling 3 pages.  The Government subsequently obtained a number of documents from the Principality of Liechtenstein that indicated the production was seriously deficient.

The Court, Judge Pauley of SDNY, recounts the relevant facts as follows:

More specifically, after reviewing translations of the Liechtenstein Documents, the Government discovered that Subject E was identified as a beneficiary of the Subject E Foundation (the "Foundation"), n1 an allegedly sham foundation organized in Liechtenstein that maintained several foreign bank accounts and had, on several occasions, transferred tens of thousands of dollars directly to Subject E. (Mot. at 13.) The Government also unearthed documents signed by Subject E indicating that she was the "beneficial owner" of the Foundation (Lenow Decl. Ex. DD at 15), possessed all of its assets (Lenow Decl. Ex. DD at 10), and had authorized changes to the listed beneficiaries (Lenow Decl. Ex. DD at 7). Finally, the Liechtenstein Documents provided information regarding several of the Foundation's foreign accounts, each of which held in excess of several million. (Lenow Decl. Ex. DD at 94, 165, 178.)
   n1 The Foundation was organized as a "stiftung," a legal entity akin to a trust under the laws of Liechtenstein. Stiftungs have been used regularly by U.S. taxpayers to conceal bank accounts overseas. Financial advisors and/or legal advisors are appointed and directed to act on behalf of the stiftungs for the benefit of the taxpayers. (Mot. at 6.) In essence, by holding bank accounts in its own name, the stiftung conceals any connection between taxpayers and their foreign assets.

While many of the Liechtenstein Documents were responsive to the 2010 Subpoena, Subject E had produced none of them. Based on the discrepancy between Subject E's bare production of three pages and the mass of materials comprising the Liechtenstein Documents, the Government concluded that she failed to comply with the 2010 Subpoena. Additionally, the Government contends that Subject E failed to produce records relating to other foreign accounts—records from a supposed joint account at Credit Suisse that Subject E shared with her former husband, and additional records from the previously referenced HSBC France account. (See Mot. at 23-24.)

The Government moved for additional contempt sanctions.

The Court's opinion addresses the following defenses asserted by Subject E:

1.  What does it mean to be in "care, custody or control" for the compulsion of the subpoena?

9th JDS Authorized for Sovereign Management & Legal LTD Information (1/24/17)

DOJ Tax announced here the unsealing of a district court order, here, to serve a John Doe Summons on "to serve a John Doe summons on Michael Behr of Bozeman, Montana, seeking information about U.S. taxpayers who may hold offshore accounts established by Sovereign Management & Legal LTD (SML), a Panamanian entity."  The order seeks "records of U.S. taxpayers who, during the years 2005 to 2016, had been issued a 'Sovereign Gold Card' debit card that could be used to access the funds in those accounts in such a manner as to evade their obligations under internal revenue laws."

Key excerpts:

U.S. taxpayers seeking to hide their offshore assets often utilize the services of offshore trusts and corporate service providers that open bank accounts, create corporations and other entities, and serve as nominee officers. In its petition seeking the issuance of the John Doe summons, the United States alleges that SML advertises various “packages” to allow taxpayers to hide their assets offshore. These packages include corporations owned by other entities (to include fake charitable foundations), all held in the name of nominee officers provided by SML. SML then opens bank accounts for these entities and provides debit cards in the name of the nominee to the taxpayer. By using such cards, taxpayers seek to access their offshore funds without revealing their identities. U.S. District Court Judge Brian Morris found that there is a reasonable basis for believing that U.S. taxpayers may be using the Sovereign Gold Card to violate federal tax laws. 

* * * * 

This case is part of an ongoing effort to stop U.S. taxpayers from using offshore financial accounts as a way to evade federal tax laws. The Justice Department previously obtained a similar order from the U.S. District Court for the Southern District of New York, authorizing issuance of eight separate John Doe summonses on bank and other entities for information related to SML and its customers in the United States. The evidence submitted in this request to issue a John Doe summons was built in part on information provided in response to the earlier summons.

SML was already on the IRS list titled "Foreign Financial Institutions or Facilitators, here.  It is #14 on the list as Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14).    The list is maintained so that U.S. taxpayers joining OVDP will know that their OVDP penalty cost is 50 percent rather than 27.5 percent of the high amount.

There is no indication why so many separate JDS were required (8 in SDNY and this 1 in Montana).

I did a quick google search on Sovereign Management & Legal LTD and found this web site for a company (LTD) of the same name:  https://www.offshore-protection.com/   I don't know whether it is the same or a related company, but seems to be the type of company that, if it has U.S. persons as customers for the services it offers, might draw the interest of the IRS.  And, if this company is related, then it is within the scope of the SML listing on the IRS web page.

Compromises of Nonrestitution Assessments with Restitution Assessments Unpaid (1/24/17)

This blog entry will principally serve as a reminder to readers on the subject of tax assessments related to tax restitution awarded at sentencing in criminal cases. Readers recall that in 2010 Congress enacted several Code provisions the net effect of which is (i) to permit the IRS to assess immediately any restitution in a criminal case awarded for unpaid taxes and (ii) prohibit the person (usually a taxpayer) from contesting the amount of the tax restitution assessment.  (At the bottom of this blog entry, I list the Code Sections involved and various blog entries on the subject.)

