Monday, September 26, 2016

Update on Judge Kroupa Prosecution - Her Husband Pleads Guilty (9/26/16)

I have blogged previously on the indictment of former U.S. Tax Court Judge Diane Kroupa and her husband.  See Former US Tax Court Judge Kroupa Indicted (Federal Tax Crimes Blog 4/4/16; 4/5/16), here; and Former Tax Court Judge Kroupa Indictment - Part I - Conspiracy (Federal Tax Crimes Blog 4/5/16; 4/6/16), here. The change of plea minutes indicates that the husband has now pled guilty to Count 6 of the indictment which charges tax obstruction, § 7212(a), here.  I don't have the plea agreement yet, but the indictment is here.

I picked up this news item from the Tax Prof Blog entry, Husband Of Retired Tax Court Judge Pleads Guilty To Taking $1 Million In Fraudulent Deductions (Tax Prof Blog 9/26/16), here, which linked to a newspaper report, Paul Walsh, Twin Cities husband of ex-tax judge admits duping IRS; charges against her pending (Star Tribune 9/26/16), here.

Law360 reports on the change of plea, Kat Greene, Ex-Judge's Husband Says They Conspired To Cheat On Taxes (Law360 9/23/16), here, but since I do not have a subscription, I could read only the first few lines which read:
Retired U.S. Tax Court Judge Diane Kroupa conspired with her husband to make phony tax returns that heaped hundreds of thousands of dollars in personal expenses into his business account for deduction, her husband told prosecutors as part of his plea agreement Friday. 
Robert E. Fackler admitted to obstructing an Internal Revenue Service audit of the pair’s tax returns during a plea hearing in Minnesota federal court on Friday, prosecutors said. Fackler told prosecutors that his wife, a tax judge, prepared summaries of personal expenses to...
I don't have the plea colloquy so don't know what Fackler said other than guilty to the plea of tax obstruction, Count 6.  Oten in plea colloquies, the defendant is required to or does admit his pattern of conduct which would include closely related offenses.  In this case, there is a parallel between tax obstruction in § 7212(a) and the defraud / Klein conspiracy in 18 USC § 371, here.  The defraud / Klein conspiracy is generally formulated as a conspiracy to impair or impede the lawful functions of the IRS, which is basically what tax obstruction is (and, for that reason, tax obstruction has been described as a one person defraud / Klein conspiracy).  The key difference is that tax obstruction can be charged without regard to whether there was a conspiracy and has a 3-year maximum sentence rather than 5-years for the defraud / Klein conspiracy.

I will await the plea agreement and perhaps some more information about what happened at the plea colloquy to post more on it.  I will note here that, if the tax loss is as alleged -- at least $400,000, so that with relevant conduct, it will likely exceed $400,000 -- for the years charged, the indicated sentencing range with sophisticated means and acceptance of responsibility is 30-37 months, so the judge with a 3 year count will be able to impose the Guidelines sentence and may well do a Booker downward variance.

There is no information as to whether he will have to cooperate in the continuing prosecution of his wife.  The indication is that they are in the process of getting a divorce, so it may well be that cooperation was a price he had to pay and was willing to pay.

For related entries:

Saturday, September 24, 2016

Faulty Tax Shelter Opinions and Appraisals and Resulting Civil Penalties (9/24/15)

Two recent cases highlight the role of the tax professionals' legal opinions in so-called tax shelters.  During the abusive tax shelter proliferation in the late 1990s and early 2000s, the linchpin to abusive tax shelters was tax professionals' opinion letters pronouncing that the tax benefits were "more likely than not" to be sustained if the IRS contested.  Those opinion letters -- being just tax professionals' opinions -- did not affect how courts would resolve the issue of whether the tax shelters worked.  They served solely to give the tax shelter "player" some basis to claim exemption from the penalties that might otherwise apply to aggressive tax reporting positions.  Relying on tax professionals' opinions might permit the taxpayers to claim § 6664(c)'s "reasonable cause" and "good faith" exception to the penalties in § 6664(c), here, or, possibly, a reduction in the penalty base for the substantial understatement penalty in § 6662(d), here (in an earlier iteration).  Many of the tax shelter players did not in the final analysis actually rely upon the promoted tax shelter professionals' opinions, but rather discretely had their own independent counsel advise them on the shelter.  As I understand it, many of these independent advisers gave roughly the following advice:  "No way the shelter will be sustained if contested, but at least the promoted tax professionals' opinions will give the taxpayers a pretty good shot at avoiding the penalty."  (Of course, for this to work, the taxpayer would have to successfully keep from the IRS or ultimately the courts, the substance of the independent adviser's opinion.)

I discussed United States v. Daugerdas, ___ F.3d ___, 2016 U.S. App. LEXIS 17219 (2d Cir. 2016), here, recently, Daugerdas Conviction and Sentencing Affirmed by Second Circuit Court of Appeals (Federal Tax Crimes Blog 9/21/16), here.  I quoted the part of the opinion relevant to today's discussion, but will present the quote again here:
As an essential part of the marketing of all the tax shelters, Daugerdas and his colleagues issued "more-likely-than-not" opinion letters to clients who purchased the shelters. Such letters state that "under current U.S. federal income tax law it is more likely than not that" the transactions comprising the shelters are legal and will have the effect sought by the clients. They protect clients from the IRS's imposition of a financial penalty in the event that the IRS [6]  does not permit the losses generated by the shelter to reduce the client's tax liability. Paralegals or attorneys who worked for Daugerdas generated these letters and Daugerdas often reviewed and signed them himself. The letters stated that the clients had knowledge of the particular transactions underlying the shelter and that the clients were entering into the shelter for non-tax business reasons. Multiple clients testified that they never made representations of knowledge to Daugerdas or his associates and that, in any event, these representations were false because the clients knew little or nothing about the underlying transactions and entered into the shelters only to reduce their tax liability.
Daugerdas' shelters were clearly of the abusive -- aka bullshit -- variety.  In essence, for the tax shelters Daugerdaus and his partners in crime hawked, the play in the shelter gave the taxpayer a shot at the audit lottery and some way potentially to mitigate the penalty damage if he did not win the audit lottery.  But, as it turns out, these shelters were so bad, that they did not really offer much in the way of penalty mitigation except, sometimes, through IRS amnesty programs.  In essence, most of the taxpayers -- certainly the more sophisticated taxpayers who had millions and millions of income to shelter -- got into the shelter on a wink and a nod, hoping for the best with some downside protection.

