CA6 Affirms Tax Obstruction Conviction (3/27/21)

In United States v. Avery (6th Cir. 3/26/21)(Unpublished), CA6 here and TN here, the Court affirmed Avery’s conviction for one count of tax obstruction, § 7212(a).  This is an unpublished opinion and, in the context, a fairly routine holding.  There are, however, two items I think worth mentioning

1.  A picky point.  The Court said (Slip Op. 6):  “The Department of Justice Tax  Division indicted DeSanto, Cespedes, and Avery in February 2018.”  The judges on the panel and their clerks and the other judges on the panel should know better than that.  Grand juries indict.  (I did LEXIS-NEXIS searches on “Department of Justice Tax  Division indicted” and “Tax  Division indicted” and got no hits.  (The Avery case is apparently not yet loaded on L-N.)

2. The Court makes a footnote comment (Slip Op. 6 n. 3):

n3 We find it puzzling that Avery did not challenge the substantive reasonableness of the restitution portion of her sentence. At oral argument, Avery's attorney pointed out that Avery's actions alone were not responsible for any of the IRS's losses, and neither caused the IRS a pecuniary loss nor met any other provision of 18 U.S.C. § 3663A(c) that would mandate restitution. Nor did the government argue that Avery was responsible for Integrated's falling behind on its taxes; rather, it made clear that its only claim against Avery was that she obstructed or impeded the IRS investigation. And the record does not suggest that Avery's obstructions prevented the IRS from pursuing the delinquent taxes; indeed, the IRS issued assessments for them and has begun collecting on those assessments.

CA9 Holds in Boyd that Nonwillful FBAR Civil Penalty Is Per Form Rather Than Per Account When Correct Delinquent FBAR Is Filed (3/24/21; 3/31/21))

Added 3/31/21 3:30pm:  Lavar Taylor, here, Boyd's lawyer and a force in the national tax community, emailed me some comments on my offering on the Boyd case.  Lavar authorized me to include his comments at the end of this blog.  I highly recommend his comments to readers interest in the general subject matter.

In United States v. Boyd, 991 F.3d 1077 (9th Cir. 2021), CA9 here and TN here, the Court held that the FBAR nonwillful penalty is per annual form rather than per account that should have been reported on the form.  With this opinion, there seems to be a consensus on this holding that is likely to continue.

I have not tried to delve deeply into the majority and dissenting opinions to determine which of the two presents the best case (or whether neither of them does).  So, this blog is not about the merits of the bottom-line holding, but about some of the distractions I found in the opinions.

1. I was particularly surprised to see the dissenter (Judge Ikuta, Wikipedia here) say this as a concluding shot at the majority (Slip op. 31) :  “By holding otherwise, the majority misinterprets the relevant statutes and regulations in a manner that unfairly favors the tax evader.”  The dissenter is just wrong.  There was no tax evader in the case and the opinion does not favor tax evaders.  The case involved the nonwillful penalty, not the willful penalty.  The willful penalty is the one that would apply if tax evasion (a term of art) were involved.  Tax evasion is penalized under criminal and civil penalty regimes--§ 7201 (tax evasion) and 6663 (civil fraud), respectively.  The standard for both penalties is Cheek’s intentional violation of a known legal duty.  I explain that claim in Federal Tax Procedure 320-321 (Practitioner Ed. 2020), here. There is no suggestion in the case that Boyd was a tax evader or that any other taxpayer subject to the nonwillful penalty is a tax evader or subject to any of the income tax penalties (criminal or civil) applying to tax evaders.  Indeed, if the IRS thought Boyd (or any other taxpayer) were tax evaders, surely the IRS would assert the willful FBAR penalty for the failure to file the FBAR on its original due date.  Keep in mind in  this regard that the willful FBAR penalty, as interpreted  is subject to a looser standard than the Cheek standard, permitting the willful penalty for recklessness which could not support a criminal or civil tax penalty for criminal evasion or its civil counterpart, tax fraud.  So, in my opinion, Judge Ikuta is way out of bounds to make the closing sound bite, as cute as it is, of helping the tax evader.  And Judge Ikuta is particularly out of bounds to make the claim implicit in the quote that Boyd is a tax evader being helped by the majority's interpretation. 

2.  On the merits, the majority seems to limit its per account holding to cases where the following elements are both present:  (i) the FBAR was not timely filed and (conjunctive) (ii) a delinquent but correct FBAR was filed.  Is the Court saying that the result would be different (nonwillful penalty per account) if the taxpayer had not filed a delinquent correct FBAR (either not filed a delinquent FBAR or filed an incorrect delinquent FBAR)?  I thought the penalty applied on the date the FBAR was due (then 6/30) and not filed timely rather than anything that happened later. If that is correct, it should not matter whether a delinquent FBAR (whether correct or incorrect) was filed.  Of course, the delinquent filing of an incorrect FBAR, if  willful,  would subject the taxpayer to the willful penalty (but even there the date for measuring that penalty, I thought, was the filing date and the IRS should have to show willfulness in failing to file on that date).  As to the willful penalty, the correctly reported accounts on a delinquent return does not affect the penalty base for all accounnts willfully not reported on the filing due date.    The majority seems to adopt this view on p. 16 n. 10:  “Under both scenarios [willful and nonwillflul], the violation flows from the failure to file a timely and accurate FBAR.”  If the Court is correct on the conjunctive requirements, taxpayers missing the filing dates should always file correct delinquent FBARs if audited just to protect against the possibility that failure to do so might permit the penalty to apply per account (even as unlikely that a court would sustain that interpretation).