I call readers attention to a very good article, Robert Horwitz, The Tax Court Issues a Reminder that You Cannot Compromise Criminal Tax Restitution (Tax Litigator Blog 1/15/16), here, which discusses Rebuck v. Commissioner, T.C. Memo. 2016-3, here.  Rebuck and 10 other co-defendants were convicted of tax conspiracy under 18 U.S.C. § 371, here, for promoting offshore and domestic trust packages falsely representing that the trusts permitted taxpayers to avoid paying tax.  The sentencing court imposed tax restitution of $16,339,199, jointly and severally, on the 11 convicted defendants.  The restitution amount appears to be for then outstanding unpaid taxes avoided by taxpayers purchasing the trust schemes. (I make this assumption since it would be odd to have joint and several liabilities for the defendants' own personal income taxes.)  After the restitution award, the outstanding restitution amount would be reduced as payments against those liabilities were made either by the taxpayers themselves or by the defendants.  (It may be that the IRS did not seek payment from the taxpayers, either because their statutes had closed or for other reasons.)  The IRS then assessed the tax restitution amount against Rebuck and presumably against the other co-defendants.

In 2009, the IRS assessed against Rebuck civil penalties under § 6700, in the aggregate amount of $130,000.  Rebuck and  the IRS subsequently entered an installment agreement to pay these § 6700 penalties.

Rebuck was also assessed his own income taxes for a number of years, including some of the same years involved in the tax restitution assessment (which, to remind readers, was for other persons' income tax liabilities).  Rebuck then commenced a CDP appeal with regard to his income taxes, but asked that the § 6700 penalty assessments subject to the installment agreement be considered along with his own income tax assessments in an offer in compromise based on doubt as to collectibility.   Rebuck did not ask relief in the CDP proceeding for the tax restitution assessments, apparently because relief for those assessments comes, if at all, from the sentencing court.  During the CDP process, the § 6700 penalty installment agreement was reversed for default.  The IRS rejected the offer in compromise based on the IRS's position that such offers were not available for the same years in which there is unpaid tax restitution assessments.  The IRS did suggest that, without resolving the unpaid restitution, the IRS could enter a Partial Payment Installment Agreement ("PPIA") with respect to the income tax and § 6700 penalties for $540 per month.  Rebuck declined.

The taxpayer raised two issues:

(1) whether the IRS abused its discretion in rejecting petitioner’s OIC because it did not include full payment of petitioner’s criminal tax restitution; and (2) whether the Appeals officer abused his discretion in proposing to petitioner a PPIA of $540 per month.

The only issue I address in this blog entry is the first issue.  The Court's analysis of the first issue is short, so I quote it in full (one footnote omitted):

The Willful Blindness Concept -- What Does It Do? (1/23/17)

Willfulness is a statutory element of most Title 26 tax crimes.  E.g., § 7201 (tax evasion), here.  Willfulness is the "voluntary, intentional violation of a known legal duty." Cheek v. United States, 498 U.S. 192, 201 (1991).  Willfulness has been described as "specific intent to violate a known legal duty."  Safeco Ins. Company of America v. Burr, 551 U.S. 47, 58 n. 9 (2007) (citing Cheek).  For example, a typical jury instruction on the willfully element for tax evasion is (Seventh Circuit Pattern Jury Instructions, here, quoted in DOJ Tax CTM Government Proposed Jury Inst. No. 26.7201-18, here):

The term “willfully” means the voluntary and intentional violation of a known legal duty, in other words, acting with the specific intent to avoid paying a tax imposed by the income tax laws or to avoid assessment of a tax that it was the legal duty of the defendant to pay to the government, and that the defendant knew it was his/her legal duty to pay.

The question I address today is the role of the concept of willful blindness with respect to the willfulness element of tax crimes.  I have discussed this issue before and list at the bottom of this blog entry some of my more significant prior blog entries dealing with some aspect of this issue.  I want to address it again today because I continue to be concerned about the issue and would appreciate feedback from readers either by comment or by email (jack@tjtaxlaw.com).

First, readers should be aware that the willful blindness concept goes by several names -- willful ignorance, deliberate blindness, deliberate ignorance, conscious avoidance, etc.  I use the term willful blindness in the current blog.   (For more on the issue of the use of various terms and my decision to use willful blindness in this blog entry, see the note at the end of this blog entry.)  The key for present purposes to make sure that the use of the term willful blindness is not in any way conflated with the willfulness element of the tax crime.

In Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011), here, a civil patent case, the Supreme Court found support for applying a similar concept in the civil patent infringement area.  In dicta, the Court said (footnotes omitted):

The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes  by deliberately shielding themselves from clear evidence of [*2069]  critical facts that are strongly suggested by the circumstances. The traditional rationale for this doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge. Edwards, The Criminal Degrees of Knowledge, 17 Mod. L. Rev. 294, 302 (1954) (hereinafter Edwards) (observing on the basis of English authorities that “up to the present day, no real doubt has been cast on the proposition that [willful blindness] is as culpable as actual knowledge”). It is also said that persons who know enough to blind themselves to direct proof of critical facts in effect have actual knowledge of those facts. See United States v. Jewell, 532 F.2d 697, 700 (CA9 1976) (en banc). 

This Court's opinion more than a century ago in Spurr v. United States,  174 U.S. 728, 19 S. Ct. 812, 43 L. Ed. 1150 (1899), while not using the term “willful blindness,” endorsed a similar concept. The case involved a criminal statute that prohibited a bank officer from “willfully” certifying a check drawn against insufficient funds. We said that a willful violation would occur “if the [bank] officer purposely keeps himself in ignorance of whether the drawer has money in the bank.” Id., at 735, 19 S. Ct. 812, 43 L. Ed. 1150. Following our decision in Spurr, several federal prosecutions in the first half of the 20th century invoked the doctrine of willful blindness. Later, a 1962 proposed draft of the Model Penal Code, which has since become official, attempted to incorporate the doctrine by defining “knowledge of the existence of a particular fact” to include a situation in which “a person is aware of a high probability of [the fact's] existence, unless he actually believes that it does not exist.” ALI, Model Penal Code § 2.02(7) (Proposed Official Draft 1962). Our Court has used the Code's definition as a guide in analyzing whether certain statutory presumptions of knowledge comported with due process. See Turner v. United States, 396 U.S. 398, 416-417, 90 S. Ct. 642, 24 L. Ed. 2d 610 (1970); Leary v. United States, 395 U.S. 6, 46-47, and n. 93, 89 S. Ct. 1532, 23 L. Ed. 2d 57 (1969). And every Court of Appeals--with the possible exception of the District of Columbia Circuit, see n. 9, infra--has fully embraced willful blindness, applying the doctrine to a wide range of criminal statutes.