In Exelon Corp. v. Commissioner, 147 T.C. ___, No. 9 (2016), here, the taxpayer had $1.6 billion in gain that it perceived a need to shelter -- i.e., avoid paying tax on.  The transactions are convoluted (as in the case of many tax shelters where the convolutions masks lack of substance).  (The complexity of the opinion is suggested by the fact that the substantive discussion concludes on p. 161 of the slip opinion.)  The details of the transactions are not important for purposes of this blog, but they are variations on leveraged leases with their own acronym that is familiar to affionados of bullshit tax shelters -- SILOs (to be contrasted from related tax shelters called LILOs).  In the opinion, Judge Laro offers the following "Primer on Leveraged Leases, LILOs, and SILOs:"

Wednesday, September 21, 2016

Daugerdas Conviction and Sentencing Affirmed by Second Circuit Court of Appeals (9/21/16)

The Second Circuit affirmed today the conviction and sentencing of Paul M. Daugerdas, promoter en mass of bullshit tax shelters.  United States v. Daugerdas, ___ F.3d ___, 2016 U.S. App. LEXIS 17219 (2d Cir. 2016). The opinion is here.

The opinion, by Judge John M. Walker, starts with a summary of the convictions:
(1) one count of conspiracy to defraud the Internal Revenue Service (“IRS”) in violation of 18 U.S.C. § 371; see 26 U.S.C. § 7201 and 18 U.S.C. § 1343; (2) four counts of client tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. § 2; (3) one count of IRS obstruction in violation of 26 U.S.C. § 7212(a); and (4) one count of mail fraud in violation of 18 U.S.C. §§ 1341 and 1342.  
He was then "sentenced principally to 180 months’ imprisonment, three years’ supervised release, $164,737,500 in forfeiture, and $371,006,397 in restitution."

Then, he argued on appeal that
(I) the evidence was insufficient to support his convictions; (II) the indictment was constructively amended; (III) the indictment was duplicitous; (IV) the accumulation of errors at trial violated his due process right to a fair trial; (V) the district court’s supplemental instruction on the Annual Accounting Rule misled the jury; (VI) his sentence was procedurally and substantively unreasonable; and (VII) the government failed to establish the requisite nexus between his crimes and the property sought in forfeiture. 
The Court of Appeals rejects all arguments and affirms.

The opinion is 37 pages long and is fairly straight-forward.

Basically, Daugerdas designed and participated, directly and through others, in the implementation the some variation of the bullshit shelters based on an aggressiv, too aggressive, interpretation of various strategies promoted by prominent law and accounting firms in the late 1990s and early 2000s.   He did this for his or his firm's clients and also did some of them for himself to shelter the large amount of income that he was earning.  As the Court notes,
As an essential part of the marketing of all the tax shelters, Daugerdas and his colleagues issued “more‐likely‐than‐not” opinion letters to clients who purchased the shelters.  Such letters state that “under current U.S. federal income tax law it is more likely than not that” the transactions comprising the shelters are legal and will have the effect sought by the clients.  They protect clients from the IRS’s imposition of a financial penalty in the event that the IRS does not permit the losses generated by the shelter to reduce the client’s tax liability.    Paralegals or attorneys who worked for Daugerdas generated these letters and Daugerdas often reviewed and signed them himself.  The letters stated that the clients had knowledge of the particular transactions underlying the shelter and that the clients were entering into the shelter for non‐tax business reasons.  Multiple clients testified that they never made representations of knowledge to Daugerdas or his associates and that, in any event, these representations were false because the clients knew little or nothing about the underlying transactions and entered into the shelters only to reduce their tax liability.   
Because Daugerdas and his colleagues designed the transactions with a focus on their tax consequences rather than their profitability, they generally did not generate meaningful returns.  [Examples omitted]  Nevertheless, Daugerdas chose to proceed and even issued “more‐likely‐than‐not” opinion letters falsely stating that some of the transactions had a 15 reasonable possibility of producing a profit.  Moreover, the already‐ 16 low profit potential of all the shelters disappeared entirely when the 17 fees charged by J&G, BDO, and DB for the shelters were taken into account.  
Then, there was some backdating of transactions and documents to correct errors in the implementation.

Another Plea to Offshore Account Tax Crimes (9/21/16)

DOJ Tax announced here another conviction related to an offshore account.  The title of the press release is:  "DOJ Tax Press Release, Connecticut Man Pleads Guilty to Concealing Income from Undeclared Panamanian Bank Account."

Key Excerpts from the press release:
A Weston, Connecticut man, who used a Panamanian bank account to conceal over $1.5 million in income from the sale of duty-free alcohol and tobacco products pleaded guilty today to one count of conspiring to conceal assets and income from the Internal Revenue Service (IRS) * * * * 
Saul Hyatt, 53, pleaded guilty today before U.S. District Judge Freda L. Wolfson of the District of New Jersey to an Information charging him with conspiracy to conceal assets in an undeclared bank account held in Panama for his benefit.  According to documents filed with the court, Hyatt conspired with another individual in the United States and others to conceal his assets and income derived from the sale of duty-free alcohol and tobacco products.  To execute the scheme, Hyatt used a registered Panamanian corporation, Centennial Group, to buy and sell the duty-free products.  The alcohol shipped through a customs-bonded warehouse in the Foreign Trade Zone in Fort Lauderdale, Florida.  The tobacco products, Chinese-brand cigarettes sold under the names “Chung Hwa” and “Double Happiness,” passed through a customs-bonded warehouse in North Bergen, New Jersey.  From 2006 to 2012, Hyatt directed that $1,627,832 in profits from the sale of duty-free alcohol and tobacco products be wired to his undeclared bank account in Panama.  Hyatt repatriated money from the Panamanian bank account to buy a Mercedes Benz SL 550R automobile and to pay for $19,000 in interior design goods and services.  
* * * * 
Hyatt failed to report income earned on his Panamanian account, and failed to file an FBAR for the years at issue.  Hyatt admitted that this scheme resulted in a tax loss of $521,986. 
* * * * 
Hyatt faces a statutory maximum sentence of five years in prison, as well as a term of supervised release and monetary penalties. Hyatt has agreed to file true and accurate tax returns and to pay the IRS all taxes and penalties owed, in addition to paying an $854,465.50 penalty for failure to disclose his foreign accounts.
JAT Comments:

  1. The Panamanian bank is not named.
  2. The bank account appears to represent untaxed income that, in the resolution, will be fully taxed.  Often in these resolutions to the extent that proceeds were deposited many years ago, they may not be taxed.  The statute would still be open if fraud were involved.  See § 6501(c)(1), here.  But developing the information to assert the tax on the original deposits may be difficult.  Hence, the resolution oft the tax in many cases relates only to later years where the income involved is the income on the earlier deposits without regard to whether the original earlier deposits were of untaxed income.

 Here are some of my compiled statistics.  I have not recently reviewed the spreadsheet in detail to make sure that all formulas work as they should.  I will try to do that soon.  But, with that caveat, here are some of them now.