Another Failed Judicial Contest of the FBAR Willful Penalty (3/23/21)

In Kimble v. United States, 991 F.3d 1238 (Fed. Cir. 3/22/21), TN here, in an appeal from an adverse holding in a refund suit, the Court sustained the willful FBAR civil penalty.  Unfortunately for Kimble, neither the facts nor the law was helpful.

The Court almost summarily dispatched Kimble’s main arguments about the CFC’s holding sustaining the penalty.

Here, the parties do not dispute that Ms. Kimble failed to disclose a foreign bank account that she was required to disclose. Rather, Ms. Kimble argues that her violation was not “willful.” We hold that, based on the undisputed facts, it was not clear error for the Court of Federal Claims to find Ms. Kimble's violation willful.

Contrary to Ms. Kimble's argument that a taxpayer cannot commit a willful violation without “actual knowledge of the obligation to file an FBAR,” Appellant's Br. 32, we have held that “willfulness in the context of § 5321(a)(5)(C) includes recklessness,” Norman, 942 F.3d at 1115. Accordingly, a taxpayer signing their returns cannot escape the requirements of the law by failing to review their tax returns. Id. at 1116 (“[W]hether [the taxpayer] ever read her . . . tax return is of no import because '[a] taxpayer who signs a tax return will not be heard to claim innocence for not having actually read the return, as . . . she is charged with constructive knowledge of its contents.'”) (quoting Greer v. Comm'r, 595 F.3d 338, 347 n.4 (6th Cir. 2010)).

The undisputed facts show that Ms. Kimble knew about the numbered account and took efforts to keep it secret by, among other things, not disclosing the account to her accountant. She did not review her tax returns for 2003-2008, but she represented under penalty of perjury that she had reviewed her tax returns and had no foreign accounts. J.A. 17. In other words, Ms. Kimble had a secret foreign account, she had constructive knowledge of the requirement to disclose that account, and she falsely represented that she had no such accounts. Under these facts, it was not clear error for the Court of Federal Claims to hold that she committed a willful violation. n2 

   n2 Ms. Kimble's reasons for the violation (her subjective belief about the need for secrecy, advice from her ex-husband, etc.) do not alter our inquiry. A taxpayer can be “willful” even if her violation has good reason. See Bedrosian v. United States, 912 F.3d 144, 153 (3d Cir. 2018) (inquiring into “subjective motivations and the overall 'egregiousness' of [the taxpayer's] conduct . . . [is] not required to establish willfulness in this context”); Norman, 942 F.3d at 1116 (“Actions can be willful even if taken on the advice of another.”). And there is no “reasonable cause” exception for willful violations. 31 U.S.C. § 5321(a)(5)(C)(ii).

The Court then moved to Kimble’s hail Mary arguments and also handily dispatched them.

Another Court Adopts Nonwillful Penalty Per Form Rather than Per Account (3/19/2)

In United States v. Giraldi (D. N.J. 3/16/21), TN here and TN pdf here, the Court held (Slip op. 8): “[T]his Court aligns with the more persuasive reasoning in Bittner and Kaufman. Accordingly, pursuant to Section 5321(a)(5)(B)(i) of the BSA, penalties for non-willful reporting violations attach to each FBAR form rather than any undisclosed foreign financial account.”

The Court distinguishes the only contrary precedent, Boyd, as follows (Slip op. 15): “Significantly, the court merely reiterated the Government's arguments and conducted no analysis in coming to its conclusion.”

I see a trend developing for per form rather than per account.  For what it is worth, I think that is the right answer.  I do note, however, that the judge indicated that the opinion was not to be published.  I don’t know what that is about because it is a well written opinion in an area of law still not settled.

Court Denies APA Attack on SDP Transition Denial Allegedly Forcing Taxpayers to Accept OVDP Penalty Structure (3/16/21)

In Harrison v. IRS, 2021 U.S. Dist. LEXIS 45582 (D. D.C. 3/11/21),* here, the taxpayers entered the OVDP program prior to the IRS offering the Streamlined Domestic Procedures (“SDP” program in 2014.  The SDP penalty requirements were less than the OVDP’s penalty requirements and required taxpayers to certify nonwillfulness and provide support for that certification.  Incident to the SDP, the IRS permitted taxpayers then in OVDP to “transition” to SDP.  The transition required (just as the SDP required) that taxpayers certify nonwillfulness and support the certification.  The IRS (through its Central Review Committee, determined that the taxpayers had not established their nonwillfulness and therefore left them in OVDP where the options were (i) accept the OVDP penalty structure which was more than SDP but less than the law could impose outside OVDP or (ii) opt out of OVDP and take their chances on audit.  Rather than take the risk of higher penalties on audit, the taxpayers chose to accept the OVDP penalty structure.  Accepting OVDP required that the taxpayers enter a closing agreement which provided, in part, that the taxpayers would not file a claim for refund of any amounts paid pursuant to the closing agreement.  They did and paid the resulting tax, penalties and interest, including the miscellaneous offshore penalty in lieu of an FBAR penalty in the amount of $519,943.44.