Additional Pleas to Offshore Account Tax Crimes (1/18/17)

DOJ Tax announces, here, the plea to three U.S. offshore account holders.  The banks are the usual suspects -- UBS, Credit Suisse, Bank Leumi and others -- in Switzerland and Israel.  Each of the three related persons -- Dan Farhad Kalili, David Ramin Kalili and David Shahrokh Azarian -- pled to one count of failure to file FBARs, a five year felony.  Sentencing is later.

The key excerpts are:

Beginning in May 1996, and continuing through at least 2009, Dan Kalili opened and maintained several undeclared offshore bank accounts at Credit Suisse Group (Credit Suisse) in Switzerland. He also opened and maintained several undeclared offshore bank accounts from at least 1998 through 2008 at UBS AG (UBS) in Switzerland. Similarly, David Kalili opened and maintained several undeclared accounts at Credit Suisse in Switzerland, from February 1999 through at least 2009, and at UBS in Switzerland, from October 1993 through at least 2008. Dan and David Kalili also maintained joint undeclared Swiss bank accounts at both UBS and Credit Suisse beginning in 2003 and 2004, respectively. Meanwhile, Azarian opened and maintained several of his own undeclared accounts at Credit Suisse in Switzerland from May 1994 through at least 2009, and at UBS in Switzerland from April 1997 through at least 2008. 

In July 2006, Dan Kalili, with the assistance of Beda Singenberger (Singenberger), a Swiss citizen who owned and operated a financial advisory firm called Sinco Truehand AG, opened an undeclared account at UBS in the name of the Colsa Foundation, an entity established under the laws of Liechtenstein. Singenberger was indicted in the Southern District of New York on July 21, 2011, for conspiring to defraud the United States, evade U.S. income taxes, and file false U.S. tax returns. Singenberger remains a fugitive. As of May 2008, the Colsa Foundation account at UBS held approximately $4,927,500 in assets. 

Each of the defendants took affirmative steps to prevent their assets in UBS and Credit Suisse from being discovered. Dan Kalili opened an undeclared account at Swiss Bank A in the name of the Colsa Foundation and in May 2008, transferred his assets from the UBS Colsa Foundation account to Swiss Bank A. He later made partial disclosure of the Swiss Bank A Colsa account on his individual income tax returns. In 2009, Dan Kalili opened undeclared accounts at Israeli Bank A and at Bank Leumi, both in Israel. In June 2009, he closed the joint undeclared account at Credit Suisse he held with David Kalili, as well as his own undeclared account, and transferred the funds. Shortly before its closure, the undeclared joint account of Dan and David Kalili at Credit Suisse held approximately $2,561,508 in assets. As of December 2009, Dan Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,569,973, and his undeclared account at Bank Leumi held assets valued at approximately $2,497,931.

Similarly, in August 2008, David Kalili opened an undeclared account at Israeli Bank A in Israel, into which he transferred funds from his UBS accounts. He later partially declared the Israeli Bank A account on his individual income tax returns. As of August 2009, David Kalili’s undeclared account at Israeli Bank A held assets valued at approximately $1,369,489. 

In August 2008, Azarian, also opened an undeclared account at Israeli Bank A in Israel, and in May 2009, he closed his undeclared account held at Credit Suisse and transferred the funds to Israeli Bank A. Azarian later partially declared this Israeli Bank A account on his individual income tax returns. At the time of its closure, Azarian’s undeclared account at Credit Suisse held assets valued at approximately $1,903,214. 

For each year from 2006 through 2009, Dan Kalili, David Kalili, and Azarian, as U.S. citizens, were required, but willfully failed, to report their ownership and control over foreign bank accounts through the timely filing of FBARs with the IRS disclosing their signatory or other authority over the various undeclared accounts held at UBS, Credit Suisse, Israeli Bank A, and Bank Leumi, each having an aggregate value of more than $10,000 during each of these years. 

* * * *  

* * * In addition [to the criminal exposure], each defendant agreed to pay a civil penalty for willfully failing to file FBARs. Dan Kalili agreed to pay a civil penalty of $2,674,329, David Kalili agreed to pay a civil penalty of $1,325,121 and Azarian agreed to pay a civil penalty of $951,607.

The civil penalty is the willful FBAR penalty, which is 50% of the high amount in the accounts.

The plea agreements and docket entries for each defendant are here:

• Dan Kalili docket entries, here.
• Dan Kalili plea agreement, here.
• David Kalili docket entries, here.
• David Kalili plea agreement, here.
• Azarian docket entries, here.
• Azaraian plea agreement, here.

Congressional Staffer Achieves Booker Downward Variance for Failure to File That Could Have Been Charged as Evasion (1/17/17;11/20/17)

I previously reported that a congressional aide, Issac Lanier Avant, had been charged with 5 counts of failure to file income tax returns, in violation of § 7203, here.  Congressional Staffer Charged with Failure to File (Federal Tax Crimes 8/25/16), here.  Failure to file is a misdemeanor offense, permitting a maximum sentence of 1 year per count.  Since then, Avant pled guilty to 1 count of failure to file.  See DOJ Press Release of 11/16/16, here.  The plea to a single count meant that, since § 7203's maximum incarceration period for a single count is 1 year, his sentence could not exceed one year.  The other counts were dropped.  Today, according to a DOJ press release, here, Avant was sentenced to "a prison term of approximately 4 months, consisting of 30 days incarceration, followed by incarceration every weekend for 12 months."

