Source: http://federaltaxcrimes.blogspot.com/2014/12/sixth-circuit-holds-that-7212as-omnibus.html
Timestamp: 2017-06-22 18:27:46
Document Index: 651355090

Matched Legal Cases: ['§ 7212', '§ 7212', '§ 371', '§ 7212', '§ 7212', '§ 7212', '§ 7212', '§ 7212', '§ 7212', '§ 7201', '§ 7212', '§ 7212', '§ 7212', '§ 7212', '§ 7201', '§ 7206']

Federal Tax Crimes: Sixth Circuit Holds that § 7212(a)'s Omnibus Clause Requires Knowledge of a Pending Proceeding / Action and Intent to Obstruct (12/13/14)
Of course, the Miner court relied heavily upon its precedence rule that the first in time opinion trumps a later opinion. The Miner opinion may be ripe for en banc review to have the Sixth Circuit reverse the precedential authority of Kassouf. I have no idea whether the DOJ Tax will seek en banc review, but it would not surprise me.
I have noted previously that, as interpreted, § 7212(a)'s Omnibus Clause parallels the defraud / Klein conspiracy, as interpreted. See 18 USC § 371, here. Both, as interpreted, apply to attempts to impair or impeded the lawful functioning of the IRS. Hence, § 7212(a)'s Omnibus Clause has been described as a one person conspiracy. In United States v. Willner, 2007 U.S. Dist. LEXIS 75597 (S.D.N.Y. 2007), the Court in rejecting the Kassouf interpretation for § 7212(a)'s Omnibus Clause, said:
It has long been the law of this Circuit that a "conspiracy to frustrate or obstruct the IRS's function of ascertaining and collecting income taxes" constitutes a conspiracy to defraud the United States. United States v. Rosengarten, 857 F.2d 76, 79 (2d Cir. 1988), citing United States v. Klein, 247 F.2d 908, 915-18 (2d Cir. 1957). In Klein, the Second Circuit held that while the "[m]ere failure to disclose income would not be sufficient to show the crime charged of defrauding the United States," more active "concealment of income" by making false entries in books and records, submitting false documents to the IRS, and taking other affirmative acts to "imped[e] and obstruct[ ] the Treasury Department in the collection of income taxes" satisfied a general charge of conspiracy to defraud. 247 F.2d at 915-16. Such "Klein conspiracies" are routinely prosecuted, and have become a staple of federal law enforcement. To take just one recent example from this Circuit, in United States v. Bellomo, 176 F.3d 580, 591-92 (2d Cir. 1999), the Court of Appeals affirmed a conviction on this theory, finding that a defendant's acts of "causing [an entity] to file false Tax Exempt Organization Returns" with the IRS were "acts of concealment [that met] the standard set by Klein ," and that the omission of income from the defendant's own returns established his participation in a "conspiracy . . . to conceal this stream of cash from the IRS." Under Klein and its progeny, a conspiracy to "imped[e] the functions of the Internal Revenue Service," id. at 591, constitutes a conspiracy to defraud the United States under the theory of obstructing government functions adopted in Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S. Ct. 511, 68 L. Ed. 968 (1924) ("To conspire to defraud the United States means primarily to cheat the government out of property or money, but it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest."). Just as an agreement by two or more persons to conceal income in this way constitutes a conspiracy to obstruct the administration of the tax code by the IRS, so an effort by a single individual (as here), not joined by any other individual with criminal intent, to conceal income in the same manner constitutes an "endeavor[ ] to obstruct or impede the due administration of [the Internal Revenue Code]." The indictment here charges Willner not merely with filing a false tax return or failing to declare income, but with scheming to create a false paper trail of checks and divert income to a corporation in order to avoid taxes properly owing on income he himself earned as an individual (or similarly owed by other taxpayers). If another taxpayer had accepted Willner's invitation to join him in such an endeavor, both would clearly be guilty of a Klein conspiracy. There is no reason why an individual effort of the same kind should not be treated as a violation of § 7212(a). Such treatment is fully consistent with the language of § 7212(a), and sensibly fits within the structure of the criminal provisions supporting the tax code. Accordingly, Count One of the indictment charges a crime against the United States, and will not be dismissed.