Two years after entering the closing agreement, the taxpayers brought what was in effect a refund suit but, apparently realizing that the closing agreement might be a bar, couched the suit under a mélange of legal theories:  (i) APA claims that the transition rules were adopted without notice and comment and, in any event, were arbitrary and capricious under APA section 706(2)(A); (ii) Due Process claim based on the alleged purported absence of procedural protections; and (iii) duress claim that the Closing Agreement was invalid.

The Court rejected their claims.  The Procedurally Taxing Blog has a good discussion of the APA aspect of the case.  Leslie Book, APA Offers No Avenue For Relief For Challenge to Offshore Transition Rules Penalty Regime (Procedurally Taxing Blog 3/15/21), here.  Basically, the Court held that a refund suit would be an adequate remedy thus precluding subject matter jurisdiction of the APA claims.  I encourage readers to read that blog and will only address here some nuances on the APA claims.  

 In the blog, Professor Book states:  “The needle can still be thread: if someone else  has fully paid and is not subject to a closing agreement they could bring a refund suit in federal court and get a court to consider the merits of the APA challenge.”  That is the part I want to thrash upon further.

Let’s posit that a taxpayer in the situation in the case did not accept the OVDP settlement but instead took their chances on audit and the general maximum 50% penalty was imposed.  No closing agreement is required.  So, in that case, I suppose Professor Book’s statement is that the taxpayers could then pursue their APA claims in the refund suit; alternatively, and more likely, the government would have pursued a collection suit and the taxpayer’s APA arguments could be pursued there (recall that the government must bring that suit within two years of the assessment of the FBAR penalty).  (In considering a refund suit possibility, recall also that full pre-litigation payment may not be required (James R. Malone, Half a Loaf Might Suffice: FBARS, Flora and Federal Jurisdiction (Post & Schell Tax Controversy Posts 2/13/17), here.) and in the collection suit, no pre-litigation payment is required.)  I suppose both of those potential options to present the APA claims might be deemed sufficiently adequate to preclude stand alone jurisdiction to present the APA claims.

 What exactly are those APA claims?

 Failure to adopt with notice and comment rulemaking

Good Article on the State of the Vance Investigation of Trump and Trump Organization (3/15/21)

A good article on the Vance, Manhattan District Attorney, investigation of Trump and the Trump organization.  Jane Mayer, Can Cyrus Vance, Jr., Nail Trump? (New Yorker 3/12/21), here (may require a paid subscription to read).  A good excerpt for tax crimes enthusiasts:

Many legal experts believe that, without an inside witness such as Allen Weisselberg on the stand, it could be hard to persuade a jury beyond a reasonable doubt that Trump knowingly engaged in fraud. Tax cases are notoriously difficult to prosecute, because the details are dull and complicated; ignorance can be an effective defense. The hurdle is proving criminal intent. And, as Bharara pointed out, “Trump is actually very clever.” He learned from his early mentor Roy Cohn, the infamous fixer and Mob lawyer, to leave no fingerprints. He writes very little down, has no computer on his desk, has never had a personal e-mail address, and relies on close aides to send text messages for him. Also, as Barbara Res, an engineer who worked for Trump, recalled, he is skilled at issuing orders obliquely. Res told me, “He would direct work in a way that you knew what he wanted you to do without him actually telling you.”

The targets of complex financial prosecutions often defend themselves by noting that their accountants and lawyers had approved their allegedly criminal actions. Trump has already started making this argument. In a statement denouncing the Supreme Court’s upholding of Vance’s subpoena, Trump protested that his tax returns “were done by among the biggest and most prestigious law and accounting firms in the U.S.”

Readers may recognize Jane Mayer, the author of the article, as an outstanding investigative journalist.  See her Wikipedia page, here.

Allegations of Continuing Misconduct Against A Supposedly Chastened Credit Suisse (3/14/21)

The New York Time has this article:  Katie Benner and Michael Forsythe, Whistle-Blower Says Credit Suisse Helped Clients Skip Taxes After Promising to Stop (NYT 3/13/21), here, reporting allegations for continuing misconduct after the 2014 plea agreement.  See Credit Suisse Pleads to One Count of Conspiracy to Aiding and Assisting (Federal Tax Crimes Blog 5/19/14; 5/20/14), here, and Credit Suisse is Sentenced: Is It just a Wrist Slapping (Harder than UBS But Is It Enough)? (Federal Tax Crimes Blog 11/21/14), here.

The whistleblower started making the allegations even before the Credit Suisse plea agreement and has continued making allegations of misconduct after.  The whistleblower’s attorney, Jeffrey Neiman (web page here), alleges that his clients has names of U.S. persons whom Credit Suisse continued to assist in cheating on U.S. tax and is submitting information to the IRS’s Whistleblower Office.  According to the article, earlier submissions by this whistleblower led to the conviction of Dan Horsky, whose conviction and sentencing I reported earlier.  See Horsky is Sentenced for Major Offshore Accounts (2/11/17; 2/12/17), here.