JAT Comments:  Before I get into the comments, I caveat that I have not scoured the record to see if publicly available information on Pacer would explain the sentence.  I therefore work off the DOJ press releases and the indictment linked in my original blog on the indictment.  So, with that caveat, here is what I offer.

1.  The Guidelines calculations seem to be as follows:

Base offense level for a tax loss of $153,122 - 16
Less: Acceptance of responsibility - (3)
Offense level for sentencing table - 15
Indicated Guidelines Range - 12-18 months.

Based on these calculations, it appears that the judge gave a significant downward variance (1/3 of the Guidelines range bottom) under the discretion allowed by Booker.  Nothing particularly notable on the bare fact of a downward Booker variance in a tax sentencing.  It is worth noting that, by pleading to a single count, the parties precluded the judge from imposing any sentence above the bottom of the Guidelines range.

2.  Perhaps more significant is the substantial charging break that Avant achieved.  Avant did not just fail to file his returns, he also filed a false W-4 with his employer to exempt himself from tax, thus avoiding withholding.  This is a frequent gambit for persons who try to evade tax, often in the guise of protestor positions.  In United States v. King, 126 F.3d 987 (7th Cir. 1997), here, the defendant filed false W-4's claiming too many exemptions.  He was convicted of tax evasion.  DOJ's CTM states that case where the taxpayer fails to file tax returns can be prosecuted as evasion (a five-year felony per count) where the taxpayer files a false W-4.  DOJ CTM 8.06[1] Attempt To Evade Assessment, here, provides:

Statistics from the 2016 Whistleblower Office Report (1/16/17)

The IRS Whistleblower Program Fiscal Year 2016 Annual Report to Congress, here, reports the following statistics:

Table 1: Amounts Collected and Awards under Section 7623, Fiscal Years  2014 to 2016 FY2014 FY2015 FY2016 Total Claims Related to Awards 240 204 761 Total Number of Awards fn4 101 99 418 Total IRC 7623(b) Awards 19 18 Collections over $2,000,000 fn5 9 11 16 Total Amount of Awards fn6 $52,281,628 $103,486,236 $61,390,910 Amounts Collected  fn7 $309,990,568 $501,317,481 $368,907,298 Awards as a Percentage of Amounts Collected 16.90% 20.60% 16.60%

fn4  For Table 1, “Total Number of Awards” reflects the number of payments to whistleblowers. In some cases, awards can include proceeds from multiple taxpayers, which are reflected in the “Total Claims Related to Awards.”
fn5  This row includes pre-enactment section 7623(a) claims that were greater than $2 million and section 7623(b) claims.
fn6 The “Total Amount of Awards” is prior to sequestration reductions.
fn7  The “Total Amount of Awards” [for FY2015] was overstated by $441.84 on the FY 2015 Annual Report, and Table 1 has been revised to reflect the correct amount.

JAT Comments on the Statistics: My own calculations the following averages per award from the numbers above: Average Awards $517,640 $1,045,316 $146,868 These average award numbers are low because of the large number of § 7623(a) awards which generally tend to be significantly less than the § 7623(b) awards.  My inference is that the § 7623(b) awards – 0 in FY 2014, 19 in FY2015, and 18 in FY2016 - would average much more than the indicated average for all awards.  Indeed, I suspect that, although § 7623(b) awards made are a low percentage of total awards, the lion's share of the Total Amount of Awards is under § 7623(b). These numbers for claims awarded under § 7623(b) may seem low, but § 7623(b) is still relatively new (enacted effective 2007) and processing whistleblower claims to fruition with collected proceeds (collections after the refund statute of limitations has expired) takes a long time.  So, the number of awards and the amounts awarded are probably not indicative of the future where awards may be in the pipeline for claims already made or will be received and processed in later years.

Back to the Report:

The Report contains a discussion of "Other Issues of Interest."

Tax Attorney Sentenced to 48 Months of § 7202 Convictions (1/14/17)

I previously reported on a tax attorney, Steven Lynch, being convicted of charges for employment tax fraud under § 7202, here.  See Tax Attorney Convicted of Employment Tax Fraud (Federal Tax Crimes Blog 9/8/16; 9/10/16), here.  The defendant has now been sentenced to 48 months in prison (48 months on each count to be served concurrently)  See the judgment here.  Also see the docket entries here.

Prior to the sentencing, the sentencing judge ruled only various post-trial motions, some of which merely restated motions or claims made before or during trial.  See Memorandum Order Denying Defendant's Motion for Judgment of Acquittal or, in the Alternative, Motion for New Trial in United States v. Lynch, 2017 U.S. Dist. LEXIS 634 (WD PA 2017), here.  The matters dealt with in the Order and the rulings are more or less garden variety, so I won't discuss them here.  Rather, I just point out certain matters that caught my eye in the Order.

1.  The defendant is described as "a highly skilled tax attorney and sophisticated businessman * * * The evidence at trial fairly established that Lynch possessed superior knowledge of tax and corporate laws which he used to keep Internal Revenue Service ("IRS") agents from being able to collect taxes due for several entities that make up the Iceoplex - - a collection of businesses related to an indoor ice skating rink - - by shifting assets and employees among several entities."

2.  The defendant was charged with tax obstruction, § 7212(a), here, in addition to several counts of willful failure to pay over, § 7202.  He was acquitted of tax obstruction and some of the willful failure to pay over counts.  He was convicted of some of the willful failure to pay over counts.