All
Taxpayers
Enablers
# Uncertain
Charges (Indictments, Information, Complaint)
171
122
49

Charges with Taxpayer Entities Involved
102
102
N/A
5
Guilty Pleas
108
91
17

Guilty Verdicts
19
17
2

Acquittals
3
1
2

Dismissals
2
1
1

Cases Sentenced (Total)
87
73
14

Cases Pending (All Prior to Sentencing, incl. Fugitives)
77
47
30

Cases Pending (without Fugitives)
53
45
8

Cases Pending (Fugitives Only)
24
2
22

Friday, September 16, 2016

Fourth Circuit Affirms Conviction for Tax Evasion In Questionable Circumstances (9/16/16)

In United States v. Davey, 2016 U.S. App. LEXIS 16519 (4th Cir. 2016) (unpublished), here, Davey was convicted of "for conspiracy to commit wire fraud, conspiracy to commit money laundering, and tax evasion."  The gravamen of the case was the nontax charges, with the tax charge in the indictment, proper, but added on for good measure.  (I am not sure that it would have stood as a separately prosecuted tax crime, but what do I know about that?)  I separate out the tax crime to discuss here, but in the ambiance of the trial the tax crime conviction may have been influenced by the other convictions.

There were two issues raised regarding the tax conviction.  Davey argued that (i) the judge had erred in excluding evidence (specifically his 2009 tax return); and (ii) evidence was insufficient to establish guilt of the crime alleged.  I will address this after first stating the facts as I understand them from the discussion.

In his larger scheme to defraud investors, Davey caused certain entities to use $810,000 for his personal uses, in this case to construct a home.  The Court said:
One of the most significant personal expenses Defendant funded with DCS investor money was the construction of a $2 million, 10,000-square-foot personal home. To channel money from DCS towards the construction of his home, Defendant created two additional entities: "Sovereign Grace" and "Shiloh Estates." Essentially, Defendant transferred funds, in the form of purported "loans," from DCS to Sovereign Grace, and then from Sovereign Grace to Shiloh Estates, the legal owner of the home and direct funder of its construction. J.A. 291-98, 513. 
Those "loans" had no recognized interest rates, no payment schedules, no associated liens, and no loan documentation. In late 2008, Defendant informed Barry McFerren, his brother-in-law and business associate, that he intended to default on the loans, and Defendant did so in 2009. Defendant identified $810,000 as a "loan" on his 2008 tax return, an amount corresponding to purported loan payments to Shiloh Estates in that year. J.A. 516-17.
The key additional fact, related to his reporting the arrangement as a loan on his 2008 return, is that he had reported a default on the loan on his 2009 return, with resulting COD income.

So, under Davey's reporting methodology, at least between the two years, the right amount of income was reported.  As tax lawyers and tax accountants say, it was just a timing issue.  Of course, timing issues are important.  (It may well be that Davey had no "shelter" for the $810,000 in 2008 and expected that he would in 2009, so he reported it in 2009.)

Now, here is the Court's discussion of the two issues (bold face supplied by JAT):

Exclusion of Evidence
Defendant's final argument contesting an evidentiary ruling relates to his conviction for tax evasion. At trial, the government sought to show that Defendant evaded taxes by falsely characterizing $810,000 in payments from Sovereign Grace to Shiloh Estates-the entity that funded the construction of his home-as a "loan" on his 2008 tax return. Defendant contends the district court erred by excluding his 2009 tax return, which reported the defaulted "loan" as taxable income in 2009. He argues that this evidence tends to disprove his intent to evade taxes in 2008. 
The government's theory of the case, however, was that Defendant mischaracterized the payment as a loan in 2008, and that this mischaracterization was itself a willful attempt to evade income taxes. Consequently, the relevant intent was Defendant's intent to repay-or not repay-the loan amount at the time he received it. See United States v. Pomponio, 563 F.2d 659, 662-63 (4th Cir. 1977) (explaining that the "principal question" relevant to a tax evasion prosecution based on mischaracterized loan payments is whether those payments "were not [actually] loans, that is, that no intent to repay them existed, and that the defendants knew they were not loans"). That one year later Defendant defaulted on the loan, recognized it as income, and paid taxes on it tends to reinforce, rather than undermine, the government's argument that Defendant did not intend to repay the "loan" when he received it. 
In short, the district court did not abuse its discretion in excluding the 2009 tax return for lack of relevance.
JAT Comment:  The issue was whether the arrangement was a loan in the first instance.  If the arrangement was not a loan, it could not be defaulted in 2009.  Yet, the Court says this (perhaps not paying attention to what it was saying):  "That one year later Defendant defaulted on the loan, recognized it as income, and paid taxes on it tends to reinforce, rather than undermine, the government's argument that Defendant did not intend to repay the 'loan' when he received it."  Maybe that is just a semantical miscue, but in criminal cases, semantics are important.  The Court does in the sufficiency discussion below refer to it as a "purported loan."  But, certainly, at least in my mind, Davey's actual reporting of the arrangement as a loan and default in 2009 is relevant to the issue of whether he intended it as a loan in 2008.  It may be self-serving but that does not make it irrelevant.  I can't imagine why the district court excluded the return or why the Court of Appeals affirmed the exclusion on the basis of irrelevance.  It seems to me that, particularly based on the sufficiency of the evidence discussion (below), the better ground for affirmance was that, in the context of all the evidence, even if not excluded, it would not have affected the jury verdict.

Sufficiency of the Evidence

Tax Preparer Receives the Vulnerable Victim Sentencing Enhancement for Falsely Claiming Minor Dependents (9/16/16)

In United States v. Adeolu, ___ F.3d ___, 2016 U.S. App. LEXIS 16655 (3rd Cir. 2016), here, the Third Circuit held the key facts where (footnote omitted):
Adeolu's tax preparation company employed approximately fifteen people and prepared fraudulent tax returns in two ways: by selling the taxpayer an individual's personal information to fraudulently claim as the taxpayer's dependent; or, by suggesting that the taxpayer fraudulently claim a dependent that the taxpayer personally knew. According to the District Court, the individuals who were fraudulently claimed as dependents ranged in age from one to eighteen years old, including a thirteen-year-old, nine-year-old, six-year-old, and five-year-old child. (App. 1111.) 
The issue was whether that conduct justified the 2-level vulnerable victim enhancement under Sentencing Guideline § 3A1.1(b)(1), here.

At first blush, it might appear that the only victim in the case was the IRS.  Merely using these minor persons' information to claim tax benefit affecting the IRS does not seem to rob those minor of anything and the perpetrator does not seem to intend any harm to the minors.

That is exactly what the defendant argued on appeal.  "On appeal, Adeolu argues that the vulnerable victim enhancement should not apply because the 'minors did not suffer actual harm, such as loss of tax refund proceeds, a fine, or a negative mark on their credit score.'" (Footnote omitted.)  To which the Court replies in summary (footnote omitted):
Our Court, however, has never held that the vulnerable victim enhancement requires a showing of actual harm, whether financial or otherwise. Rather, our three-part test under United States v. Iannone, 184 F.3d 214, 220 (3d Cir. 1999), properly analyzes the "nexus" between a victim's vulnerability and the success of the defendant's criminal scheme, thereby encompassing any resulting harm to the victim and rendering an analysis of "actual" harm inconsequential.
That makes no sense to me.  In effect, the Court holds that the vulnerable victim can apply where the only victim in sight is the IRS which is not a vulnerable victim.  The Court simply disregards the required "vulnerable" victim status and looks solely for some nexus between someone who is vulnerable and the scheme, whether or not the vulnerable person is a victim.