As readers know, there are substantial potential rewards for whistleblowers (15-30% of collected proceeds which includes FBAR penalties).  See § 7623(b), here. For Horsky alone his tax exceeded $18 and FBAR penalty was $100 million.  See Former Business Professor Pleads Guilty to Tax Related Crimes; In Addition, Will Pay $100 Million FBAR Penalty (Federal Tax Crimes Blog 11/4/16; 11/9/16), here.  So, if the whistleblower received an award for that, he would have gotten at least 15% of that amount and perhaps more up to 30%.  And, apparently, the whistleblower is not claiming more whistleblower awards.

Rahn+Bodmer, Swiss Bank Category 1, Enters Deferred Prosecution Agreement (3/12/21)

UAO SDNY issued this press release titled:  Zurich’s Oldest Private Bank Admits To Helping U.S. Taxpayers Hide Offshore Accounts From IRS: Rahn+Bodmer Enters into Deferred Prosecution Agreement for Criminal Misconduct; Agrees to Pay $22 Million (3/12/21).  The deferred prosecution agreement (“DPA”) is here.  The DPA waives indictment and consents to the filing of a criminal information charging a single conspiracy count encompassing both a defraud conspiracy and offense conspiracies (evasion, § 7201 and tax perjury, § 7206(1)).

The announcement and underlying documents assert a standard litany of misconduct that was typical of Swiss banks' actions to help U.S. taxpayers cheat on their taxes.  R+B is just the latest of the small group of Category 1 Swiss Banks that were under investigation when DOJ Tax offered its Swiss Bank Program.  According to my spreadsheet, 19 Banks are listed as Category 1 but I think there is some duplication in that number.  At any rate, it is a small number relative to all of the Swiss banks engaging in this type of misconduct.

My spreadsheet indicates the following for Category 1 Swiss Banks (with duplication in the number of banks (but not in total costs)

US DOJ Swiss Bank Program	Number	Resolved	Total Costs
U.S. / Swiss Bank Initiative Category 1	19	14	$5,065,199,035

These Category 1 DPAs should be distinguished from the nonprosecution agreements reached with Swiss Banks in other categories under the DOJ Swiss Bank Program where the Swiss banks resolving their U.S. tax criminal issues are listed here.

Panama Papers Produces Another Plea and Conviction, Previously Sealed (3/7/21)

The International Consortium of Investigative Journalists (“ICIJ”) has this release announcing the plea, conviction and sentencing of a person, Joachim Alexander von der Goltz, implicated in the Panama Papers disclosures.  As reported, this is the third person brought to justice pursuant to the Panama Papers disclosures.  One of the others convicted was Joachim Alexander’s father, Harald Joachim Von Der Goltz.

From the Pacer docket entries, it appears that a superseding indictment, apparently the seventh, had been sealed from 12/6/19 until 3/4/21.  (Dkt. Entries 288 and 289.)  The sealed superseding indictment now released is here.  The superseding indictment charged: (i) an offense conspiracy to commit tax evasion, Count One; (2) tax perjury (§ 7206(1) (Count Two); and (3) willful failure to file FBARs, Count Three.  The guilty plea was entered on 12/17/19 and filed under seal (Dkt. Entry 291.)  On 3/4/21, von der Golttz was sentenced to time served (whatever that was), with 3 years of supervised release.  See judgment here.  $230,365 of tax restitution was ordered.

The CourtListener docket entries are here but, of the time of posting this blog had  not been updated, even though some of the later Pacer entry documents had worked their way to CourtListener.  Not sure about that, but I assume that CourtListener's algorithms will update the docket entries soon.  In the meantime, they can be viewed on Pacer but that will require a Pacer account and fees for access.

JAT Comment:

1. It is not clear why the tax offense charged was tax perjury, § 7206(1), rather than tax evasion.  I would think that the conduct to support an offense conspiracy to commit tax evasion could suffice for the substantive tax evasion charge.  Section 7201 criminalizes willful "attempts in any manner to evade or defeat any tax imposed by this title."  A conspiracy to do so seems to fit that broad description.  

Indictment for FBAR Charges, False Income Tax Returns and False Streamlined Submission (3/4/21)

Yesterday, DOJ Tax issued this press release:  Businessman Indicted for Not Reporting Foreign Bank Accounts and Filing False Documents with the IRS, here.  The press release announces charges for failure to report accounts on the FBARs for 2010 through 2016 and for false income tax returns for the same years “that did not report to the IRS all of his foreign bank accounts and income.”  The latter seems oddly worded since it does not state that the charge relates to failure to report the income from the accounts.  (I suppose it is possible that the income may have been properly reported and the Forms 8938 may have been false, but that seems odd.)

I think the most important item in the press release is the following:

Rahman is also charged with filing a false “Streamlined Submission” in conjunction with the IRS Streamlined Domestic Offshore Procedures. Those procedures allowed eligible taxpayers residing within the United States, who failed to report gross income from foreign financial accounts on prior tax returns, failed to pay taxes on that gross income, or who failed to submit an FBAR disclosing foreign financial accounts, to voluntarily disclose their conduct to the IRS and to pay a reduced penalty if their conduct was non-willful. The indictment alleges that Rahman’s Streamlined Submission did not truthfully disclose all the foreign bank accounts in which he had an interest, and falsely claimed that his failure to report all income, pay all tax, and submit all required information returns, such as FBARs, was non-willful.