3.  The Court cites as among the evidence from which the jury could have convicted Lynch of the willful failure to pay over the following (bold face supplied by JAT):

• The FBI's interview of Lynch in March of 2011, during which he was notified that he was the subject of a criminal investigation for willful failure to pay employment taxes. Doc. No. 223, p. 216-218. After the FBI interview, Lynch made full, timely payments for three subsequent quarters and substantial partial payments for two more subsequent quarters before failing to make any payment towards the taxes owed for the quarters related to the Counts for which he was convicted. See Doc. No. 201, pp. 44-49.

The inference that could be drawn from the FBI interview and subsequent events is, I think, fair.  The question I have is why the FBI would have been conducting a tax crimes investigation as seems to be the  import of the first sentence.  As I have discussed in several blog entries, the ability of the DOJ (including its FBI component) to investigate tax crimes is at least questionable.  See DOJ Tax Division Criminal Tax Investigation Authority (Federal Tax Crimes Blog 6/5/09; 12/29/14), here; and Even More on DOJ Authority to Investigate Tax Crimes (Federal Tax Crimes Blog 7/20/10), here.  I find that the IRS continues to claim that exclusive investigative authority on its web page titled Financial Investigations - Criminal Investigation, here, where it states:  "IRS is the only federal agency that can investigate potential criminal violations of the Internal Revenue Code."  I suppose that the FBI's interview could have been incident to a grand jury investigation in which the grand jury could have been investigating other nontax crimes as well, but the opinion does not state that.

The Downside of Booker Discretion to Vary -- Upward Variance in a Tax Perjury Case (1/14/17)

In United States v. Hayes, 2017 U.S. App. LEXIS 251 (6th Cir. 2017) (unpublished), here, the Sixth Circuit affirmed a sentence with an upward variance in a tax conviction under § 7206(1), tax perjury.  The upward variance sentence was to 15 months which was 2 1/2 times the upper range of the Guidelines calculation (that high end being 6 months based on the stipulated tax loss).  Readers will recall that United States v. Booker, 543 U.S. 220  (2005) caused a sea change in the role of the Guidelines -- changing them from mostly mandatory to advisory with the ability of the sentencing judge to exercise discretion to vary outside the Guidelines now advisory sentencing ranges.  In tax cases, variances are not uncommon and, by far the majority of the time, are downward variances making the sentence less than the low end of the Guidelines range.  Upward variances are rare.  Viewed one way, Hayes might be seen as just another rare upward variances which are driven by unique bad facts.  Viewed another way, the sentence may be viewed as practically achieving a proper sentence consistent with the Guidelines rather than varying from them.  Let me explain.  

First, as an introduction to the explanation below, I will refer to the opinion, to the parties' briefs and to the oral argument.  The opinion is linked above.  The parties' briefs and the oral argument are linked here:

Hayes, Appellant's Brief, here
United States Appellee's Brief, here
Hayes' Reply Brief, here
Oral Argument, here
Court of Appeals Docket Sheet, here.

Hayes' tax perjury charge arose from a false Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, filed under penalty of perjury with respect to an unpaid tax liability of $125,753.62.  I have not been able to determine exactly how that tax liability was assessed -- whether assessed by a tax return or returns without payment or after audit of a tax return or returns not reporting the liability.  All the facts I know was that he had the tax liability when he filed the false Form 433-A.  From the Court of Appeals opinion (emphasis supplied by JAT):

On the form, Hayes attested that he had not "transferred any assets for less than their full value" in the past ten years. That was untrue, for in 2007-08 Hayes had given his mother nearly $140,000 worth of antiques, artwork, and jewelry for no cost. Based in part on that misrepresentation, the IRS closed its collection case, concluding that, if Hayes were forced to pay his tax debt, he would be unable to afford basic living expenses. 

Months later, Hayes's misrepresentation came to light, and he pled guilty to making a false statement on his Form 433-A. As part of the plea agreement, the parties stipulated that "no tax loss resulted from [Hayes's] offense."

Finews Article on Swiss Bank Shenanigans (Including the Recently Publicized U.S. Tax Shenanigans) (1/9/17)

I picked up this offering:  Dormant Accounts: How a Theft Changed Swiss Banking (finews.com 1/9/17), here.  The article is not very flattering of Swiss banks' attempts over the years to steal money from their customers, their relatives, and in the case of its tax shenanigans, through customer fees that were payments for raiding their respect home country fiscs.  Finews is a swiss media outlet.  There was a time when Swiss media outlets would not have offered such articles.  Before getting into some of the contents of the article I first present something on this particular news  outlet.

According to the "About" page on its web site:

Where Finance Meets 

finews.com is Switzerland’s leading news site for all professionals in the financial sector. finews.com delivers real-time news about the financial industry: breaking news, feature stories, industry developments, opinions plus the latest on people and trends. 

finews.com was founded by an independent team of journalists and writers with extensive experience covering global financial services from a Swiss perspective.

Of course, these are promo statements.  I don't know whether finews.com is Switzerland's leading news site for professionals in the financial sector.  On a quick Google search, I did not immediately spot a source that I felt reliable as to the credibility of finews.  I suppose that this could be so-called "fake news."  Nevertheless, I decided to post this article because it does provide, in summary fashion, an accurate review of some of the Swiss bank shenanigans with which I am familiar -- the Holocaust gambit and the raid on U.S. and other countries' fiscs by helping customers hide assets and income.  So, I turn to the article and, since I presume readers of this blog already know about the Holocaust gambit and the the raid on U.S. and other countries' fiscs by helping customers hide assets and income, I only cut and paste an excerpt about one I had not previously known -- one that preceded the Holocaust.