My reaction above is not based upon detailed research on the issue but only in response to the words of the opinion.  So, I would appreciate the ideas, learning and experience (includiing research) of others on this issue.

But, for take-aways, sophisticated preparers (perhaps those who read cases such as this and blogs such as this) should avoid using such vulnerable persons to implement stealing from the IRS via false returns.  There are other ways to steal from the IRS via false returns. At least, if caught, they can avoid this enhancement.

One other itrm that caught my eye.  The defendant was "convicted of conspiracy to defraud the United States and of aiding and abetting the preparation of materially false tax returns, in violation of 18 U.S.C. § 371 and 26 U.S.C. § 7206(2)."  I have previously noted that the conviction under § 7206(2), here, is for aiding and assisting, not aiding and abetting.  See e.g., Fifth Circuit Opinion on Aiding and Asisting and Trial Management (Federal Tax Crimes Blog 8/27/16), here.

French Prosecutor Requests 3-year Prison Sentence for French Officials' Offshore Accounts (9/16/16)

This report on the prosecution of a former French official.  Chine Labbe and Michel Rose, French prosecutor seeks 3 years' jail for ex-minister over foreign bank account (Reuters 9/14/16), here.  Excerpts:
France's financial prosecutor on Wednesday sought a three-year jail term for former budget minister Jerome Cahuzac, who was forced to quit government three years ago over the discovery that he owned a secret bank account abroad. 
Cahuzac, 64, a plastic surgeon by profession who was appointed budget minister when Socialist President Francois Hollande took power in 2012, stands accused of tax fraud and money laundering. 
"You have tarnished this country's honor," Prosecutor Eliane Houlette said. "What has not been repaired, and will never be, is the harm done to our country, which became a laughing stock." 
* * * * 
The ex-minister, who had presented government proposals to clamp down on tax evasion in December 2013, quit three months later and admitted that he had indeed placed 600,000 euros ($667,000) abroad. 
Judicial investigators later unearthed an account opened at Swiss bank UBS in the early 1990s that was later transferred to Singapore under the codename "Birdie". 
* * * * 
The prosecutor also sought a 1.875 million euro ($2.10 million) fine from the Reyl bank of Geneva, which in 2009 allegedly helped Cahuzac transfer funds to Singapore to avoid detection by French tax authorities, and an 18-month suspended jail term for its director, Francois Reyl. 
The bank denies any wrongdoing. Francois Reyl told the court he had only played a technical role in the confidential request from the former minister, which appeared to have no tax evasion motive to him at the time.
And from Philippe Sotto, French Tax Fraud Trial Portrays Example of 'World Plague' (ABC News 9/15/16), here.  Excerpts:
Their hidden wealth in foreign bank accounts in Switzerland, Singapore and the British tax haven of the Isle of Man was estimated at 3.5 million euros ($3.9 million) in 2013, assistant prosecutor Jean-Marc Toublanc said. 
The value of their concealed assets likely was much higher because the money helped the couple finance a lavish lifestyle over the years, Toublanc said. 
Branding tax evasion as a "world plague" and citing the Panama Papers scandal as a recent example, Toublanc called the Cahuzac spouses "among the biggest fraudsters" of whom French tax authorities are aware. 
On trial in Paris alongside Cahuzac and his ex-wife were a banker, a legal adviser, and bank Reyl, a respectable but little-known Swiss establishment, all charged with money laundering. 
During the trial, the former budget minister argued for the first time that he originally opened his Swiss account in 1992 to collect funds from drug companies. He said the money was to be used for illegal financing of a branch of the Socialist Party led by Michel Rocard, the former French prime minister who died in July. 
However, Cahuzac did not provide any evidence for those claims. 
After the first press reports that Cahuzac had a hidden foreign bank account surfaced in late 2012, Cahuzac publicly denied the allegations for months. He eventually admitted to the fraud in April 2013, saying he had been "trapped in a lying spiral." French law does not sanction perjury.
JAT Comment: The sentence imposed should be interesting.  Just the request  for the length of the sentence suggests that the French may be more serious about offshore accounts than the U.S. is.  Even in  large cases, such as the Ty Warner case, U.S. prosecutors asked for far less a sentence and the court then  imposed only probation.

Swiss Supreme Court Approves Netherland Group Requests Under Double Tax Treaty (9/16/18)

Although other countries' tax initiatives involving secret accounts is not the main focus of this blog, I thought readers might be interested in this article because it illustrates the continuing and expanded interest in an area where the trail was blazed by the U.S. starting with the UBS initiative in 2008.  In addition, the decision reported here plus related initiatives reported will have wide impact.

The Swiss Federal Tax Administration has decided that it will respond to so-called group requests may be made under the Switzerland-Netherlands double tax treaty (sometimes referred to as "DTT NL"), just as it is now responding to such requests under the Switzerland-U.S. double tax treaty.  (I sometimes refer to such group requests as John Doe treaty requests because they function like John Doe Summonses in the U.S. system in terms of identifying unknown taxpayers by identifiable characteristics.) That decision has been sustained by the Swiss Federal Supreme Court.  For a good write up, see Jueng Birn, Swiss Federal Supreme Court considers Dutch Group Request as permissible (KPMG Switzerland Expert Blog 9/14/16), here.

The Netherlands group request had the following characteristics to identify the account information requested:

  • UBS clients domiciled in the Netherlands who had held an account with UBS in Switzerland between 1 February 2013 and 31 December 2014.
  • UBS had sent the client in question a letter in which they were informed that their account would be canceled unless the client could prove his or her tax conformity.
  • The client did not prove his or her tax conformity to UBS.

And, a practically identical request was made to Credit Suisse.

JAT Note:  the characteristics of such requests made by the U.S. are more detailed.  See Swiss FTA to Pass HSBC U.S. Depositor Information to IRS Under Treaty (Federal Tax Crimes Blog 7/27/16; 7/28/16), here.

The KPMG report indicates that, after the FTA approved the request, an affected client successfully appealed to the FTA Court on the ground that requests without names were not authorized under the DTT NL.  The Swiss Supreme Court then on further appeal allowed the request.  The KPMG report discussion of the Swiss Supreme Court decision is:
According to the Swiss Federal Supreme Court’s interpretation of the DTT NL, it is sufficient if the group request contains sufficient information that will allow an identification of the person in question to be able to provide administrative assistance. That specifically naming a client is not mandatory is due to the purpose of the DTT NL, which according to the relevant protocol consists of, “an exchange of tax information to the maximum extent without allowing the states partial to the agreement to go on “fishing expeditions”. 
Finally, the Swiss Federal Supreme Court also checked whether this could be considered a legitimate group request or indeed a fishing expedition, which would not have been permitted. Despite the fact that the definition of group in the present request for administrative assistance goes quite far, the Swiss Federal Supreme Court judged that it is not an inadmissible fishing expedition.
The KPMG report indicates the impact is:
Impact of this decision 
Switzerland has already concluded more than 60 double taxation treaties and tax information agreements, which permit administrative assistance based on group requests. Moreover, under the OECD administrative assistance convention concerning Switzerland, group requests will be possible in any case as of 2017. The administrative assistance convention foresees retroactive effect to 1 January 2014. 
We expect a number of other states to follow the example set by the Netherlands and to address Switzerland with similar group requests. At this time, it remains to be seen which countries will place a similar request.
For related coverage, see

  • Swiss Court Sets Precedent With Release of UBS Client Data (Fiunews.com 9/12/16), here.  
  • Joshua Franklin and Angelika Gruber, Swiss Supreme Court rules bank data can be sent to Dutch (Reuters 9/13/16), here.  
  • Swiss noose tightens around suspected Dutch tax evaders (Swissinfo.ch 9/12/16), here.