In other words, Rahman omitted from the Streamlined Submission accounts he should have disclose and falsely certified his alleged nonwillfulness.  I just wonder whether, had he disclosed all accounts in the Streamlined Submission and certified nonwillfulness, the Government would have prosecuted for that certification alone.  I don't know the answer to that, but the Government has asserted that it is prepared to charge false nonwillful certifications.

I previously reported on charges for false Streamlined Submissions in the following (reverse chronological order):

• Recent Article on Prosecution for False Certification of Nonwillfulness (Federal Tax Crimes Blog 4/1/20), here.
• Taxpayer Charged with False SFCP NonWillful Certification (Federal Tax Crimes Blog 8/26/19), here.

I did a Pacer search to find the indictment but the search returned the following information: Proceedings for case 1:21-cr-00022-LMB are not available.  The CourtListener docket entries for the case are here.  I created an alert in CourtListener, so when I should get an alert when the CL docket entries are refreshed.  I may then add something to this blog entry.

Issue Preclusion (Collateral Estoppel) in FBAR Civil Willful Penalty Suit After Criminal Conviction (3/3/21)

In United States v. Kerr (D. Ariz. 2:19-cv-05432-DJH dkt. 26 Order dated 3/1/21), TN here, the court granted the U.S. partial summary judgment in the FBAR civil willful penalty collection suit based on collateral estoppel (issue preclusion) from Kerr’s prior conviction for willfully failing to file FBARs.  The court held that the issue of Kerr’s willfulness had been determined in the criminal proceeding at a higher standard that included the lesser civil standard.  However, the court denied summary judgment with respect to one account, called a placeholder account, that was not among the accounts mentioned in the indictment for the counts of conviction.  The opinion is short, so I will not discuss further.

JAT Notes:

1.  Issue preclusion is term now generally used rather than collateral estoppel.  See Revised Terminology: Issue Preclusion Rather than Collateral Estoppel and Claim Preclusion Rather than Res Judicata (Federal Tax Procedure Blog 11/29/16), here.

2.  I have written before on issue preclusion on the FBAR willful penalty from the criminal conviction.  FBAR Collection Suit Against Person Convicted of Willfully Failing to File FBAR (Federal Tax Crimes Blog 12/11/18), here.

3. I have discussed tax crimes settings for issue preclusion (collateral estoppel) as to the civil fraud penalty from the criminal conviction.  Some of the posts are (reverse chronological order):

• Tax Court Again Rejects Collateral Estoppel For Some Deficiency and Civil Fraud Penalty Where No Tax is Due (Federal Tax Crimes Blog 7/24/16), here.
• Tax Evasion Conviction Does Not Compel a Finding of Deficiency Where There is No Deficiency (Federal Tax Crimes Blog 4/2/16), here.
• Civil Collateral Estoppel Following Tax Evasion Conviction (Federal Tax Crimes Blog 12/3/13), here.
• Hapless Mr. Williams Loses Again (Federal Tax Crimes Blog 12/5/12), here.

Supreme Court Opinion Uses “Cleaned Up” Technique for First Time (3/3/21)

 This morning’s NLJ Supreme Court Brief Email had this item (authored by Tony Mauro):  How SCOTUS Finally Got 'Cleaned Up.'  Mauro's article points to this quote from Justice Thomas' unanimous opinion in Brownback v. King, ___ U.S. ___, ___ S.Ct. ___, 2021 U.S. LEXIS 1198 (2021), here (emphasis supplied):

To “trigge[r] the doctrine of res judicata or claim preclusion” a judgment must be “‘on the merits.’” Semtek Int’l Inc. v. Lockheed Martin Corp., 531 U. S. 497, 502 (2001). Under that doctrine as it existed in 1946, a judgment is “on the merits” if the underlying decision “actually passes directly on the substance of a particular claim before the court.” Id., at 501–502 (cleaned up).

Focusing just on the bold-face sentence, here is the sentence from the Semtek opinion:  

The original connotation of an "on the merits" adjudication is one that actually "pass[es] directly on the substance of [a particular] claim" before the court.

The cleaned up quote looks much tidier and accessible to the reader than does the original in the Semtek opinion.  That is the point.

As explained in Mauro's article:

"The court's holding is the words that are used, not the punctuation," said Metzler, who promoted the phrase persistently on his widely-read Twitter feed Supreme Court Places and in an article published in the Journal of Appellate Practice and Process. In that article, Metzler complained that with the traditional clutter, citations "become an unwieldy mess packed with case cites and parenthetical information that tests the reader's ability to remember the point that the author was trying to make by using the quotation in the first place." Metzler is also the editor of previously unshared style guides of the Supreme Court and Solicitor General.