It is twenty years now that a night guard stole documents destined for the shredder at the predecessor of UBS in Zurich. The theft indirectly caused one of the biggest ever crisis for Swiss banking. And is exemplary for the woes of a once proud industry. 

Christoph Meili was doing his shift at Union Bank of Switzerland in the night to January 9, 1997, when he spotted documents ready for destruction. He (falsely) assumed they were proof for banking relations with victims of the Holocaust and removed the documents.  

The employee of Wache AG missed the fact that the documents dated back to the years of 1897 through 1927 and thus couldn’t possibly be proof for the dormant accounts. He gave the files to a Jewish organization, which in turn handed them over to the police. 

The theft of the documents prompted an escalation of the simmering conflict over the so-called dormant accounts at Swiss banks. It also proved to be the catalyzer for one of the crisis Swiss banking has ever seen, with a now infamous class-action lawsuit engineered by a group of New York-based lawyers. UBS and Credit Suisse settled the conflict at the end of the century with the payment of $1.25 billion. 

So, this is a good read, albeit quite summary.  I cannot speak to the accuracy of it, except as it relates to the Holocaust and the the raid on U.S. and other countries' fiscs by helping customers hide assets and income, which is basically right.

As an aside, long ago, I asked more than once somewhat tongue in cheek:  How do you tell a Swiss Banker from a Somali Pirate?  My set up answer was that the Swiss Banker was the one wearing a suit.  Subsequent events have even knocked down that answer, as the investigations into the Swiss banks and bankers' U.S. tax shenanigans brought to light Swiss bankers traveling in camouflage (e.g., Hawaiian shirts when coming into the U.S. to make the customs authorities think their story of vacationing in the U.S. credible, when in fact they were set on doing their part in the tax conspiracy).  I suppose they might even dress like Somali Pirates if necessary to get the business of Somali "Pirate King" (not like the Pirate King, here, in Gilbert & Sullivan's Pirates of Penzance).

DOJ Swiss Bank Program NPAs Spike the Data for Overall NPAs in 2015 (1/7/17)

Corporate Nonprosecution Agreements Plummet in 2016, but DOJ Still Willing to Make a Deal (National Law Journal 1/6/17), here.

From the opening:

Corporate nonprosecution agreements dropped dramatically in 2016 from the previous year, but the government is still offering deals to penitent white-collar defendants, according to a recent study by Gibson, Dunn & Crutcher. 

Last year the U.S. Department of Justice and the U.S. Securities and Exchange Commission collectively entered into 35 corporate nonprosecution agreements (NPAs) or deferred prosecution agreements (DPAs). That compares with 102 such agreements in 2015, according to the report. 

But there's a big caveat to what appears to be a steep slide in corporate NPAs and DPAs. It follows a dramatic spike in 2015, driven by the Justice Department's Swiss Bank Program. Most of the 2015 agreements were offered by the DOJ's Tax Division as part of a structured agreement to bring foreign bank accounts into compliance with U.S. tax law, which brought in $6.4 billion in recoveries, according to the report. 

ast year, of the 35 NPAs and DPAs, the majority, 26, involved matters other than tax-related and monetary transaction offenses. In all, they brought in $4.6 billion in recoveries, according to the report. 

Chart 2 illustrates the total monetary recoveries related to NPAs and DPAs from 2000 through today. Monetary recoveries associated with 2016 NPAs and DPAs also were consistent with recoveries in years past. Where 2014 and 2015—with 30 and 102 agreements, respectively—saw $5.1 billion and $6.4 billion in recoveries, 2016 saw $4.6 billion. 

[Graphic omitted - but recommend that readers see it in the original] 

"If you back out 2015, the numbers are essentially in the heartland of what NPAs and DPAs have been for nearly a decade," said F. Joseph Warin, chair of Gibson Dunn's Washington, D.C., office's litigation department. "On balance is what we're seeing is this vehicle has become an alternative to a plea of guilty for businesses that are in a regulated industry."

JAT Comment:  One open question is whether the Swiss Bank Program will be a template for resolutions of similar behavior in other countries.   And, even if there is no publicly announced program, whether DOJ/IRS will be willing to settle cases with other country banks on that basis in one on one negotiations.  Of course, the other countries may require some cooperation from their Governments in order to avoid privacy commands in their laws in order to divulge the data required under this template and that would likely require some public notice of a general program.  I anyone knows whether DOJ/IRS is willing to resolve other country banks' exposures on this or any other basis, please let me know either by email (jack@tjtaxlaw.com) or by comments to this blog entry.

Also, readers interested in the general subject of NPAs and DPAs should check regularly with Professor Brandon Garretts' (UVA Law) database presentation here.

Deutsche Bank Settles Liability for Enabling Bullshit Tax Shelter -- A Midco Variation (1/5/17)

I previously reported on one of Deutsche Bank's bullshit tax shelter adventures.  Deutsche Bank's Amazing Magnificent Adventure -- Again -- into the Land of Bullshit Tax Shelters (Federal Tax Crimes Blog 10/3/15), here.  That blog reported on Judge Kaplan's rejection of DB's motion to dismiss the case filed by the Government with respect to the bullshit tax shelter -- a variation on the Midco shelter theme.  The case has now been resolved.  See Settlement and Dismissal Order here.  The key facts, which DB admits in the settlement document, are covered in the prior blog, so I won't repeat them here.  Suffice it to say that DB admits that it participated knowingly in a scheme to avoid payment of taxes.

The settlement requires DB to pay $95 million.  The settlement does not state how that figure was derived.  I could speculate but I suspect there would be a high chance that my speculation would be misfocused.

The agreement says that the following claims of the U.S. are not released:

a.  Any claim for conduct other than the Covered Conduct.

b.  "Any criminal liability."

c.  A broad swath of potential liability in a paragraph that I am not sure I understand the full scope of (so I quote that paragraph, ¶ 5.c.):

Except as expressly stated in this Stipulation, any administrative liability (other than (i) the collection, assessment, or adjustment of any income tax,  including any interest thereon and any penalties for failure to report or failure to pay such income tax, arising from the Covered Conduct and (ii) BMY's unpaid tax liability, including any interest thereon and any penalties for failure to report or failure to pay such income tax, resulting from the sale of the Bristol-Myers shares), including the suspension and debarment rights of any federal agency;

The settlement further states (¶ 7):

7. Deutsche Bank waives and will not assert any defenses it may have to any criminal prosecution or administrative action relating to the Covered Conduct that may be based in whole or in part on a contention that, under the Double Jeopardy Clause in the Fifth Amendment of the United States Constitution, or  under the Excessive Fines Clause in the Eighth Amendment of the United States Constitution, this Stipulation bars a remedy sought in such criminal prosecution or administrative action.

JAT Comments:

IRS Designates Syndications Exploiting Improper Valuations for Conservation Easement Deductions (1/2/17)

I note at a couple of places in the Federal Tax Procedure Book that some of the most abusive tax shelters do not fail because the legal positions are faulty.  Rather, they fail because the legal positions are all based false facts, often a false valuation of property.  For example, in discussing the substantial and gross valuation misstatement penalties in §§ 6662(e) and (h), here, I state:

Section 6662(e)’s substantial valuation misstatement penalty and § 6662(h)’s gross valuation misstatement penalty are directed to return reporting positions where the law is correctly applied but a critical valuation is grossly erroneous, resulting in the substantial understatement of the tax liability.  In many of the abusive tax shelters over the years, the Achilles heel has been and continues to be inflated valuations.  The legal superstructure had some facial merit, but it was built on a factual house of cards because of gross overvaluation.  A facet of this problem was that, since tax professionals were not valuation experts, they could render their opinions without taking responsibility for the key valuation facts that supported the whole purported tax shelter superstructure.  For example, as to property otherwise qualifying for the old investment tax credit (10 percent of qualifying investment in property), tax shelter promoters would sometimes inflate the value of property to 10 or 20 times its true value and sell it to investment partnerships (where the partners were tax shelter investors) for the inflated value.  Of course, only crazy people would pay the inflated value, so the tax shelter investors paid only a small amount down and “paid” the balance by nonrecourse indebtedness (before the rules related to nonrecourse indebtedness and passive losses).  Assuming that the value was correct, the taxpayers would be entitled to the credit; the problem was in the valuation.  Many, many tax issues, not just tax shelter issues, rely upon valuations.  Thus, for example, estate and gift tax returns rely upon reasonably correct valuations.  The purpose of this penalty is to put some sting in overly aggressive valuations.

I have posted on variations of this theme.  Court Sustains Use of Regular Summons to Appraiser Investigated Even Though Third Party Taxpayers May be Identified (Federal Tax Crimes Blog 1/14/16), here.  See also Prominent and Very Rich Investor Indicted in SDNY (Federal Tax Crimes Blog 5/24/16), here.

Such overvaluations carry risk of criminal prosecution and significant civil penalties.

The IRS strikes again at a valuation shelter in a different package, this one syndications -- promoted "investments" -- offering conservation easement deductions.  Notice 2017-10, 2017-04 IRB, here.  The Notice describes the problem:

The promoters (i) identify a pass-through entity that owns real property, or (ii) form a pass-through entity to acquire real property. Additional tiers of pass-through entities may be formed. The promoters then syndicate ownership interests in the passthrough entity that owns the real property, or in one or more of the tiers of pass-through entities, using promotional materials suggesting to prospective investors that an investor may be entitled to a share of a charitable contribution deduction that equals or exceeds an amount that is two and one-half times the amount of the investor’s investment. The promoters obtain an appraisal that purports to be a qualified appraisal as defined in § 170(f)(11)(E)(i) but that greatly inflates the value of the conservation easement based on unreasonable conclusions about the development potential of the real property. After an investor invests in the pass-through entity, either directly or through one or more tiers of pass-through entities,  the pass-through entity donates a conservation easement encumbering the property to a tax-exempt  entity. Investors who held their direct or indirect interests in the pass-through entity for one year or less may rely on the pass-through entity’s holding period in the underlying real property to treat the donated conservation easement as long-term capital gain property under § 170(e)(1). The promoter receives a fee or other consideration with respect to the promotion, which may be in the form of an interest in the pass-through entity. The IRS intends to challenge the purported tax benefits from this transaction based on the overvaluation of the conservation easement. The IRS may also challenge the purported tax benefits from this transaction based on the partnership anti-abuse rule, economic substance, or other rules or doctrines.

SD NY District Court Rejects Partial Payment § 6707 Penalty Refund Suit (1/2/17; 1/9/17)

In Larson v. United States, 2016 U.S. Dist. LEXIS 179314 (SD NY 2016), here, the Court rejected an attempt by a promoter assessed a very, very large § 6707 penalty to avoid the Flora full payment rule for refund litigation.  The principal holding is that the § 6707 penalty is not a divisible penalty that could benefit under divisible tax exception to Flora's full payment rule.  This aspect of the case is consistent with prior holdings such as Diversified Group Inc. v. United States, 841 F.3d 975, 981 (Fed. Cir. 2016), here.