For related topics, see the following:
Pretrial Skirmishing in Weil - the Coplan Issue of Improper Expansion of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 10/21/14), here.
Finally, just because it is somewhat related to the confluence of § 7212(a)'s Omnibus Clause and the defraud / Klein conspiracy, I have raised before the issue of alleging a conspiracy to violate § 7212(a). See British Lawyer Charged in Swiss Bank Mess Related to UBS Account (Federal Tax Crimes Blog 5/11/12), here. The criminal complaint discussed in that blog entry alleges both a conspiracy having two objects -- to defraud the IRS (defraud conspiracy) and to commit offenses under §§ 7201 and 7212(a) (offense conspiracy). Since the conduct invoking § 7212(a) and the defraud / Klein conspiracy is the same, it would seem that every defraud / Klein conspiracy could be charged as both a defraud / Klein conspiracy and an offense conspiracy to violate § 7212(a). Of course, as far as the conspiracy is concerned, it is a single conspiracy with two objects within its scope, so it may not be that important. And, if anyone committed any act within the scope of the conspiracy, each conspirator could also be charged with the substantive offense under Pinkerton. All of this shows how malleable the prosecutor's tool kit is.
Addendum 12/16/14 2:00 pm:
The IRS issued a press release today announcing a sentencing for a single count of tax obstruction, § 7212(a). The press release is here. Here is the relevant portion:
On Dec. 15, 2014, a Casper, Wyoming, man was sentenced to serve one year and one day in prison for tax fraud by U.S. District Court Judge Alan B. Johnson in the District of Wyoming. Sonny Pilcher pleaded guilty on June 2, 2014, to one count of obstructing the administration of the internal revenue laws. During his guilty plea hearing, Pilcher admitted that he claimed a false expense of $258,000 for a repaid business loan on his tax return for 2008, and, over several years, he paid his employees in cash to evade employment taxes. At the sentencing hearing, the government’s evidence showed that Pilcher impeded the Internal Revenue Service (IRS) by destroying income records for his business, CC Cowboys, commingling money between bank accounts of separate businesses, and creating 242 fraudulent invoices totaling $3.9 million. The evidence showed that in 2007 and 2008, Pilcher received approximately $750,000 from the fraudulent invoices, which was not reported on his income tax returns. In a previous interview with the IRS special agent investigating the case, Pilcher admitted that he did not have a personal bank account and that he only ever used cash to pay for his living expenses.
Most relevant to the issue in this blog, Mr. Pilcher was convicted of tax obstruction, § 7212(a), there is no reference to a pending IRS proceeding (investigation or audit). Would the Sixth Circuit approve the tax obstruction conviction?
Of course, Mr. Pilcher pled guilty to the count and, in the plea agreement, likely waived his right to appeal. So we might never know the answer to #1. OK, Mr. Pilcher's appeal would be to the Tenth Circuit, which is not the Sixth Circuit. But perhaps the Tenth Circuit could be persuaded by the Sixth Circuit.
Of course, the Government could have charged Mr. Pilcher for any number of tax crimes. The ones that come easily to mind are tax evasion, § 7201, here, and tax perjury, § 7206(1), here. And, if a plea for tax obstruction did not work, those and others could have. And, under the Guidelines and the sentencing court's Booker discretion, the sentence would be the same.
If Mr. Pilcher did / could appeal and prevailed on appeal that he should not be convicted for tax obstruction, the case would be remanded for disposition -- likely a plea as indicted in #3 above.
Since most cases are resolved by plea, the issue would be whether the pending proceeding nuance for tax obstruction is relevant? For academia, perhaps. For the real world, perhaps not.