His campaign to propagate the phrase eventually caught on, and it found its way into all federal circuit courts. "We should welcome any effort to make judicial opinions more readable and accessible to every American citizen," said Judge James Ho of the U.S. Court of Appeals for the Fifth Circuit, who has used the phrase. "To paraphrase my friends at the Green Bag, Citations should not look like goulash." Metzler's latest tally found that the phrase was used more than 5,000 times by lawyers and judges alike. But until last week, it never made it to the holy grail of the Supreme Court.

Recently, there had been hints that the high court was paying attention, Metzler said. Phrases like "quotation modified" or "quotation altered" were being used in Supreme Court decisions with the same purpose. Metzler wouldn't speculate on why "(cleaned up)" finally made it to the court and to Justice Clarence Thomas, who wrote the Brownback opinion.

But here is a guess: as of January 13, the Supreme Court has a new Reporter of Decisions named Rebecca Womeldorf. Part of her job is editing-or perhaps cleaning up-the court's opinions.

I have been using the cleaned up technique since I first learned of it from Bryan Garner’s Blog entry titled Law Prose Lesson 303: Cleaned Up Quotations and Citations (Bryan Garner Law Prose Blog June 2018), here.  Readers will recall that, for some time now, I explain the technique in a page link in the right hand column, titled Cleaning Up Quotes and Cites for Readability -- The "Cleaned Up" Technique, here.

Thanks Jack Metzler and thanks Justice Thomas.

This blog post is cross-posted on my Federal Tax Procedure Blog, here.

Defendant Petitions for Cert on Relationship of Defraud Conspiracy and Marinello Interpretation of Tax Obstruction (2/22/21)

I have previously blogged on the plea and resulting conviction of Scott Flynn for the defraud / Klein conspiracy.  See Eighth Circuit Holds that Marinello Pending Proceeding Nexus in § 7212(a) Does Not Apply to Defraud / Klein Conspiracy (Federal Tax Crimes Blog 8/17/20), here; and Two Cases Involving Marinello (Federal Tax Crimes Blog 1/15/19), here.  Flynn has filed a petition for certiorari (S.Ct. pdf here pdf and TN text here) presenting the following issues (Pet. p. 1):

I. Whether the due process clause of the United States Constitution, as discussed in McCarthy v. United States, 394 U.S. 459 (1969) and more recent decisions of this Court, requires discussion in open court of the elements of an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) offense to advise the defendant of the nature of the charges against him before a guilty plea is accepted.

II. Whether the requirement for a nexus between a particular administrative proceeding and a taxpayer's conduct is necessary to save the constitutionality of a conviction under an 18 U.S.C. § 371 conspiracy to defraud the Internal Revenue Service (Klein Conspiracy) after this Court's decision in Marinello v. United States, 138 S. Ct. 1101 (2018).

III. Whether a criminal defendant is entitled to a jury trial to determine the amount of restitution under either the Sixth or Seventh Amendments to the United States Constitution.

All of the issues are important, but only the Supreme Court will determine whether they are “cert-worthy.”  

I address one issue that I have written on before – whether Marinello’s interpretation of the tax obstruction, § 7212(a), offense can or should apply to the defraud / Klein conspiracy?  See e.g., What Are the Implications for Marinello on the Defraud / Klein Conspiracy? (Federal Tax Crimes Blog 3/24/18), here; see also Great Second Circuit Dissent on Potential Overreach in Tax Obstruction (Federal Tax Crimes Blog 2/28/17), here.  Flynn argues that the defraud / Klein conspiracy is unconstitutional and can be saved by importing the Marinello analysis into the defraud / Klein conspiracy.  See pp. 20, here – 30.  I need not go over the nuance of the argument since the petition presents the position well and I have previously addressed the issue in the various Federal Tax Crimes Blog links above.  Here (p. 4), though is the fairly cryptic summary of the argument:

The charging document for the 18 U.S.C. § 371 (Klein Conspiracy) charge used all but identical language to a tax obstruction charge, 26 U.S.C. § 7212(a), that was limited by this Court in Marinello v. United States, 138 S. Ct. 1101 (2018). The same nexus limitation should have been applied here or the statute should be declared unconstitutional.

JAT Comment (added 2/22/21 at 9:00pm:

More on the Wartime Suspension of Limitations Act (WSLA) (2/20/21)

The prior blog entry, Daugerdas Fails in Post-Conviction Hail Mary Motion (2/17/21; 12/19/21), here, had a brief discussion in paragraph 4 of Judge Pauley’s holding that the Wartime Suspension of Limitations Act (18 U.S.C. § 3287, here, (“WSLA”) applied to the nontax crimes fraud counts.  I said I would post a later blog with more on the WSLA.  I will now post some thoughts on the WSLA.  (In the prior blog, I did cut and paste my discussion from another text, but I expect this to offer more than in that cut and paste and make some corrections.)

First, here is the text of the statute (I bold-face the key provision):

18 U.S. Code § 3287 - Wartime suspension of limitations

When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)), the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or (2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or (3) committed in connection with the negotiation, procurement, award, performance, payment for, interim financing, cancelation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war or directly connected with or related to the authorized use of the Armed Forces, or with any disposition of termination inventory by any war contractor or Government agency, shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

 Definitions of terms in section 103 [1] of title 41 shall apply to similar terms used in this section. For purposes of applying such definitions in this section, the term “war” includes a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)).