The full bore application of the Flora full payment exception is troubling on these facts with very, very large § 6707 penalties.  The IRS assessed a $24,745,026 penalty for the FLIP/OPIS shelter and a $135,487,056 penalty for the BLIPS shelter.  The total was thus $160,232,026.  The IRS did reduce the penalty by amounts paid by other co-promoters.  The aggregate amount of that reduction was $96,820,667, leaving Larson liable for $63,411,359.  (Co-promoters also might be liable for the unpaid balance.)

Larson made a partial payment of $1,432,735, hence his refund suit alleging a divisible tax as a basis for not paying all.  The Court's basic analysis as to why the § 6707 penalty is not divisible is fairly straight-forward.  I think the following discussion relating to the claims of hardship because of the amount of the penalty is interesting.

Indeed, at oral argument, Larson did not dispute that the failure to register a tax shelter was "only one act," or "one act per shelter," Tr. at 17:22-23; rather, Larson seeks to limit the applicability of the full-payment rule to his particular circumstances. In a due process challenge to the application of the full-payment rule, Larson argues that the full-payment rule violates "the Fifth Amendment where there is no alternative forum having jurisdiction over pre-payment challenges to such penalties and where an individual does not have the financial means to pay the penalties in full." Opp. Br. at 7. Foreclosed from review in Tax Court, Larson argues that because he cannot pay the penalty, and he cannot seek review for his claim without paying the penalty, the imposition of the full-payment rule violates his Fifth Amendment right to due process. n9
   n9 Larson did not assert a Due Process claim in his Complaint, but he makes arguments based on the Due Process Clause in opposing the Government's motion to dismiss. 

Larson argues that the Supreme Court in Flora I and Flora II never intended for the full-payment rule to apply in circumstances in which Tax Court review is unavailable and the challenged penalty amount is unaffordable to the taxpayer. Larson's reading of Flora I and Flora II strains to find due process arguments where none exists. In reviewing the legislative history of 26 U.S. § 1346(a)(1) and the legislative history that led to the creation of Tax Court, the Supreme Court noted that Congress created the Tax Court as a prepayment forum to ameliorate "the hardship of prelitigation payment." Flora I, 357 U.S. at 74, 75; Flora II, 362 U.S. at 158. But it is clear that Congress created the Tax Court out of legislative grace, not because it was a constitutionally-required response to the full payment rule. See Flora I, 357 U.S. at 75; Flora II, 362 U.S. at 158. Flora I and Flora II held that, in district court, a taxpayer must "pay first and litigate later," and Larson points to no authority that supports his argument that the unavailability of the Tax Court vitiates the full-payment rule in district court. Carving a "when Tax Court is unavailable" exception into the full-payment rule would subvert the full-payment rule's purpose in "promot[ing] the smooth functioning of [the tax litigation] system." See Flora II, 362 U.S. at 647. Although this Court is sympathetic to Larson's circumstances, this Court declines to recognize such an exception to well-settled jurisdictional limits.

Categories 3 and 4 Banks in U.S. DOJ Swiss Bank Program Have Been Resolved (12/29/16)

DOJ issued a press release regarding the status of the Swiss Bank Program:  Justice Department Reaches Final Resolutions Under Swiss Bank Program: Information Received Continues to Drive Civil and Criminal Enforcement Efforts (12/29/16), here.

The resolution of Category 2 have been previously announced.  This press release indicates the resolution of Categories 3 and 4.  That leaves only the Category 1 banks some of which have been resolved.  The Category 1 banks were those banks already under criminal investigation when the Swiss Bank Program was first announced.

I am traveling through January 2, so any postings will necessarily be cryptic.

On Structuring and Forfeiture and Grand Juries (12/28/16)

In United States v. Fisher, 2016 U.S. Dist. LEXIS 176719 (WD NY 2016), here, the defendant is a woman whose husband had previously been convicted by plea agreement for mail fraud and filing false returns.  He had been sentenced to 36 months imprisonment and ordered to pay $969,647.09 in restitution.  Subsequently, while he was incarcerated, in a series of transactions of less than $3,000, the wife purchased money orders from a financial institution.  The purchases aggregated over $300,000.  The Government obtained an indictment and then a superseding indictment from the grand jury charging multiple "counts of causing a financial institution to fail to file a transaction report—i.e., structuring—in violation of 31 U.S.C. § 5325(a)(2)."  The superseding indictment alleged that she purchased $74,000 in money orders with the intent of evading the identification requirements.  Those identification requirements could have led to the institutions filing reports of the purchases.  The superseding indictment also included a forfeiture allegation.  Pursuant to the forfeiture allegation, the Government filed a notice of lis pendens on the house, thus, she alleged, impairing funds that could have been available for her defense.

Section 5325, here, requires a financial institution to require identification upon the purchase of "a bank check, cashier’s check, traveler’s check, or money order to any individual in connection with a transaction or group of such contemporaneous transactions which involves United States coins or currency (or such other monetary instruments as the Secretary may prescribe) in amounts or denominations of $3,000."

Pursuant to defendant's motion to dismiss the superseding indictment, the magistrate judge recommended dismissal and, in the alternative, dismissing the forfeiture notice.

[Magistrate] Judge Scott makes these recommendations because, during grand jury proceedings in this case, the Assistant United States Attorney (AUSA) made several references to the Defendant's ex-husband's criminal conduct. Judge Scott also recommends dismissal because, in response to grand juror questions, the AUSA and the IRS Special Agent who testified before the grand jury discussed whether and how Fisher's home could be forfeited in the event of a conviction.

The district judge, in this decision and order linked above, rejects that recommendation and sustains the superseding indictment.  I post on the district judge's order because it offers a fascinating look into the grand jury, a look usually denied because of the grand jury secrecy rules.  In summarizing the relevant parts of the grand jury proceeding, the Court said (Slip Op. 3, n3 (carries over to p. 4):