Thursday, September 15, 2016

Gary Stern Plea Agreement (9/15/16)

I have previously reported on the indictment of Gary Stern, a lawyer, for various tax counts.  See Gary Stern Indictment (Federal Tax Crimes Blog 10/15/14), here (with a link to the indictment).  I said in that posting that I  would add more on the indictment later, but never got back to it.  Today, I report on Stern's plea agreement, here.  (For a related posting, see Chicago Lawyer Enjoined From Promoting Fraudulent Tax Schemes (Federal Tax Crimes Blog 11/7/13), here.)

In the plea agreement, Stern agrees to plead to Counts Five and Seven, two counts of aiding and assisting, § 7206(2), here.  Aiding and assisting is a three-year maximum felony, so the maximum incarceration period permitted under the plea agreement is six-years.

I won't get into the details of how Stern committed the crime, but it appears that he and an associate in his firm took the key steps necessary to create a structure purporting to transfer energy tax credits otherwise unusuable by one corporation through a series of transactions to two trusts which claimed the credits on their tax return and allocated $5,337,103 in improper credits to persons investing in the scheme.  Through those actions, defendant aided and assisted in the preparation and presentation of the trust tax returns that resulting in the claiming of credits by perhaps 55 taxpayers.

As to the two specific counts involved in the plea, only two taxpayers' false returns are involved -- Taxpayer RL whose return reportedly falsely claimed $150,718 in credits and Tapxayer JK whose return falsely reported $154,534 in credits.  The aggregate falsely claimed credits for the two is thus $305,252.

As is often the case, the plea agreement addresses the Sentencing Guidelines calculations.  (See ¶¶ 8 ff, pp. 10 ff.)
i. The base offense level 1s 24 pursuant to Guidelines §§2T1.4(a)(1) and 2T4.1(J), because the intended tax loss, $5,337,103, was more than $3,500,000 and not more than $9,500,000.  
ii. Pursuant to Guideline §2T1.4(b)(2), the offense level is increased two levels because the offense involved sophisticated means.  
iii. Pursuant to Guideline §3Bl.l(c), the offense level is increased two levels because the defendant was a supervisor of a participant in the criminal activity.  
iv. Defendant has clearly demonstrated a recognition and affirmative acceptance of  personal responsibility for his criminal conduct. If the government does not receive additional evidence in conflict with this provision, and if defendant continues to accept responsibility for his actions within the meaning of Guideline §3El.1(a), including by furnishing the United States Attorney's Office and the Probation Office with all requested  financial information relevant to his ability to satisfy any fine that may be imposed in this case, a two-level reduction in the offense level is appropriate. 
v. In accord with Guideline §3El.1(b), defendant has timely notified the government of his intention to enter a plea of guilty, thereby permitting the government to avoid preparing for trial and permitting the Court to allocate its resources efficiently. Therefore, as provided by Guideline §3E1.1(b), if the Court determines the offense level to be 16 or greater prior to determining that defendant is entitled to a two-level reduction for acceptance of responsibility, the government will move for an additional one-level reduction in the offense level. 
c. Criminal History Category. With regard to determining defendant's criminal history points and criminal history category, based on the facts now known to the government, defendant's criminal history points equal zero and defendant's criminal history category is I.  
d. Anticipated Advisory Sentencing Guidelines Range. Therefore, based on the facts now known to the government, the anticipated offense level is 25, which, when combined with the anticipated criminal history category of I, results in an anticipated advisory sentencing guidelines range of 57 to 71 months' imprisonment, in addition to any supervised release and fine the Court may impose.

Tuesday, September 13, 2016

Court Rejects Attempt to Attack Guilty Plea Over Claim that Prosecutor Threatened to Prosecute Wife (9/13/16)

It is not uncommon in situations where two related parties are implicated in a common potential crime for the federal prosecutor to offer and accept a plea by one of the parties with the inducement that indictment or prosecution of another will not occur or will be more lenient.  This sometimes happens in the context of husband and wife who filed a joint return and are both potentially culpable for some crime with respect to the return, such as tax evasion or tax perjury.  If the husband is more culpable, the prosecutor may offer to accept a plea from the husband and not charge or drop the charges for the wife.

Obviously, the power to indict and prosecute both spouses creates powerful incentives/coercion on the spouse or related party being offered the guilty plea.  Is that coercion fair?  Would it allow a defendant accepting the plea to avoid the plea agreement, perhaps at a time when the Government will be unable to prosecute the other spouse?

In Peters v. United States, 2016 U.S. Dist. LEXIS 106962 (ED TX 2016), here, adopted by the district court, 2016 U.S. Dist. LEXIS 106654 (ED TX 2016), the husband defendant accepted a plea to one count of tax evasion and one count of bankruptcy fraud.  After the district court accepted the plea and sentenced the defendant, he was incarcerated.  He then brought a federal habeas corpus petition under 18 USC § 2255, here.  The petitioner made several claims for habeas relief, but the only one I address here is that he was subject to under coercion because of the prosecutor's threat to indict his wife.  I quote from the magistrate's opinion which was affirmed by the district court on the grounds stated in the magistrate's opinion:
b. Peters' claim that the plea was coerced by the threat of prosecution of his wife lacks merit 
The Fifth Circuit has explained: 
[G]uilty pleas made in consideration of lenient treatment as against third parties pose a greater danger of coercion than purely bilateral plea bargaining." United States v. Nuckols, 569 (5th Cir.1979). Even so, there is no "intrinsic constitutional infirmity" in promising leniency to a third party in exchange for a guilty plea. Id. A prosecutor has discretion to "inform an accused that an implicated third person will be brought to book if he does not plead guilty." Id. The prosecutor has a duty of good faith in making such a representation, which duty is satisfied where he has probable cause to believe the third person has committed a crime. Id.; United States v. Diaz, 733 F.2d 371, 375 (5th Cir. 1984). 
McElhaney, 469 F.3d at 385 [McElhaney v. United States, 469 F.3d 382 (5th Cir. 2006)]. Thus, so long as the Government has probable cause to bring charges against a defendant's relative, the "defendant's plea 'would not be involuntary by reason of a desire to extricate his relatives from such a possible good faith prosecution.'" Id. (quoting Diaz, 733 F.2d at 375). 
Peters does not allege that the Government lacked probable cause to bring charges against his wife in the underlying criminal case or otherwise acted in bad faith during the plea bargaining process. Rather, he asserts that defense counsel threatened that his wife would be subject to indictment should Peters proceed to trial. See Brief in Support of Motion, Exhibit B. However, it is evident from the record that defense counsel reasonably concluded the Government had probable cause to bring an indictment against Peters' wife, since she was a signatory on the tax and bankruptcy filings at issue in the case. See Arrambide Affidavit at 1-6. Under the circumstances, the Court cannot find fault with counsel's advice regarding the potential exposure of his clients' spouse. Moreover, Peters' decision to enter a guilty plea in order to prevent such a good faith prosecution cannot be deemed involuntary.
This is a pretty fair statement of the law.  The issue of undue coercion is whether the prosecutor made an unreasonable threat to prosecute the third party to induce the plea.  Reasonableness is determined by whether the prosecutor had probable cause to assert the potential prosecution of the third party.  If so, then most courts would not entertain the attack on the plea.

In United States v. Marquez, 909 F.2d 738 (2d Cir. 1990), although an older case, the Second Circuit provides a good discussion of the then state of the law, which appears to be also the current state of the law.  In Marquez, the defendant sought to withdraw his guilty plea.  He claimed that the prosecutor had improperly threatened less leniency against his wife if he did not accept the offered plea.  (Or, I could have said that the prosecutor offered more leniency to the wife if he accepted the offered plea.)  He accepted the plea and sought to withdraw the plea.  The district court denied the request.  The defendant appealed on several grounds.  The Court of Appeals affirmed, reasoning

Thursday, September 8, 2016

Tax Attorney Convicted of Employment Tax Fraud (9/8/16; 9/10/96)

This DOJ Tax press release, here, caught my eye because the title was:  Pittsburgh Tax Attorney and Owner of Iceoplex Convicted of Employment Tax Fraud.  The 16 counts are for convictions under § 7202, here, titled "Willful failure to collect or pay over tax."  Don't know the details or,  really anything else noteworthy, except the following excerpted from the press release:
According to the evidence presented at trial, between 2004 and 2015, Steven Lynch, a tax attorney, co-owned and operated the Iceoplex at Southpointe, a recreational sports facility located in Washington County, Pennsylvania.  The Iceoplex included a fitness center, ice rink, soccer court, restaurant and bar.  Lynch controlled the finances for these businesses and was responsible for collecting income and employment taxes withheld from employee wages, accounting for these taxes and filing Forms 941, payroll tax returns, and paying these taxes over to the Internal Revenue Service (IRS).  The jury found that between 2012 through 2015, Lynch failed to timely pay over to the IRS more than $790,000 in taxes withheld from the wages of the employees for these businesses. 
JAT Comments:

1.  For some years, the IRS and DOJ Tax have been stepping up their criminal enforcement efforts in the employment tax area.  The point the IRS and DOJ Tax wants to make that those who think that this is just a civil tax issue may be mistaken, and may be criminally investigated, charged, convicted, sentenced and spend some time in jail, all the while remaining liable for the taxes evaded (and  a host of related costs, including other penalties and fines).  And, even if they are lucky enough to avoid all those criminal related costs, they are still subject to potential trust fund recovery penalty liability under § 6672, here, titled "Failure to collect and pay over tax, or attempt to evade or defeat tax."  (Readers should note that, although the titles of the criminal and civil provisions are slightly different, the substantive language is virtually the same, with the criminal statute simply requiring proof for conviction beyond a reasonable doubt.  Not a comforting thought for those who play this game, as the IRS and DOJ Tax increase their criminal enforcement efforts.

2.  Based solely on the sentencing factors noted  in the press release (indicated tax loss over $790,000, no acceptance of responsibility downward adjustment, and presuming the pre-2015 Guidelines), the indicated Guidelines level is 20 (according to my Guidelines spreadsheet) and the indicated sentencing range is 33-41 months.  (By contrast, had Lynch pled guilty to achieve an acceptance of responsibility downward adjustment (or, in the rare even he might otherwise qualify for acceptance of responsibility) the sentencing level would have been 17 with an indicated range of 24-30 months, so that he could have achieved a 9 month lesser sentence at the bottom of each Guidelines range.) Of course, the judge can always do a Booker variance, which, in tax cases, is almost always downward.  But that will depend upon factors not evident from the press release.  Those additional factors are produced for the court in the Pre-Sentence Report ("PSR") and the parties sentencing submissions after review the PSR.  When the sentence is announced, I will dig around what is the in public report (usually not the PSR, but perhaps some contested portions of it) and report back.

Addendum on 9/10/16 12:30pm:

3. Robert Horwitz, a seasoned criminal tax attorney, here, called my attention to a typo on the blog and to a more substantive issue.  I have corrected the typo.  More important is the substantive question he raised.  Paraphrased, he asked whether, as specifically stated in the press release, the jury found that Lynch failed to timely pay over $790,000.  Readers will recall that, in tax evasion cases, the jury finds only that the defendant committed tax evasion, but does not find a specific amount.  (This was the issue addressed in the blog entries on the Senyszen case discussed in 3 blogs, here.)  The conviction here was for willful failure to collect and pay over, § 7202, here.  The amount involved is not an element of this crime, so Robert's question was whether the DOJ press release was correct that the jury made a finding on amount of over $790,000.

So, I went to Pacer and pulled down the jury verdict form, here.  From the jury verdict, the following went to the jury:
  • Tax obstruction, § 7212(a) (one count, presented as Count 1): Jury verdict:  NOT GUILTY.
  • 2. Failure to collect and pay over, § 7202 (28 counts, one per employer per quarter, presented as Counts ___ - ___, with one in  that series dismissed):  NOT GUILTY ON 11 COUNTS, GUILTY ON 16 COUNTS. 
Most importantly for the present discussion, the jury verdict does not find any amount of tax involved.  But, the jury verdict does find the defendant guilty of 16 counts and the counts, as alleged in the superseding indictment, here, does contain the approximate numbers for each quarter.  So, the jury verdict although not explicit as to amounts might make the finding by incorporation from the superseding indictment.  Since, however, the amount of tax involved is not an element of the crime, I presume that the authority for § 7201 might be applicable here as well/

My calculations from the superseding indictment shows the following:  tax amount for 16 counts of conviction  $725,728; tax amount for 11 not guilty counts $694,044, tax amount dismissed count (count 12) $24,998, aggregate tax amount $1,444,260.  I am not sure where the reported $790,000 amount comes from, but I do note that the amounts could have been refined in the presentations at trial.  In any event, the key break point for the sentencing calculations is $1,000,000.

As readers know, the intended tax loss ("tax loss") is determined at the sentencing phase for the first, most critical, step in the sentencing guidelines calculation.  Importantly, in terms of the guidelines calculations, though, the tax loss for the guidelines calculations also includes the tax loss for "relevant conduct."  See §1B1.3.  Relevant Conduct (Factors that Determine the Guideline Range), here.  The tax loss involved in not guilty counts may well be in play in calculating the guidelines range because the standard of proof is preponderance of the evidence rather than beyond a reasonable doubt.  Using the indicated tax loss for the counts of not guilty verdicts, the aggregate loss will move the calculation to the next bracket (which covers the range from $1,000,000 to $2,500,000, so that is a comfortable conclusion for the not guilty counts).  That will move the sentencing table calculation to offense level 22 and an indicated sentencing range of 41-51 months.

Finally, with 16 counts of conviction for the 5 year § 7202 felony, the maximum sentence could be 80 years.  As indicated, even with relevant conduct, the guidelines calculations will produce a sentence of far less than that.

Collateral Consequences of Conviction - The Prohibition on Felons' Possession of Firearms (9/8/16)

In my publications on federal tax crimes (currently Chapter 12 of Michael Saltzman and Leslie Book, IRS Practice and Procedure (Thomsen Reuters 2015), here, and my co-authored Tax Crimes (2d Edition 2015), here, a subject addressed is the collateral consequences of conviction for tax crimes.  Some of those collateral consequences apply generally and not just to tax crimes.  One collateral consequence of a felony conviction is regarding ownership or possession of firearms.

The statute, 18 U.S.C. § 922(g)(1), here, provides that "It shall be unlawful for any person * * * who has been convicted in any court of, a crime punishable by imprisonment for a term exceeding one year * * * * to ship or transport in interstate or foreign commerce, or possess in or affecting commerce, any firearm or ammunition; or to receive any firearm or ammunition which has been shipped or transported in interstate or foreign commerce."

Most readers will know that, under the common law, the felony crime is more serious than the misdemeanor crime, with more serious punishments for felonies.  See generally Wikipedia entries for Felony, here, and Misdemeanor, here.  The general distinction often used to distinguish a felony from a misdemeanor is that a felony has a sentence of more than one year.  See Wikipedia, Classes of Offenses Under Federal Law, here.  The legislature may specifically designate crimes as felonies, but federal crimes tend to use this distinction in the statutory designations.  For example, § 7201, here, specifically states that the crime of tax evasion is a "felony;" providing a punishment of 5 years, which would make it a felony in any event under the general definition; § 7203, here, specifically states that failure to file is a "misdemeanor" punishable by not more than one year.  (By the same token, some state laws designate as misdemeanors crimes having punishments of up to two years, so the general definition may not hold in the face of a legislative designation.)  The statute seems quite plain as to its application, but it does raise interesting issues in light of the Supreme Court's interpretation of the right to firearms in the Second Amendment.

In Binderup v. U.S. Attorney General, ___ F.3d ___ (3d CIr. 9/7/16), here, the Court addressed the question of what accommodation the strict prohibition of firearms possession by felons must make in the face of the Constitutional Protections afforded firearms protection.  The opinion gives what the main opinion describes as a "fractured vote."  The main opinion gave the analysis as follows:
Federal law generally prohibits the possession of firearms by any person convicted in any court of a “crime punishable by imprisonment for a term exceeding one year.” 18 U.S.C. § 922(g)(1). Excluded from the prohibition is “any State offense classified by the laws of the State as a misdemeanor and punishable by a term of imprisonment of two years or less.” Id. § 921(a)(20)(B). And there is also an exemption for “[a]ny conviction which has been expunged, or set aside or for which a person has been pardoned or has had civil rights restored,” where the grant of relief does not expressly preserve the firearms bar. Id. § 921(a)(20).  
In United States v. Marzzarella we adopted a framework for deciding facial and as-applied Second Amendment challenges. 614 F.3d 85 (3d Cir. 2010). Then in United States v. Barton we held that the prohibition of § 922(g)(1) does not violate the Second Amendment on its face, but we stated that it remains subject to as-applied constitutional challenges. 633 F.3d 168 (3d Cir. 2011). Before us are two such challenges. In deciding them, we determine how a criminal law offender may rebut the presumption that he lacks  Second Amendment rights. In particular, a majority of the Court concludes that Marzzarella, whose two-step test we reaffirm today, drives the analysis.  Meanwhile, a separate majority holds that the two as-applied challenges before us succeed. Part IV of this opinion sets out how, for purposes of future cases, to make sense of our fractured vote.  
* * * * 
IV. Conclusion 
When sorting out a fractured decision of the Court, the goal is “to find a single legal standard” that “produce[s] results with which a majority of the [Court] in the case articulating the standard would agree.” United States v. Donovan, 661 F.3d 174, 182 (3d Cir. 2011) (quoting Planned Parenthood of Southeastern Pa. v. Casey, 947 F.2d 682, 693 (3d Cir. 1991), modified on other grounds, 505 U.S. 833 (1992)). We have at times “looked to the votes of dissenting [judges] if they, combined with votes from plurality or concurring opinions, establish a majority view on the relevant issue.” Id. And when no single rationale explaining the result enjoys the support of a majority of the Court, its holding “may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.” Marks v. United States, 430 U.S. 188, 193 (1977) (quoting Gregg v. Georgia, 428 U.S. 153, 69 n.15 (1976) (plurality opinion)).  
Applying those interpretive tools here, the following is the law of our Circuit: (1) the two-step Marzzarella framework controls all Second Amendment challenges, including as-applied challenges to § 922(g)(1); (2) a challenger will satisfy the first step of that framework only if he proves that the law or regulation at issue burdens conduct protected by the Second Amendment; (3) to satisfy step one in the context of an as-applied challenge to § 922(g)(1), a challenger must prove that he was not previously convicted of a serious crime; (4) evidence of a challenger’s rehabilitation or his likelihood of recidivism is not relevant to the step-one analysis; (5) as the narrowest ground supporting the Court’s judgments for Binderup and Suarez, the considerations discussed above will determine whether crimes are serious (i.e., disqualifying) at step one; and (6) if a challenger makes the necessary step-one showing, the burden shifts to the Government at step two to prove that the regulation at issue survives intermediate scrutiny. 
In the cases before us, though Binderup and Suarez fail to show that their misdemeanor offenses are not subject to § 922(g)(1), they have rebutted the presumption that they lack Second Amendment rights by distinguishing their crimes of conviction from those that historically led to exclusion from Second Amendment protections. This meets the first-step test of Marzzarella. At step two, the Government has failed to present sufficient evidence to demonstrate under even intermediate scrutiny that it may, consistent with the Second Amendment, apply § 922(g)(1) to bar Binderup and Suarez from possessing a firearm in their homes. Accordingly, we affirm the judgments of the District Courts.