In this blog, I will focus only on the first of the three circumstances – “(1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not.”

 1.     The WSLA suspends the statute of limitations for any “offense” involving the specified categories (1)-(3).  Although some courts applied the WSLA to Government civil claims involving fraud (the False Claims Act in particular), the Supreme Court held that it only applied to criminal offenses.  Kellogg Brown & Root Services v. United States, ___ U.S. ___, 135 S.Ct. 1970, 1976-1978 (2015)

2. Must the offense for which the statute is suspended relate to the hostilities identified in the  congressional authorization? No.  Any fraud against the Government is covered.  See United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593, 613 (S.D.N.Y. 2013) (“applying the WSLA to all frauds against the United States, including those unrelated to the war, accords with the purpose of the Act. ")  Importantly, in this regard, the third disjunctive application specifically requires a relationship to the hostilities, so the absence of such a required relationship in the other two implies that such a relationship is not required for the other two, including specifically the fraud provision under subsection (1).

Daugerdas Fails in Post-Conviction Hail Mary Motion (2/17/21; 2/19/21)

I write today on tax criminal, Paul Daugerdas, who has been the subject of many postings on this blog.  (See here.)  After exhausting all of his conviction and other post-conviction remedies, Daugerdas in 1918 tries one other “hail Mary” shot in the form of a motion “to vacate his conviction and sentence pursuant to 28 U.S.C. § 2255.”  Daugerdas v. United States (SDNY Dkt 18cv152, Entry No. 48), Memorandum and Order dated 2/16/21, TN here & CL here).  As with his other efforts to avoid or mitigate his convictions, this one fails. 

Daugerdas’ failed effort included the common use of the ineffective assistance of counsel allegation and other “blunderbuss” claims.  Basically, the Court rejected Daugerdas’ claims that his counsel, both trial and appellate, met the standards for effective assistance of counsel within the broad range of reasonable strategic decisions made in the course of trial and appeal.  The Court also rejected other claims, including a Marinello claim to his § 7212(a), tax obstruction, conviction.  See Marinello v. United States, 584 U.S. ___, 138 S. Ct. 1101 (2018).

This is a fairly standard disposition of such claims.  The following caught my eye.

1. Daugerdas claimed that his trial counsel failed in advising him to execute pre-indictment extensions of the criminal statute of limitations.  One of his arguments was that he received no consideration for the extension and therefore, as a contract, the extension was unenforceable as a matter of basic contract law.  The Court rejected that argument (see pp. 9-10).  The Court’s holding appears to be based on one holding and one notion:  (1) as recited in the extensions, Daugerdas did receive consideration in the DOJ’s forbearance to indict immediately without the extension and the extension gave him more opportunity to argue against indictment and marshal his case for trial when indicted; and (2) in any event, possibly, a waiver of the statute of limitations is a unilateral waiver rather than a contract, thus requiring no consideration under contract law (this second holding is, stated cautiously (“Under this view”), in a footnote, p, 10 n. 4).  My comments are:

• The second holding, a standard and routine one for extensions of the civil statute of limitations under § 6501(c)(4) is, I and my former partner have argued, wrong.  John A. Townsend & Lawrence R. Jones, Jr., Interpreting Consents to Extend the Statute of Limitations, 78 Tax Notes 459 (1998), here.  The problem is that there is too much water under the bridge on this spurious notion to ever correct it.  (Regardless, the Court,  usually meticulous, miscites the name of a key case, Stange v. United States, 282 U.S. 270 (1931)).
• As I said, § 6501(c)(4) applies only to civil statute extensions.  I am not sure that authority which was based on an early version of § 6501(c)(4) (since materially changed as we note in the article), could affect criminal statute extensions.  The cases cited by the Court in the footnote are civil cases which all go back to the notion cited above which now is mainstream even if erroneous. and I am not sure that authority would govern in criminal cases.
• In all events, I can't imagine that any defense counsel would advise a client to extend the statute of limitations unless there was something for the defendant in the extension.  So, I would imagine that a court considering such a contract consideration claim for a criminal statute extension would not be able to find consideration, at least in terms of considering an ineffective assistance of counsel claim.

2. Daugerdas also raised Marinello arguments.  The Court held (pp. 15-16) that the argument was procedurally defaulted because he could have raised the Marinello-based argument before on the direct appeal.  Even though Marinello had not been decided by the direct appeal, the underlying argument could have been made (just as Marinello’s lawyers and others before Marinello made them in courts of appeals).  Daugerdas also failed to show prejudice (see below in discussing the Government’s response).

Court Denies Convicted Defendant's Post-Trial Motion in Biofuel Tax Scam (2/15/21)

In United States v. Derman (D. Utah No. 2:18-cr-00365-JNP-BCW Doc. 1183 2/10/21), TN conversion here and pdf here, the district court in a 54-page opinion denied Derman’s post-trial motions regarding his conviction "of ten counts of various offenses arising out of his participation in a conspiracy to defraud the United States government of  renewable tax credits and launder the proceeds of the fraud.”  Although a tax related crime, Derman was not convicted of a tax crime but for his conduct relating to tax crimes that violated other criminal provisions (most notably mail fraud and money laundering (Concealment and Expenditure Money Laundering)).