Wednesday, September 7, 2016

Third Circuit Rejects Media's Right to Names of Unindicted Co-Conspirators (9/7/16)

As Judge Easterbrook famously lamented in United States v . Reynolds, 919 F.2d 435, 439 (7th Cir. 1990), a tax case, conspiracy charges in criminal cases are “inevitable because prosecutors seem to have conspiracy on their word processors as Count I; rare is the case omitting such a charge.”  That is hyperbole, but not much.  One favorite trick of prosecutors charging conspiracy counts is to allege that there are unindicted co-conspirators who are unnamed.  For example, in the Enron prosecution, the Government asserted that there were up to 114 unindicted co-conspirators not named in the indictment.  See Mary Flood, Names of Some Enron Co-Conspirators Can be Released (Houston Chronicle 12/10/2004), here. Also, in the large scale tax shelter prosecutions in the Southern District of New York beginning in 2005, unindicted co-conspirators were ubiquitous.  The naming of unindicted co-conspirators in large cases with many culpable actors reflects the truism that all of the potential co-conspirators could not be indicted, at least in the early rounds of indictments, if ever.   (Perhaps the naming of some or even legions of unindicted and unnamed co-conspirators adds some appearance of gravitas to the case that it might not otherwise have.)

Why are unindicted co-conspirators not named?  DOJ's policy, here, is:
9-11.130 - Limitation on Naming Persons as Unindicted Co-Conspirators 
In the absence of some significant justification, federal prosecutors generally should not identify unindicted co-conspirators in conspiracy indictments. The practice of naming individuals as unindicted co-conspirators in an indictment charging a criminal conspiracy has been severely criticized in United States v. Briggs, 514 F.2d 794 (5th Cir. 1975). 
Ordinarily, there is no need to name a person as an unindicted co-conspirator in an indictment in order to fulfill any legitimate prosecutorial interest or duty. For purposes of indictment itself, it is sufficient, for example, to allege that the defendant conspired with "another person or persons known." In any indictment where an allegation that the defendant conspired with "another person or persons known" is insufficient, some other generic reference should be used, such as "Employee 1" or "Company 2". The use of non-generic descriptors, like a person's actual initials, is usually an unnecessarily-specific description and should not be used. 
If identification of the person is required, it can be supplied, upon request, in a bill of particulars. See USAM 9-27.760. With respect to the trial, the person's identity and status as a co-conspirator can be established, for evidentiary purposes, through the introduction of proof sufficient to invoke the co-conspirator hearsay exception without subjecting the person to the burden of a formal accusation by a grand jury. 
In the absence of some significant justification, federal prosecutors generally should not identify unindicted co-conspirators in conspiracy indictments. See USAM 9-16.500; 9-27.760.
With that background, the Third Circuit today issued an interesting decision in a case involving media access to the names of unindicted co-conspirators in the so-called Bridgegate scandal involving the prosecution of Chris Christie's cronies appointed to positions at the Port Authority of New York where they could take out political retribution.  North Jersey Media Group Inc. v. United States, ___ F.3d ___ (3d Cir. 2016), here.  As usual, the conspiracy count in the indictment named unindicted co-conspirators.  The prosecutors identified the unindicted co-conspirators to the defense in a letter that was not part of the public record.  The media wanted to know access to the list naming the unindicted co-conspirators.  The media intervened and  moved for disclosure.  One of the unindicted co-conspirators -- identified as "John Doe" -- intervened and objected to disclosure.  The district court ordered disclosure.  John Doe appealed.  The Court of Appeals reversed.

Essentially, the holding is that list of the names of the co-conspirators was disclosed by the prosecutors to the defense as part of the discovery obligations rather than as a bill of particulars that normally would be part of the public record.  Criminal discovery is generally not on the public record.  Hence, there is no right to access to that list at this stage of the case.  Of course, those names may "out" during some later public part of the criminal proceeding, but they are not publicly available at this stage.

The Court framed the issue as follows:
Although the appeal arises out of a matter of high public interest, the issue presented is basic and undramatic. We must decide whether the letter is more akin to a bill of  particulars or to a discovery disclosure in a criminal case. That distinction is dispositive, because the former is subject to a recognized right of public access while the latter has historically been kept from public view. See United States v. Smith, 776 F.2d 1104 (3d Cir. 1985). Because we conclude that the letter in question is a part of the general discovery process, it is not subject to any First Amendment or common law right of public access, and we will vacate the District Court’s order insofar as it requires the letter to be publicly disclosed. 
Then, after analysis, the Court concludes:
III. CONCLUSION 
Public access to judicial documents and court proceedings is a respected tradition and important legal principle, but it has bounds. “[D]iscovery traditionally has been conducted by the parties in private and has not been publically available.” Wecht, 484 F.3d at 208. That is so even in a case affected by heightened public interest. The time may come, perhaps at trial, when the information in the Conspirator Letter ought to be made public, but that time is not here yet. Because neither the First Amendment right of access nor the common law right of access applies to the Conspirator Letter, we will vacate the District Court’s order insofar as it requires disclosure of the Letter.

Sunday, September 4, 2016

Article on Prominent Tax Evaders Prompted by Anniversary of Helmsley's 1989 Conviction for Tax Evasion (9/4/16)

I read an interesting newsy article on tax crimes that readers might find interesting:  Brian Lisi, The biggest tax evaders in US history on the anniversary of Leona Helmsley's 1989 conviction (8/30/16), here.  The article discusses Helmsley and other prominent persons convicted of tax evasion or having large tax debts.

The "taxpayers" discussed are:

Leona Helmsley (Wikipedia here

The appellate decision in her appeal from her criminal tax convictions is UnTited States v. Helmsley, 941 F.2d 71 (1991), cert denied, 502 U.S. 1091 (1991), here.  The article pictures Ms. Helmsley with Alan Dershowitz who led her team of lawyers on appeal  (See the attorney list in the linked case.)  She was represented at trial by a friend, Jerry Feffer, who famously is reported to have opened his closing argument to the jury by admitting that his client was a "tough bitch" but adding in her defense that being a tough bitch is not a crime. See Willliam Glaberson, Helmsley Jury Outlines by Lawyers (NYT 7/6/89), here. That strategic move did not work, hence the appeal.  Helmsley's name has appeared frequently in Federal Tax Crimes Blog entries.  See here.

OJ Simpson (Wikipedia here)

Simpson was a prominent sports figure who was tried and acquitted for the murder of his wife and her friend.  I don't believe he was convicted of a tax crime, but he did owe tax to the State of California.  I don't believe that I have ever mentioned Simpson in Federal Tax Crimes entries.  I think he had only a civil tax liability and was never prosecuted for a tax crime.

Jack Abramoff (Wikipedia here)

Abramoff was a Washington lobbyist whose name was "synonymous with corruption in politics."  I don't think he was convicted of a tax crime, but I have mentioned the name Abramoff only once in a Federal Tax Crimes Blog.  See Sentencing - Plea Bargaining and the Right to Trial (9/25/11), here.

Walter Anderson (Wikipedia here)

Anderson was convicted of tax crimes prior to my Federal Tax Crimes Blog getting started but has appeared several times in Federal Tax Crimes Blog entries.  See here.

H. Ty Warner (Wikipedia here)

Warner was also convicted of tax related crimes and has appeared prominently several times in Federal Tax Crimes Blog entries principally because of the amount involved (including the FBAR penalty of over $50 million and because of his lenient sentence.  See here.