The Court (i) found the evidence at trial (over 7 weeks) sufficient to support the crimes of conviction and that the convictions were not against the weight of the evidence, (ii) found the alleged newly discovered evidence of little relevance, and (iii) denied the Derman’s request for additional discovery but did order disclosure of certain ex parte filings submitted by the Government.

Readers interested in this proceeding might be interested in this detailed article:  Vince Beiser, The Lion, the Polygamist, and the Biofuel Scam (Wired 2/2/21), here.

As the opinion and the article report, there were various intrigues in the facts behind this factually complex case.

The interesting thing is how relatively easily this fraud was perpetrated.  The article concludes as follows:

“It was tax fraud on an almost unimaginable scale,” says Jacob’s own lawyer, Marc Agnifilo. “It’s really a simple fraud. The government is writing these million-dollar checks, $5 million checks, $20 million checks, just because you gave them some paperwork that shows that maybe you made biodiesel.”

Here’s hoping that the federal government has, then, learned something from the saga of the Lion and the Numbered Man. Because just one month before Dermen’s trial got underway, former president Donald Trump signed a five-year extension of the $1-per-gallon biodiesel blenders tax credit program.

Tax and FBAR Crimes and Related Naturalization Crimes (2/11/21)

DOJ issued this Press Release:  Former Florida Resident Indicted for Tax Evasion and Failing to Report Foreign Bank Accounts (2/10/21), here.  The thing that, I think, should be most interesting to readers are the naturalization charge which, apparently, relates to the tax charges (at least the offshore income and accounts).  The key excerpts of the press release are:

According to the indictment, Gatta was born in Chile and became a naturalized U.S. Citizen in 2012. The indictment alleges that, for calendar years 2012 through 2014, Gatta failed to disclose her interest in a Swiss bank account on annual FBARs as required by law. Gatta also allegedly evaded assessment of income taxes on the interest and dividend income she earned in her Swiss bank account and failed to file tax returns with the IRS for tax years 2011 through 2014.

The indictment also charges Gatta with naturalization fraud. According to the indictment, Gatta did not disclose to the Department of Homeland Security’s U.S. Citizenship and Immigration Services (USCIS) that she had failed to report foreign dividend and interest income during her citizenship application process, and she allegedly presented misleading documents to USCIS to substantiate the false statements she made during her naturalization interview.

 The key takeaway for readers should be that tax crimes (here evasion, failure to file and related FBAR crime) may also get entangled with other crimes (her naturalization fraud).  I infer that there is perhaps some bad conduct that fleshes out the cryptic description in the Press Release.

Court Holds Taxpayer Liable for FBAR Civil Willful Penalty (2/10/21)

In United States v. Collins, 2021 U.S. Dist. LEXIS 23260 (W.D. Penn. 2/8/21), CL here and TN here, in an FBAR collection suit, the Court starts its Findings of Facts, Conclusion of Law & Order as follows (2d bold-face supplied by JAT) :

Defendant's willful failure to report his foreign accounts

1. Defendant Richard Collins ("Mr. Collins") is a sophisticated taxpayer, with a sophisticated understanding of finance, financial obligations and financial consequences that are well beyond that of an average person. (Trial Tr. at 220:15-19.)

2. Mr. Collins knew that, when he approved his tax submissions in 2007 and 2008, he held financial accounts in foreign countries. (Trial Tr. at 220:21-23.)

a. Mr. Collins identified an interest in keeping his foreign accounts secret in the United States and consciously avoided disclosing his accounts. (Trial Tr. at 221:1-4.) [*2] 

b. Mr. Collins's course of conduct reflects an actual intent to deceive the IRS and others about the existence of his foreign accounts, including his effort to avoid receiving mail from UBS in the United States, as well as his express desire to "discreetly" transfer funds from Switzerland to the United States in connection with a mortgage transaction. (Trial Tr. at 221:5-19; id. at 129:13-133:19; Pl.'s Exs. P25—P28.)

c. Mr. Collins has sought to excuse his conduct based on a multitude of objectively unreasonable beliefs, including those that:

i. By filing an IRS Form W-9 with UBS, he satisfied his reporting obligations for all of his foreign accounts (including those for which he did not file a W-9) (Pl.'s Ex. P63);

ii. The U.S. Embassy in Paris advised Mr. Collins, in the 1970s, that he did not have any obligations to the IRS (Pl.'s Ex. P56);

iii. As long as his foreign banks withheld taxes, Mr. Collins was not obligated to disclose his accounts to the IRS (though Mr. Collins did not ensure that UBS actually withheld funds) (Pl.'s Ex. P58 at *14; Doc. 42 at 7);

iv. Disclosing his accounts to his U.S. accountant, Dale Cowher, would increase the costs required for Mr. Cowher to perform any [*3]  necessary paperwork (Pl.'s Ex. P35, Pl.'s Ex. P58 at *14); and

v. Swiss bank secrecy laws precluded Mr. Collins from disclosing his foreign accounts to his U.S. accountants (Pl.'s Ex. P54).

Well, needless to say, Collins lost the case.

In the Findings and Conclusions, the Court resolves the following key issues: