tkokpcn cid 6cz cid dollar_figurewnngvkp 6jku cid dwnngvkp cid ku cid hqt cid kphqtocvkqpcn cid rwtrqugu cid cid v cid ku cid pqv cid c cid fktgevkxg cid number release date grctvogpv cid qh cid 6tgcuwt cid pvgtpcn cid 4gxgpwg cid 5gtxkeg uiln ctej supreme court cases unprovoked flight from police in high crime area justifies terry stop in illinois v wardlow 120_sct_673 the supreme court held the unprovoked flight of wardlow upon observing a caravan of police vehicles converging on an area known for heavy narcotics_trafficking gave rise to a reasonable suspicion that wardlow was involved in criminal activity thus an investigatory stop of wardlow did not violate the fourth_amendment as interpreted by 392_us_1 two uniformed police officers of the special operations section of the chicago police department were driving the last car of a four car police caravan the police were on a mission to investigate drug transactions in an area notorious for drug trafficking the officers in the last car observed wardlow standing next to a building holding an opaque bag upon seeing the police officers wardlow immediately fled the officers followed him down an alley cornered him and conducted a protective pat down search for weapons during the frisk one of the officers squeezed the bag wardlow was holding and felt a hard heavy object similar to the shape of a handgun upon opening the bag the officers discovered a dollar_figure caliber handgun loaded with five live rounds of ammunition wardlow was arrested and eventually convicted of unlawful use of a weapon by a felon on appeal the illinois supreme court upheld the intermediate appellate court’s reversal of wardlow’s conviction determining sudden flight in a high crime area does not create reasonable suspicion to justify an investigatory stop pursuant to the holding of terry the court relied upon 460_us_491 to explain that although police have the right to approach individuals and ask questions the individual has no obligation to respond and may simply go on his or her way 1hhkeg cid qh cid jkgh cid qwpugn tkokpcn cid 6cz cid kxkukqp cid cid cid cid the illinois court determined flight was similar to the exercise of one’s right to go on one’s way and thus could not justify reasonable suspicion to conduct a terry stop the supreme court began its analysis by stating the principles as first applied in terry governed the case there the court held an officer may consistent with the fourth_amendment conduct a brief investigatory stop when the officer has a reasonable articulable suspicion that criminal activity is afoot terry u s pincite the court recognized a n individual’s presence in an area of expected criminal activity standing alone is not enough to support a reasonable particularized suspicion that the person is committing a crime 443_us_47 however officers are not required to ignore the relevant characteristics of a location in determining whether the circumstances are sufficiently suspicious to warrant further investigation the court pointed to its previous finding in 407_us_143 where it held the fact that a stop occurred in a high crime area was among the relevant contextual considerations when conducting a terry analysis here it was not merely wardlow’s presence in an area known for narcotics_trafficking but his unprovoked flight upon observing the police which aroused the police officers’ suspicions headlong flight -- wherever it occurs -- is the consummate act of evasion it is not necessarily indicative of wrongdoing but it is certainly suggestive of such opined the court in the absence of empirical studies dealing with inferences drawn from suspicious behavior courts must rely upon commonsense judgements and inferences about human behavior the court determined the officers were justified in suspecting wardlow was involved in investigating further in response to the dissent and the defendant’s argument that innocent people may flee from police the court pointed out the fourth amendment’s probable cause standard accepts the risk that innocent people may be arrested and detained by police however the terry stop is a far more minimal intrusion simply allowing the officer to briefly investigate further in this case wardlow just happened to be found in possession of a handgun in violation of an illinois firearms statute in criminal behavior and therefore title_26 and title_26 related cases with knowledge of that evidence consequently the court affirmed the district court’s denial of gilbert’s hyde amendment motion hyde amendment liability pursuant to sec_7202 in 198_f3d_1293 11th cir gilbert was convicted of fraudulently concealing assets in a bankruptcy his conviction was reversed however because the eleventh circuit concluded the statute_of_limitations had expired before he was indicted relying on the hyde amendment gilbert filed a motion in district_court seeking an award of attorney fees and costs arguing the government did not have a good_faith basis for charging him in light of the statute_of_limitations issue and the fact they did not give the grand jury exculpatory evidence relating to his interest in certain bankruptcy assets as the prevailing_party gilbert contended he was entitled to an award of attorney fees and costs because the government’s position in prosecuting him was vexatious frivolous or in bad faith the district_court denied gilbert’s motion and he appealed the eleventh circuit held a prevailing_party must show the government’s position underlying the prosecution amounts to prosecutorial misconduct - a prosecution brought vexatiously in bad faith or so utterly without foundation in law or fact as to be frivolous addressing gilbert’s first argument the court noted the question of when the statute_of_limitations begins to run in a bankruptcy fraud case was an issue of first impression in the eleventh circuit although some circuits had addressed the issue in other factual situations prior to the decision in the underlying case there had been no decision addressing the specific issue of when the statute_of_limitations begins to run where a chapter proceeding has been converted to chapter thus allowing fees and costs against the department of justice when a conviction is reversed on a legal issue of first impression as was the case here would chill the ardor of prosecutors and prevent them from prosecuting with earnestness and vigor even in its earliest form the court found the hyde amendment was targeted at prosecutorial misconduct not prosecutorial mistake furthermore once the district_court judge accepted the government’s legal position in the case it would have been extremely difficult to conclude the issue was not debatable among reasonable lawyers and jurists and therefore it was not frivolous in addressing gilbert’s second argument the court held failing to disclose to the grand jury exculpatory evidence is not a basis for concluding the government’s position in an underlying prosecution was vexatious frivolous or in bad faith especially considering the trial jury convicted gilbert cid cid cid cid cid in 201_f3d_214 3rd cir thayer and his wife were sole owners of several corporations all of which used one consolidated corporate account for their business banking for the years through two of these corporations mis and elop reported but failed to pay employee federal withholding and fica_taxes in violation of sec_7202 thayer was tried and convicted inter alia of violating sec_7202 thayer appealed his conviction arguing the charge was inapplicable to him since he was not a person required to collect account for and pay taxes ie an employer rather this charge applied to mis and elop since they were the employers and he was only an officer in these corporations the third circuit looked to sec_7343 which contains the definitions applicable to chapter encompassing sec_7202 sec_7343 states a person includes an officer_or_employee of a corporation further the third circuit analogized sec_7202 to sec_6672 which applying the same language as sec_7202 imposes civil penalties on persons for failure to pay employee federal withholding and fica_taxes in 436_us_238 sec_6672 was held to apply to corporate officers or employees responsible for paying employee federal withholding taxes since thayer was a corporate officer responsible for paying employee federal withholding taxes sec_7202 was applicable to him and he could be convicted for failure to pay thayer also argued sec_7202 was a conjunctive statute requiring both failure to report and failure to pay for conviction thus since he only reported both requirements of sec_7202 were not met and he could not be convicted the third circuit relied on 908_fsupp_1004 d mass which held a conjunctive interpretation of sec_7202 would result in a greater penalty for one who simply failed to collect trust_fund_taxes than for one who collected them and as is charged here used them for his own selfish purposes so long as he notified the i r s that he collected the tax that congress intended to make such a distinction is simply inconceivable thayer countered congress intended to punish more severely those who neither pay nor report in order to encourage reporting the third circuit stated this argument does not convincingly answer brennick’s congressional intent analysis and affirmed thayer’s conviction disclosure of return_information to informant seeking reward in 45_fedclaims_556 the court of federal claims partly granted an internal_revenue_service informant’s request for documents relating to the taxpayer against whom he informed holding the requested information may be disclosed under the exceptions provided in u s c sec_6103 and h b pursuant to a written_agreement with the service the informant provided information regarding alleged tax violations by a certain taxpayer in exchange for a defined sum of money when the informant’s administrative claim for payment under the agreement was denied by the service he brought an action seeking a declaratory_judgment an accounting and breach of contract damages the informant propounded several discovery requests to which the service refused laws and regulations prohibiting or limiting disclosure of tax information to respond invoking upon reviewing the discovery challenge the court of federal claims determined the service’s objections based on sec_6103 confidentiality of return_information were over broad with little analysis the court found specific statutory exceptions to sec_6103 permitted disclosure of certain information responsive to the discovery requests specifically sec_6103 permits disclosure in the course of a federal court_proceeding involving tax_administration provided the treatment of an item reflected on such return is or may be related to the resolution of an issue in the proceeding and sec_6103 permits disclosure in a judicial proceeding pertaining to tax_administration if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding here there was no dispute the requested return_information would resolve this tax_administration matter consequently the court ordered the service to respond to certain aspects of the discovery requests at issue no estoppel from tax loss stipulated in a plea agreement in in re larry howard minkoff no 97-22962-11-jar bankr lexis bankr d kan date minkoff argued in a bankruptcy proceeding the service was estopped from filing a larger claim for the tax_year than was agreed to in a prior plea agreement in minkoff plead guilty to a violation of sec_7206 pertaining to his return in the plea agreement the government stipulated the tax loss did not exceed dollar_figure in date minkoff and other related entities filed for a chapter reorganization and the service filed a proof_of_claim for dollar_figure which was cid cid cid cid cid minkoff’s corrected tax_liability for minkoff argued based on his plea agreement in the criminal tax case the service was estopped from claiming he owed more than dollar_figure for in rejecting minkoff’s argument the court held the service was not bound by the tax loss stipulated by the government for sentencing purposes the court found minkoff’s civil tax_liability for was not litigated in the criminal case and the plea agreement was silent on the issue of his civil tax_liability further the agreement indicated the parties were not stipulating to civil tax_liability nor foreclosing the service from a later audit or assessment of civil tax_liability the court found the civil tax_liability was not actually litigated it was simply an amount determined to enable the court to set a base offense level consequently the court held estoppel was not applicable new bankruptcy fraud statute narrowed in united_states v lee no u s dist lexi sec_342 e d pa date the court granted lee’s motion to dismiss count of the superseding indictment which charged him with bankruptcy fraud under u s c in lee’s motion he argued his actions did not amount to a violation of the statute lee was an officer of a medical supply company which filed for chapter relief a few months after being suspended as a medicare provider since lee could no longer directly lease specialty beds to medicare patients he arranged to lease the beds to a second company whose owner was also his employee for re- leasing beds to patients lee’s maximum take from the proposed lease was approximately dollar_figure the government alleged lee prevailed on the second company’s owner to hire his fiancee as a consultant as a way to funnel an improper indirect dollar_figure payment to himself the government argued lee’s filing of the consent order that failed to disclose his receipt of this indirect payment through his future wife served to conceal the scheme or artifice to defraud thus triggering in granting lee’s motion the court declined to read the statute as broadly as courts have read the mail fraud and securities fraud statutes specifically the government’s argument asked the court to regard lee’s bankruptcy filing with respect to in the same light as mailings have come to be seen in mail fraud prosecutions under u s c sec_1341 so that any bankruptcy filing related at all to a scheme or artifice to defraud could be the jurisdictional element converting the fraud into a federal bankruptcy crime the court declined to give such breadth without congress’ specific direction the court found lee’s failure to fully disclose all of his remuneration from the lease to be a civil concern rather than a criminal one the government’s second attempt at expanding the reach of was also rejected by the court’s denial of its motion for reconsideration united_states v lee no u s dist lexis e d pa date search and seizure extended detention of motorist to conduct canine sniff after valid traffic stop violated fourth_amendment in 199_f3d_193 5th cir dortch’s vehicle was stopped by texas highway patrol officers for purportedly traveling too close to a tractor trailer dortch who was driving and a female companion were the only occupants in the vehicle at the officers’ request dortch exited the car and produced his driver’s license and the car’s rental papers the officers determined the car was rented to a third person and neither dortch nor his companion were properly listed as authorized drivers dortch and the woman then proceeded to provide inconsistent answers concerning dortch’s relationship to the person who had rented the vehicle and as to why they were traveling in that area of texas one of the officers then took dortch’s license and the rental papers and called in a computer check to determine whether the car had been stolen or if there were any outstanding warrants for dortch the officers told dortch he would be free to leave after the check for warrants was complete however they were going to detain the vehicle to perform a canine sniff after approximately five minutes the computer check came back negative but the officers failed to inform dortch of this fact they then waited another five minutes for the dog to arrive at which time the officers told dortch the computer check had revealed nothing nevertheless they conducted the dog sniff of the vehicle with dortch remaining at the scene the dog alerted to the driver’s side door and seat but the subsequent search uncovered no contraband the dog handler then suggested there could be contraband on the person who was sitting in the driver’s seat the officers testified dortch then consented to a pat down search which led to the discovery of a plastic bag containing grams of cocaine dortch’s motion to suppress the evidence was denied and he was convicted of possession with intent to distribute cocaine in violation of u s c sec_841 on appeal dortch argued once the officers issued the oral warning for the traffic violation and received information from the computer check that he had no outstanding warrants the justification for the stop ended and therefore the prolonged detention and warrantless search of his cid cid cid cid cid person violated the fourth_amendment in opposition the government contended because the arrival of the drug sniffing dog occurred within moments of the completion of the computer check and because the computer check served a valid law enforcement purpose dortch was not unreasonably detained see 470_us_675 initially the fifth circuit recognized the detention of a motorist for a computer check during a lawful traffic stop does not violate the fourth_amendment see eg 993_f2d_431 5th cir 981_f2d_1464 5th cir moreover had the dog sniff occurred while the computer check was pending there would have been no violation however t he constitution was violated when the detention extended beyond the valid reason for the initial stop to be sure dortch did not feel free to leave even after the officer had informed him that the computer check was completed because the officers still held his license and rental papers and had told him they were going to detain his car until the dog team arrived dortch’s acquiescence at this point cannot be considered voluntary finding the government’s reliance upon sharpe supra misplaced the court determined that unlike the officers who detained motorists for the arrival of a dea agent in sharpe the officers in this case did not have a reasonable or articulable suspicion that dortch was trafficking in drugs the confusion as to dortch’s relationship to the renter of the vehicle and as to why he and the woman were in that part of texas gave rise only to a reasonable suspicion that the car might have been stolen the court concluded o nce dortch was not permitted to drive away the extended detention became an unreasonable seizure because it was not supported by probable cause accordingly the fifth reversed dortch’s conviction holding circuit the inculpatory evidence was the fruit of an illegal search other constitutional issues sixth amendment right to counsel in 201_f3d_98 2nd cir the second circuit denied the appellant’s motion for assignment of criminal justice act cja counsel in her appeal from a civil forfeiture decree holding a litigant challenging a civil forfeiture does not have a sixth amendment right to counsel the property located pincite blackheath road lido beach new york and a bank account held in the names of alla aginsky and her husband roman aginsky were civilly forfeited pursuant to a jury verdict the forfeiture action stemmed from a criminal case against mr aginsky mrs aginsky was represented in that proceeding by cja counsel appointed by the district_court upon a motion for substitute counsel the district_court granted the motion without discussion of the propriety of using cja funds for that litigation mrs aginsky appealed the forfeiture and moved for the continuation of her cja counsel in the appeal proceeding on the ground the complexity of the action warranted appointment of cja counsel denying the motion the second circuit cited a supreme court decision circumscribing the sixth amendment right to counsel to criminal proceedings united_states v 509_us_602 and joined its sister circuits in holding a litigant challenging a civil forfeiture has no sixth amendment right to counsel accordingly the motion for appointment of cja counsel was denied evidence unstipulated polygraph evidence properly excluded in 194_f3d_1053 9th cir the ninth circuit affirmed a district court’s decision to exclude polygraph evidence based on findings the evidence failed to meet the standard of admissibility established for scientific evidence under fed r evid and the probative value of the evidence did not outweigh its prejudicial effect under fed r evid cordoba who was driving a van later found to contain a large amount of cocaine was tried and convicted of possession of cocaine with the intent to distribute at trial he presented a defense of lack of knowledge and attempted to bolster his credibility with the results of a polygraph test supporting his lack of knowledge contention the district_court excluded the evidence under 783_f2d_1389 9th cir holding unstipulated polygraph evidence is per se inadmissible on appeal the ninth circuit held brown was overruled by 509_us_579 requiring a district_court to make a particularized factual inquiry into the scientific validity of the proffered polygraph evidence under rule as well as weigh the probative value of the evidence against its prejudicial effect under rule the case was remanded with instructions to reconsider the admissibility issue under the daubert standard on remand the district_court held a two day evidentiary hearing received extensive briefings and ultimately concluded the polygraph evidence was inadmissible under both rule sec_702 and sec_403 according to the district_court the daubert standard was not met because the test given to cordoba was flawed the reliability of cordoba’s polygraph evidence was questionable undermining its relevance and the risk of unfair prejudice substantially outweighed the probative value of the polygraph evidence the district_court reinstated cordoba’s sentence and he appealed on further review the ninth circuit found the district_court did a thorough and careful evaluation of all the proffered evidence regarding the reliability of the polygraph evidence the court gave the district court’s findings substantial deference and concluded it did not abuse its discretion in ruling the evidence failed to satisfy the daubert standard and was inadmissible under rule the court also held the district_court did not abuse its discretion in finding the probative value of the flawed polygraph exam did not outweigh the substantial risk of an unfair prejudice which may result from admitting such evidence privileges attorney client privilege does not exist between tribal attorney and tribe member in 197_f3d_821 6th cir dakota was an agent of the keweenaw bay indian community kbic a michigan indian_tribe operating a casino on its reservation dakota was paid_by a gaming machine company attempting to lease machines to kbic’s casino to act as spokesperson for the gaming machine company dakota did not report the payments he received from the gaming machine company on his individual income_tax returns in dakota asked the attorney for kbic whether it was appropriate to obtain a share of the profits generated by the gaming machine company’s installation of machines in the casino the attorney advised dakota he must disclose his profit to the tribal counsel before it voted on which company’s machines to lease at trial the attorney testified to his conversation with dakota who was subsequently convicted of receiving kickbacks and conspiracy in violation of u s c sec_666 and of subscribing to false income_tax returns in violation of sec_7206 dakota appealed his conviction inter alia alleging violation of his attorney-client_privilege on appeal the sixth circuit noted there is usually no attorney-client_privilege between an attorney for a cid cid cid cid cid corporation and an officer of that corporation the only exception to this rule is found in situations where a corporate officer makes clear to the corporate attorney he is personally consulting the corporate attorney and the corporate attorney accepts the communication knowing conflicts may arise with his representation of the corporation analogizing kbic to a corporation the court reasoned no attorney-client_privilege existed between the attorney for kbic and dakota the burden of establishing the existence of the attorney-client_privilege rests with the person asserting it since dakota had not indicated he was personally consulting the attorney for kbic and had not proved the attorney for kbic accepted and gave the communication in any capacity other than as attorney for kbic the court held dakota had not established the existence of the attorney-client_privilege forfeiture judicial forfeiture is proper remedy when notice of prior administrative forfeiture found defective despite expiration of statute_of_limitations in united_states v dusenbery 201f 3d 6th cir dusenbery was convicted of engaging in a continuing criminal enterprise by overseeing and operating his cocaine distribution network while incarcerated in violation of u s c sec_848 incident to his conviction the government administratively forfeited several items of dusenbery’s property between july and april including over dollar_figure and two automobiles in july dusenbery filed a motion pursuant to fed r crim p e seeking the return of his property claiming its seizure violated due process since the government had failed to provide him adequate notice of its intent to pursue administrative forfeiture proceedings the government responded by asserting it had sent personal notice to the correctional facility where dusenbery was incarcerated as well as publishing notice of the intended forfeiture in the cleveland plain dealer newspaper the district_court denied dusenbery’s motion finding he had received adequate notice of the proposed forfeiture on appeal the sixth circuit determined the record before it did not establish the notice dusenbery had received was constitutionally adequate and remanded the case for an evidentiary hearing instructing the district_court if it found insufficient notice dusenbery should be allowed to contest the forfeitures on remand the district_court found the government documentary_evidence filed by demonstrated dusenbery had never received actual notice of the forfeiture thus obviating the need for an evidentiary hearing the district_court then considered the merits of the forfeiture rejecting dusenbery’s new argument that the judicial forfeiture proceedings were barred by the expiration of the five year statute_of_limitations provided for in u s c on appeal the sixth circuit acting upon the assumption the initial notice to dusenbery was insufficient framed the issue as w hat is the proper remedy for a due process violation in an administrative forfeiture proceeding when the statute_of_limitations for filing a judicial forfeiture action has expired upon reviewing other circuits which had previously addressed the issue the court found a glaring split of opinion the ninth and tenth circuits have previously held the administrative forfeiture is void and the government is barred from commencing new forfeiture proceedings by u s c the applicable statute_of_limitations conversely the second circuit in 111_f3d_301 2nd cir held inadequate notice should be treated as voidable not void and the proper remedy is simply to restore the right which a timely rule e notice would have conferred on the claimant the right to judicially contest the forfeiture and to put the government to its proofs under a probable cause standard finding itself in agreement with the second circuit the court stated we fail to see the equity in allowing the claimant more than he would have been accorded in the first place namely the fortuitous benefit of avoiding the forfeiture process altogether moreover the rulings of the ninth and tenth circuits might encourage some claimants with borderline notices and nothing to lose presumably because they will not be able to rebut the government’s proofs to sit on their rule e motions until the five year statute_of_limitations has run accordingly the sixth circuit affirmed the district court’s decision to rule on the merits of dusenbery’s forfeitures despite the expiration of the statute_of_limitations money laundering transfer of illegal proceeds to a third party constitutes concealment in 196_f3d_1206 11th cir the defendants conspired to sell investors worthless securities of three corporations they controlled alliance cid cid cid cid cid fuel corporation alliance petroleum inc and virex the money invested in these corporations was then shifted through the accounts of these corporations finally ending up in the accounts of a fourth corporation irm which was also controlled by the defendants the defendants withdrew the investor’s money from irm’s accounts and used it for personal purposes the defendants were convicted of a number of charges including conspiracy to commit money laundering and money laundering they appealed their conviction for money laundering on the ground there was insufficient evidence to prove they intended to conceal the proceeds of their investment scheme the defendants cited 63_f3d_391 5th cir in support of their argument that there was no evidence of concealment in dobbs the defendant’s conviction for money laundering was reversed because his deposit of the proceeds of his illegal cattle sale into his wife’s bank account and subsequent personal_use of these proceeds was considered open and notorious thus lacking an intent to conceal the defendants argued since their transfers among their withdrawals from irm were open and notorious the concealment element of money laundering was not met the corporate accounts and the eleventh circuit distinguished dobbs noting the deposit in dobbs did not involve the use of third party bank accounts relying on 168_f3d_741 5th cir the court found transfers of illegal proceeds into a third party bank account from which they are withdrawn and used for personal expenses constitutes evidence of intent to conceal since the defendants transferred the proceeds of their investment scheme to irm’s accounts before withdrawal their transfer to irm constituted evidence of their intent to conceal the court further stated transfers of illegal proceeds through a large number of accounts constitutes concealment even when all accounts involved are in the defendant’s own name investigative techniques first amendment precludes civil liability for innocent receipt of or publication of illegally obtained wiretap information in 200_f3d_109 3rd cir a wyoming school board and a school district teachers' union were engaged in contentious contract negotiations during cid cid cid cid cid which an unknown person intercepted and recorded a cell phone conversation between the union’s chief negotiator and the union president the union president stated if the school board failed to move on proposed salary increases it might be necessary to blow off the front porches of some of their houses the tape was strategically sent to yocum the president of a taxpayer organization opposing the union’s position yocum gave a copy of the tape to a local radio station which in turn aired the tape the contents of the tape were also publicized in television broadcasts and newspapers yocum two radio stations and their reporters were sued by the union negotiator and the union president under the civil liability provisions of the federal wiretap law the wiretap statute generally prohibits any person from intentionally disclosing the contents of any wire oral or electronic communication knowing or having reason to know that the information was obtained in violation of the statute all the parties moved for summary_judgment the district_court denied these motions and an interlocutory appeal followed to resolve the legal question as to whether the first amendment precluded imposition of civil damages for the disclosure of a tape recording of an intercepted phone conversation containing information of public significance when the defendants played no role in the interception the third circuit first determined the wiretap statute was not subject_to strict scrutiny the court held intermediate scrutiny was appropriate because the legislative intent behind the statute was content-neutral ie the purpose of the civil liability provision is to strengthen the ban on unauthorized interception by denying the wrongdoer the fruits of his wrongful labor and eliminating the demand for those fruits by third parties the intermediate scrutiny test usually applied to a content- neutral regulation in first amendment cases requires an examination of whether the regulation is narrowly tailored to serve a significant governmental interest and leaves open ample alternative channels for communication under the facts in this case the governmental interest in denying the wrongdoer the fruits of his labor was not at issue because none of the defendants played a role in the illegal interception so as to be categorized as wrongdoers with regard to the governmental interest in eliminating third party demand the court concluded the interest can be more directly achieved by enforcing the statute against the illegal interceptor and aiders and abettors rather than against nonparticipating defendants the court held the wiretap statute failed the test of intermediate scrutiny and therefore may not constitutionally be applied to penalize the disclosure of illegally intercepted information where there is no allegation the defendants participated in or encouraged that interception sentencing tax loss does not include interest and penalties in 197_f3d_1059 11th cir hunerlach was convicted of violating u s c sec_7201 and sec_7206 and sentenced to a term of months imprisonment the tax loss used to calculate the base offense level included interest and penalties on appeal hunerlach argued the court erred in including interest and penalties in calculating tax loss for purposes of determining his base offense level for sentencing the eleventh circuit agreed with hunerlach vacated his sentence and remanded for re-sentencing the court found although the language in u s s g sec_2t1 could be read to include interest and penalties in calculating tax loss the phrase total amount of loss that is subject_to the offense could also be read as not including interest and penalties finding the language used in the guideline provision ambiguous the court turned to the commentary to sec_2t1 to resolve the ambiguity in application note the commission unequivocally stated the tax loss does not include interest and penalties sec_2t1 comment n1 abuse of trust must be found in relation to victim of the offense in 199_f3d_1150 10th cir guidry an accountant was employed as the controller for wichita sheet metal as a co-signatory of the company's bank account guidry embezzled over dollar_figure million by writing checks in dollar_figure increments for alleged federal tax_payments which she later cashed for herself and then altered the company's books to conceal the embezzlement scheme guidry failed to report the embezzlement income on the joint federal_income_tax returns she filed for the years through a jury found guidry guilty of three counts of willfully filing a false individual_income_tax_return in violation of u s c sec_7206 the district_court sentenced her to sixty months imprisonment guidry appealed her conviction and sentence arguing inter alia the district_court erred in imposing a two level sentencing enhancement for abuse of a position of trust under u s s g sec_3b1 sec_3b1 provides if the defendant abused a position of public or private trust or used a special skill in a manner that significantly facilitated the commission or concealment of the offense increase the this offense application of level by levels enhancement is predicated on two factual findings the defendant possessed a position of trust and the defendant abused the position to significantly facilitate the commission or concealment of the offense 134_f3d_997 10th cir the district court's imposition of the two level enhancement was based on findings that guidry occupied a position of trust at wichita sheet metal and her embezzlement activity was relevant conduct committed to avoid detection of her false income_tax returns reviewing these findings the tenth circuit held the application of the enhancement was inappropriate because guidry did not occupy a position of trust vis-a-vis the government thereby failing the first step of the burt analysis the court explained the position of trust must be found in relation to the victim of the offense the victim in a false income_tax case as in this case is the government and here there was no relation of guidry’s position of trust to the government the tenth circuit affirmed the convictions but concluded the district court's sentencing enhancement for abuse of position of trust was clearly erroneous and remanded the case for re-sentencing grouping and violation of judicial process in 201_f3d_214 3rd cir as factually set forth on page thayer was convicted inter alia of violating sec_7202 and u s c sec_152 bankruptcy fraud at sentencing the court failed to group the tax and bankruptcy counts on the bankruptcy counts thayer’s base offense level was increased two levels pursuant to u s s g sec_2f1 b b for violation of a judicial process from the resulting offense level of the court then departed downward six levels to level and based on a criminal history category iii sentenced thayer to months the minimum sentence in the range thayer appealed the district court’s failure to group his tax and bankruptcy offenses he cited sec_3d1 b which requires grouping offenses involving the same victim or the same primary victim together rather than separately thayer argued though the bankruptcy offense involved other creditors the government as the largest creditor was the primary victim as it was the primary victim of the tax offenses the third circuit held congress sought to protect and benefit all creditors in enacting the bankruptcy code and small creditors could not be described as secondary to large creditors the government was not the primary victim of the bankruptcy offense and the court was correct in not grouping the tax and bankruptcy convictions thayer also appealed the lower court’s enhancement of his cid cid cid cid cid sentence pursuant to sec_2f1 b b for violation of a judicial process arguing such an enhancement can be applied only when a specific court order is violated thayer contended his concealment of bankruptcy assets constituted a violation of general court_proceeding but not a violation of any specific court order the third circuit noted a split among the circuits on whether this enhancement requires violation of a specific court order or a general court_proceeding and turned to comment of sec_2f1 b b for guidance the third circuit joining the first and second circuits found this comment’s reference to a prior decree or order means sec_2f1 b b more likely refers to a specific court order than a general court_proceeding since thayer did not violate any specific court order the court was incorrect in enhancing his sentence finally thayer argued the lower court’s enhancement under sec_2f1 b b was not harmless error and the sentence should be vacated the government argued the sentence should not be vacated since thayer could not prove the court would grant another six level downward departure decreasing his sentence from his current sentence the third circuit held thayer had met his initial burden of proving the court relied on an invalid factor in sentencing and the taxpayer had no further burden of proving this invalid factor was determinative of his sentence rather the government must prove the court would have imposed the same sentence absent the invalid factor since the government could not prove this point the sentence was vacated and the matter was remanded for re-sentencing obstruction and special skill in 201_f3d_290 4th cir gormley was the proprietor of a convenience store out of which he operated a return preparation business associated with another return preparation business mdp gormley solicited customers obtained necessary information and forms w-2 and sent this information to mdp for electronic_filing mdp then issued refund checks in the amount of the customer’s anticipated refund less fees in return for the customer’s assigning to mdp the actual refund check to fraudulently increase the amount of refunds gormley often included false information in the returns he prepared gormley was convicted of conspiracy to defraud the united_states in violation of u s c and of filing fraudulent claims for refund in violation of u s c at his pre-sentencing interview with a probation officer gormley professed the false information in his customers’ returns was a result of his customers’ fraud not of his own falsification efforts because of the court applied enhancements for obstruction of justice and use of a special skill innocence and stated these statements on appeal gormley argued u s s g sec_3c1 precluded application of the obstruction enhancement since it is premised on the basis of denial of guilt the fourth circuit found gormley went beyond merely denying his guilt by implicating his customers his statements exhibited actions with a conscious purpose to obstruct justice moreover they were material since if believed they could have affected the appropriate sentence within the calculated range the fourth circuit’s decision controverted the eleventh circuit’s holding in 955_f2d_1492 11th cir where it was held a presentence explanatory assertion of innocence similar to gormley’s could not be material since in order to believe such an assertion one must disregard the jury verdict gormley also challenged the imposition of an enhancement based on special skill arguing sec_3b1 defines special skill as a skill not possessed by members of the general_public and usually requiring substantial education training or licensing the fourth circuit held though formal education is not a mandatory prerequisite to a special skill enhancement the skill must at least be one obtained through the equivalent of such formal education and must be one that is not possessed by members of the general_public gormley’s experience in the tax preparation business did not amount to a special skill since he had no formal training in the area of return preparation or accounting and since return preparation is a skill exercised by millions of americans each year moreover a special skill enhancement may not be based on a co-conspirator’s actions thus the special skill enhancement applied to gormley could not be based on mdp’s special authorization from the service to file returns electronically state firearms offense not considered relevant conduct for sentencing purposes in federal firearms prosecution in 202_f3d_588 2nd cir upon execution of a search warrant for ahmad’s home the police found a semi-automatic pistol with an obliterated serial number a gauge sawed off shotgun four silencers and seven other firearms totaling thirteen items in all ahmad was subsequently convicted in federal court of several federal firearms crimes at sentencing pursuant to the guidelines the district_court made a series of upward adjustments to ahmad’s base offense level of finally ordering a term of imprisonment of months followed by three years of supervised release cid cid cid cid cid on appeal ahmad challenged inter alia the district court’s four level increase to his offense level based upon a finding that thirteen firearms were involved in his offenses as opposed to six thus qualifying for an upward adjustment pursuant to sec_2k2 b in opposition the government asserted although federal_law did not prohibit possession of the seven uncharged firearms their possession by ahmad violated state and local law therefore they were properly counted as relevant conduct constituting the same course of conduct as the offense of conviction in rejecting the government’s argument the second circuit focused its analysis on the definitions of offense and relevant conduct provided for in the guidelines as well the applicable explanatory notes first the court noted sec_2k2 b specifically directs that we count only the firearms involved in ‘the offense’ the guidelines define the offense to mean the offense of conviction and all relevant conduct under sec_1b1 relevant conduct includes offenses which would be grouped for sentencing purposes under sec_3d1 d and were part of the same course of conduct or common scheme or plan of the offense of conviction the guidelines however contain a specific limitation with respect to relevant conduct as applied to firearms application note of sec_2k2 specifies only those firearms that were unlawfully sought to be obtained unlawfully possessed or unlawfully distributed are to be included for purposes of calculating the number of firearms under subsection b next the court turned to the government’s argument in support of finding state offenses to be relevant conduct where the guidelines refer to other offenses it pointed out under sec_1b1 a state offenses are not counted as conduct relevant to a federal offense unless the state offense would have been a federal offense but for jurisdictional element furthermore uncharged offenses can only be part of the same course of conduct or common scheme or plan as the offense of conviction where the offenses may be grouped under sec_3d1 d the court concluded c onduct that may only be charged as a state crime because it involves elements under state law that are not elements of a federal crime may not be grouped under sec_3d1 d and thus may not be considered as ‘relevant conduct’ under sec_1b1 accordingly since ahmad’s possession of the seven additional firearms amounted to a state crime defined by elements not criminalized under federal_law it was error to include the state offense as relevant conduct lack of a if basis for an enhancement is not challenged clear_and_convincing evidence is not required in 198_f3d_745 9th cir romero-rendon was arrested trying to enter the united_states illegally computer checks revealed he had a criminal history in the united_states and had previously been deported romero-rendon pled guilty to being a deported alien found in the united_states in violation of u s c at his sentencing hearing the government requested a sixteen level enhancement since his criminal history involved violent crime romero-rendon objected to the enhancement on grounds it was based only on the presentence report psr not on conviction documents he did not object to the characterization of his previous crime as violent on appeal romero-rendon argued the government should be required to prove his previous violent crime by clear_and_convincing evidence which it cannot do based only on the psr romero-rendon based his argument on 177_f3d_824 9th cir which involved a defendant whose sentence was being enhanced due to his previous violent crime hopper held when a sentencing enhancement has a severe effect on the sentence relative to the offense of conviction the government must satisfy the clear_and_convincing standard rather than the usual preponderance_of_the_evidence standard the ninth circuit distinguished hopper on grounds the defendant in hopper had challenged the accuracy of the characterization of his previous crime as violent since romero-rendon never objected to the characterization of his previous crime as violent the ninth circuit reasoned the clear_and_convincing standard did not apply the ninth circuit held where the defendant does not challenge the accuracy of the information on which the judge bases the sentence enhancement a preponderance_of_the_evidence is the appropriate standard regardless of the severity of the enhancement the ninth circuit also addressed romero- rendon’s objection to basing his enhancement only on the psr without reference to the conviction documents the ninth circuit held the psr may be relied on by the sentencing judge and conviction documents are necessary only if the psr fails to mention the statutory section of conviction defendant’s failure to cooperate is improper basis to boost sentence within guidelines range in united_states v rivera walden 196_f3d_144 2nd cir two brothers jerry and jackie walden were convicted of conspiring to distribute and to possess with the intent to distribute cocaine in violation of u s c sec_846 at sentencing the district_court ordered jerry walden to serve months in prison while his brother jackie received months in doing so the court found a refusal to assist in the investigation of others is an cid cid cid cid cid cid appropriate factor in determining where within a guideline range a sentence may be imposed moreover with respect to jerry walden the judge stated i regard his failure to come forward and to assist the government in its investigations following his conviction in this case as affecting the point within the guideline range to which i am sentencing him of the months i am attributing in my mind months to his failure to assist the government post-conviction on appeal jerry walden contended the district_court violated his fifth_amendment right against self- incrimination by sentencing him in part based upon his failure to assist and cooperate with the government following his conviction he argued the fifth_amendment provides a safeguard against judicially coerced self- disclosure which extends to the sentencing phase of a criminal proceeding as well see 526_us_314 119_sct_1307 quoting 356_us_148 furthermore walden claimed the holding of mitchell which prohibits a court from drawing adverse inferences from a defendant’s silence at sentencing should also be interpreted as prohibiting a court from imposing a sentence based on a defendant’s failure to cooperate the second circuit divided distinguishing the present case from mitchell the second circuit stated the issue in this case is not whether the district_court improperly drew an inference from the defendant’s silence but rather whether it could consider walden’s refusal to cooperate when it made its sentencing determination in 445_us_552 the supreme court held a defendant’s failure to cooperate may be considered by a sentencing court however in 820_f2d_562 2nd cir this consideration into two types the distinction being a court may consider a defendant’s failure to cooperate as a basis for withholding leniency but not as a basis for increasing the severity of the defendant’s sentence the court noted stratton arose before the implementation of the sentencing guidelines when courts had broader discretion in fashioning sentences thus making it more difficult for appellate courts to discern between a penalty or a refusal of leniency the court then found guidance from the seventh circuit’s post- guidelines decision in 943_f2d_707 7th cir which held district courts are free to consider a defendant’s lack of cooperation in assigning a sentence within the guidelines range as long as the sentence falls within the guidelines range klotz teaches it cannot properly be conceptualized as a penalty there the defendant faced a range of to months in prison and received a term of months on review the seventh circuit determined klotz was not penalized for his non- cooperation the sentencing judge’s comments regarding lack of cooperation were interpreted to mean that he found the defendant to be a callous person unconcerned about the injuries he inflicted on others f 2d pincite here in contrast the district_court explicitly imposed an additional five year sentence on jerry walden for his refusal to cooperate with the authorities following his conviction the court determined the sentence was impossible to reconcile with its holding in stratton accordingly the second circuit remanded the case to the district_court for re- sentencing sentencing court departure without prosecution’s consent in 198_f3d_773 9th cir rodriguez-lopez pled guilty to being an alien present in the united_states after deportation in violation of u s c rodriguiez-lopez offered to stipulate to deportation and argued at his sentencing hearing he should be granted a downward departure on this basis the government opposed rodriguez-lopez’s departure request on grounds he had not pled guilty earlier pursuant to a fast track plea agreement the government argued its consent was required for a departure based on the deportation stipulation the district_court denied rodriguez-lopez’ request basing the denial on its belief it was precluded from granting a departure because the government did not consent on appeal the ninth circuit referred to 518_us_81 in koon the supreme court upheld the district court’s departure based on factors not mentioned in the sentencing guidelines the supreme court held all possible potential departure factors cannot be comprehensively listed and analyzed in advance district courts therefore maintain discretion to make factual determinations whether an unmentioned factor is grounds for departure such decisions to depart should be accorded substantial deference and review should be limited to determination whether the unmentioned factor is one proscribed by the sentencing guidelines since stipulation to deportation is not mentioned in the sentencing guidelines as a ground for departure the ninth circuit applied the supreme court’s analysis to the instant case reasoning the sentencing guidelines’ list of proscribed factors does not include lack of government consent the ninth circuit concluded absence of consent does not constitute an absolute bar to departure the ninth circuit held creation of mandatory conditions for departure such as government consent would impermissibly shift the locus of discretionary decision making from the district_court to the prosecutor rather the district_court must decide departures on a case by case basis and thus the sentence was reversed and the matter remanded to the cid cid cid cid cid cid district_court criminal tax bulletin table of cases march supreme court cases illinois v wardlow 120_sct_673 title_26 and title_26 related cases 198_f3d_1293 11th cir 201_f3d_214 3rd cir 45_fedclaims_556 in re larry howard minkoff no 97-22962-11-jar bankr lexis bankr d kan date united_states v lee no u s dist lexi sec_342 e d pa date search and seizure 199_f3d_193 5th cir other constitutional issues 201_f3d_98 2nd cir evidence 194_f3d_1053 9th cir privileges 197_f3d_821 6th cir forfeiture 201_f3d_763 6th cir money laundering cid cid cid cid cid cid 196_f3d_1206 11th cir investigative techniques 200_f3d_109 3nd cir sentencing 197_f3d_1059 11th cir 199_f3d_1150 10th cir 201_f3d_214 3rd cir 201_f3d_290 4th cir 202_f3d_588 2nd cir 198_f3d_745 9th cir united_states v rivera walden 196_f3d_144 2nd cir 198_f3d_773 9th cir cid cid cid cid cid cid department of the treasury internal_revenue_service document rev catalog number cid cid cid cid cid cid


ae ene government entities division department of the treasury internal_revenue_service mc dal commerce street ‘dallas texas date number release date org address uil axpayer identification t form ification number num tax_year s ended person to contact id number contact numbers telephone fax certified mail - return receipt requested dear we have enclosed a copy of our report of examination explaining why we believe revocation of your exempt status under sec_501 of the internal_revenue_code code is necessary if you accept our findings take no further action we will issue a final revocation letter if you do not agree with our proposed revocation you must submit to us a written request for appeals_office consideration within days from the date of this letter to protest our decision your protest should include a statement of the facts the applicable law and arguments in support of your position an appeals officer will review your case the appeals_office is independent of the director eo examinations the appeals_office resolves most disputes informally and promptly the enclosed publication the examination process and publication exempt_organizations appeal procedures for unagreed issues explain how to appeal an internal_revenue_service irs decision publication also includes information on your rights as a taxpayer and the irs collection process you may also request that we refer this matter for technical_advice as explained in publication if we issue a determination_letter to you based on technical_advice no further administrative appeal is available to you within the irs regarding the issue that was the subject of the technical_advice letter catalog number 34809f if we do not hear from you within days from the date of this letter we will process your case based on the recommendations shown in the report of examination if you do not protest this proposed determination within days from the date of this letter the irs will consider it to be a failure to exhaust your available administrative remedies sec_7428 of the code provides in part a declaratory_judgment or decree under this section shall not be issued in any proceeding unless the tax_court the claims_court or the district_court of the united_states for the district of columbia - determines that the organization involved has exhausted its administrative remedies within the internal_revenue_service we will then issue a final revocation letter we will also notify the appropriate state officials of the revocation in accordance with sec_6104 of the code you have the right to contact the office_of_the_taxpayer_advocate taxpayer_advocate assistance is not a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate cannot reverse a legally correct_tax determination or extend the time fixed by law that you have to file a petition in a united_states court the taxpayer_advocate can however see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at lf you have any questions please call the contact person at the telephone number shown in the heading of this letter the most convenient time to call if we need to contact you if you write please provide a telephone number and thank you for your cooperation sincerely larry clevenger eo revenue_agent enclosures publication publication report of examination letter catalog number 34809f form_886 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service org 20xx12 legend org -- organization name president issue xx - date state - state president - whether org org qualifies for exemption under sec_501 of the internal_revenue_code facts org was formed and incorporated in the state of state in 19xx per president the state of state has no record of the corporation’s filing the state of state has a record of org filing july 20xx however the person filing this organization is not the founder of org the organization was granted exemption from federal income taxes under sec_501 as described in sec_501 and further described in sec_170 on july 19xx the internal_revenue_service has misplaced the administrative record for this organization contact was made with the organization upon making contact with the president president of the organization president was asked whether returns were filed for 20xx president stated that no returns had been filed with the internal_revenue_service he also stated that when he moved to state from state after forming the corporation that he did not apply in state as a foreign_corporation nor did he ever follow up on filings with the state of state president notified the agent that the organization was not operating due to inability to obtain funding for any of its proposed projects president stated that the only activity of the organization was the operation of its website and that his son at a cost of dollar_figure per month maintained the website president provided the agent with a faxed copy of the determination_letter dated july 19xx information including a form 6018-a was sent july 20xx to president by mail soliciting pertinent information about failure to operate this was mailed to a p o box as it appeared that president was no longer at his apartment which was the address and telephone number the agent was previously using law sec_501 states that an organization described in subsection c or d shall be exempt form 886-a rev department of the treasury - internal_revenue_service page -1- form_886 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service 20xx12 org from taxation under this subtitle unless such exemption is denied under sec_502 concerning feeder_organization or sec_503 concerning organizations engaged in prohibited_transactions organizations exempt from federal taxes as described in sec_501 include corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or to foster national or international amateur sports competition but only if no part of its activities involve the provision of athletic_facilities or equipment or for the prevention of cruelty to children or animals no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in any political campaign on behalf of or in opposition to any candidate for public_office sec_1_501_c_3_-1 states that in order to be exempt as an organization described in sec_501 of the code the organization must be one that is both organized and operated exclusively for one or more purposes specified in that section if an organization fails to meet either the organizational or operational_test it is not exempt sec_1_501_c_3_-1 specifies that with regard to the primary activities within the operational_test an organization will be regarded as operated exclusively for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such exempt purposes specified in sec_501 sec_1_501_c_3_-1 provides that an organization will not be regarded as operated exclusively for exempt purposes if more than an insubstantial part of its activities is not in furtherance of exempt purposes sec_1_501_c_3_-1 states that an organization is not organized or operated exclusively for one or more exempt purposes unless it serves a public rather than a private interest thus it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals the creator or his family shareholders of the organization or persons controlled directly or indirectly by such private interests revrul_72_369 states in part that in order for an organization to pass the operational_test the organization's resources must be devoted to purposes that qualify as exclusively charitable taxpayer's position org has did not stated its position form 886-arev department of the treasury - internal_revenue_service page -2- form_886 a name of taxpayer explanation of items schedule no or exhibit year period ended department of the treasury - internal_revenue_service org 20xx12 government's position the irs sec_501 tax exempt status of org should be revoked because it is not operated exclusively for tax exempt purposes pursuant to the requirements set forth in sec_1_501_c_3_-1 of the regulations org’s lack of activities for more than three years also stands in contrast to sec_1 c - c of the regulations in that the lack of operations is evidence that there is no furtherance of any exempt_purpose in contrast to sec_1_501_c_3_-1 of the regulations which calls for an organization to be organized and operated for a public rather than a private benefit the organization has not operated or engaged in any charitable activities since its inception the organization does not pass the operational_test as specified in sec_1_501_c_3_-1 of the regulations because the lack of activities means they were not operated exclusively for one or more exempt purposes to be considered as operating exclusively for exempt purposes the organization would have had to engage primarily in activities which accomplish one or more of such exempt purposes as specified in sec_501 of the code as org has not operated exclusively for charitable purposes for an extended period the tax exempt status of the organization should be revoked conclusion org does not qualify for tax exempt status under sec_501 as described in sec_501 of the code the lack of any qualified_activity indicates that this organization should not be allowed to continue as a tax-exempt_organization revocation of the tax-exempt status of org is proposed form 886-a cev department of the treasury - internal_revenue_service page -3-


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc psi plr-100992-03 date date legend x a d1 d2 state dear this letter responds to a letter dated date on behalf of x requesting a ruling under sec_1362 of the internal_revenue_code facts x was incorporated under state law on d1 a x’s sole shareholder intended for x to be an s_corporation a inadvertently failed to file a form_2553 election by a small_business_corporation x requests a ruling that it will be recognized as an s_corporation effective for the taxable_year beginning d2 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides that such election shall be effective for the current taxable_year if it is made during the preceding_taxable_year or before the 15th day of the third month of the current taxable_year sec_1362 provides that an election plr-100992-03 made after the 15th day of the third month of the current taxable_year shall be treated as having been made for the following taxable_year sec_1362 provides that if an election under sec_1362 is made for any taxable_year determined without regard to sec_1362 after the date prescribed by this subsection for making such election for such taxable_year or no such election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to make such election then the secretary may treat such an election as timely made for such taxable_year and sec_1362 shall not apply conclusion based on the facts submitted and representations made we conclude that x has established reasonable_cause for failing to make an s election in a timely manner thus based on the facts submitted and representations made we conclude that x is eligible for relief under sec_1362 accordingly if x makes an election to be an s_corporation by filing with the appropriate service_center a completed form_2553 within days of this letter containing as an effective date d2 then such election shall be treated as timely made for x’s taxable_year beginning d2 a copy of this letter should be attached to the form_2553 filed with the service_center a copy is enclosed for that purpose this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to the taxpayer except as expressly provided herein we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether x is otherwise eligible to be an s_corporation for federal_income_tax purposes sincerely s jeanne sullivan senior technician reviewer branch office of the associate chief_counsel passthroughs and special industries enclosures a copy of this letter a copy for sec_6110 purposes


t c memo united_states tax_court joel rappaport petitioner v commissioner of internal revenue respondent docket no filed date martin a stoll for petitioner willie fortenberry jr for respondent memorandum findings_of_fact and opinion colvin judge respondent determined a deficiency of dollar_figure in petitioner’s federal_income_tax for and additions to tax for failure_to_file under sec_6651 in the section references are to the internal_revenue_code as amended rule references are to the tax_court rules_of_practice and procedure amount of dollar_figure for failure_to_pay_tax under sec_6651 in the amount of dollar_figure and for failure to pay estimated_tax under sec_6654 in the amount of dollar_figure less than a month before trial petitioner submitted an income_tax return for to respondent in which he reported more income than respondent had determined and deducted expenses that flowed through to his return from two s_corporations respondent asserted in an amendment to answer filed days before trial that petitioner’s deficiency for is dollar_figure and that he is liable for additions to tax of dollar_figure under sec_6651 and dollar_figure under sec_6654 after concessions the issues for decision are whether petitioner may deduct a greater amount of expenses flowing through to him from his s_corporations than respondent allowed we hold that he may not whether petitioner is liable for the addition_to_tax for failure to timely file hi sec_2001 return under sec_6651 we hold that he is findings_of_fact some of the facts have been stipulated and are so found among other concessions petitioner concedes he is liable for the addition_to_tax for failure to pay estimated_tax under sec_6654 and respondent concedes that petitioner is not liable for the addition_to_tax under sec_6651 a petitioner petitioner lived in florida when he filed the petition petitioner graduated from new york university and received a master’s degree from a second institution he is a certified_public_accountant c p a and practices in florida and new york he had specialized in taxation for about years he represented taxpayers before the internal_revenue_service irs during b petitioner’s businesse sec_1 joel rappaport co and rappaport steele co petitioner is the sole owner and president of joel rappaport co p a jrc a florida corporation and rappaport steele co p c rsc a new york corporation jrc and rsc performed tax_accounting and return preparation services petitioner performed services for jrc in he received dollar_figure per year in wages from jrc in april of each year from to petitioner signed annual reports for jrc and filed them with the secretary of state of florida jrc timely filed employment_tax returns for petitioner signed those returns rsc provided tax and accounting services rsc was profitable in in john glasner and bob steele steele were rsc employees who provided accounting services and prepared tax returns for rsc clients steele represented clients before the irs during those years rsc timely filed employment_tax returns for petitioner signed all of those employment_tax returns rsc paid jrc dollar_figure for services that petitioner performed in consulting for business inc petitioner’s wife and two children owned a business called consulting for business inc cfb cfb provides marketing activities eg direct mail services to jrc and rsc petitioner has been president of cfb since its inception around c petitioner’s illness in date petitioner sought treatment at the mayo clinic for pain in his left leg and his back the pain worsened in date he had difficulty walking in date petitioner was soon diagnosed with multiple myeloma which he was told is an incurable blood disorder he received radiation therapy times over a 45-day period beginning in date petitioner changed medications several times because he had adverse reactions from date to date the medication affected petitioner’s personality and caused petitioner to have difficulty sleeping bending walking and traveling apparently petitioner was not a shareholder of cfb exh 18-p general ledger for consultants for business inc refers to petitioner’s wife but not petitioner as a cfb shareholder from july through date petitioner reduced the amount of his business travel and primarily worked from home petitioner used video conferencing to reduce stress and the need to travel he worked an average of about hours per week from september to date about hours per week from date to date about to hours per week from date to date about hours per week from march to date and about hours per week after date petitioner’s income was fairly stable throughout as of the date of trial no one associated with jrc or rsc knew about petitioner’s illness d income_tax return sec_1 petitioner’s tax_return for stan hester hester a jrc employee prepared petitioner’s form_1040 u s individual_income_tax_return for jrc employed hester in and until date petitioner signed his federal_income_tax return for on date and untimely filed it on a date not stated in the record petitioner reported in that return that he had received wages of dollar_figure from jrc jrc’s and rsc’s forms 1120s for on date petitioner filed forms 1120s u s income_tax return for an s_corporation for for jrc and rsc petitioner’s tax returns for on a date not stated in the record petitioner received an extension to file hi sec_2001 return on or before date petitioner did not file income_tax returns for tax years e notice_of_deficiency for petitioner’s tax_year and the pleadings in this case respondent determined a deficiency in petitioner’s income_tax for on the basis of information reported by third parties respondent mailed the notice_of_deficiency to petitioner on date petitioner had not filed an individual_income_tax_return for at that time petitioner filed a petition in which he contends that he is entitled to deduct certain expenses petitioner faxed a form_1040 for to respondent’s appeals_office less than a month before the trial of this case he reported income of dollar_figure which included amounts not previously reported to respondent by third-party payers the dollar_figure consisted of dollar_figure of wages paid_by jrc dollar_figure of interest dollar_figure of dividends dollar_figure of capital_gains and dollar_figure from rent on his form_1040 for petitioner deducted the following expenses that flowed through to him from jrc and rsc jrc rsc rent marketing professional fees auto rental and expenses total rent new york apartment tax lodging professional fees transportation travel marketing management staff and administration interest total dollar_figure big_number big_number big_number big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number respondent asked petitioner to substantiate the deductions that flowed through from jrc and rsc to his delinquent form_1040 for petitioner did not do so respondent filed an amendment to answer in it respondent asserts that petitioner’ sec_2001 deficiency and additions to tax were larger than respondent had determined in the notice_of_deficiency on the basis of the amount of income first reported to respondent in the form_1040 petitioner had faxed to respondent respondent also asserted in the answer that although requested to do so by respondent petitioner did not provide documents substantiating any deductions for opinion a whether petitioner may deduct various expenses that cfb paid for him in petitioner contends that he may deduct mortgage interest under sec_163 real_estate tax under sec_164 and condominium fees under sec_162 paid for him by cfb in we disagree petitioner may not deduct these items because they were paid_by cfb not petitioner see 275_f2d_823 4th cir affg tcmemo_1958_176 119_f2d_717 9th cir 39_tc_553 budner v commissioner tcmemo_1984_542 petitioner disagrees and contends he can deduct cfb’s payments because they were loans to him which because of the obligation to repay the loans were constructively paid_by him we disagree petitioner introduced in evidence some pages from cfb’s general ledger for that show that cfb routinely paid petitioner’s personal expenses the balance_sheet on cfb’s form_1120s for states that these payments were loans to petitioner however neither those pages nor any other evidence show that petitioner is obligated to repay cfb thus petitioner has not shown that cfb’s payments on his behalf were loans to him petitioner contends that budner v commissioner supra on which respondent relies is distinguishable on two grounds first in budner we held that a taxpayer partner may not deduct payments by a third party a partnership unless there is an arrangement for charging the partner we found that there was no such arrangement in budner petitioner contends that cfb’s payment of his expenses was a loan to him unlike the circumstances in budner we disagree because petitioner has not shown that he was obligated to repay cfb second in budner we found no evidence that the expenses the partnership paid for the taxpayer had not been deducted at the partnership level and thus the expenses at issue could have been improperly deducted twice id petitioner testified and contends that cfb did not deduct the expenses it paid that are at issue in this case we disagree petitioner is an experienced c p a who should have known that he is required to keep and produce records to substantiate his claims see sec_6001 he did not offer cfb returns in evidence he did not corroborate his testimony or explain how he knew that cfb did not deduct those items petitioner’s attempt to distinguish budner is without merit we conclude that petitioner may not deduct mortgage interest real_estate tax and condominium fees that cfb paid in b whether items deducted on the forms 1120s for for jrc and rsc flow through to petitioner’s individual tax_return background jrc and rsc delinquently filed their forms 1120s for and petitioner delinquently submitted his form_1040 for in his form_1040 petitioner reported flow-through expenses from jrc and rsc respondent disregarded those expenses in the amended answer because petitioner did not respond to respondent’s request to substantiate them after trial this court gave petitioner months to provide respondent with substantiation of the flow- through items petitioner failed to do so burden_of_proof petitioner filed a motion to shift the burden_of_proof to respondent months after the deadline for providing the additional substantiation petitioner contends that respondent bears the burden of proving the increased deficiency respondent asserted in the amendment to answer petitioner contends that respondent bears the burden_of_proof under rule a because the denial of deductions is a new_matter which if sustained would increase the deficiency we disagree respondent did not allow petitioner any deductions for in the notice_of_deficiency the answer or the amendment to petitioner concedes he is taxable on the increased income reported on his form_1040 for thus the burden_of_proof does not affect whether he is taxable on those amounts answer petitioner claimed deductions in his form_1040 for which he submitted after respondent filed the amendment to answer thus petitioner not respondent changed positions belatedly petitioner’s assertion that respondent bears the burden of disproving his belatedly claimed deductions is untenable those deductions are not new_matter under rule a see 99_fedappx_343 2d cir affg tcmemo_2003_135 widemon v commissioner tcmemo_2004_162 petitioner points out that the commissioner asserted new_matter in 124_tc_16 and 112_tc_183 those cases are distinguishable because the taxpayers in those cases did not file returns after the notices of deficiency were issued petitioner contends that respondent knew or should have known about the expenses of jrc and rsc which flowed through to petitioner because respondent had the forms 1120s and schedules k-1 shareholder’s share of income credits deductions etc for jrc and rsc more than months before respondent issued the notice_of_deficiency we disagree respondent could not have disallowed petitioner’s deduction of the flow-through items when respondent issued the notice_of_deficiency because petitioner had not yet deducted them petitioner also contends that the fact that respondent had jrc and rsc forms 1120s and schedules k-1 for when respondent issued the notice_of_deficiency causes the notice_of_deficiency to be inadequate under sec_7522 petitioner gives no reason to support that contention we conclude that petitioner’s reliance on sec_7522 is misplaced conclusion we conclude that petitioner bears the burden of proving he is entitled to deductions he claimed on his late return and that he has not carried that burden thus he may not deduct expenses that flowed through from jrc and rsc in c whether petitioner is liable for the addition_to_tax for failure to timely file hi sec_2001 return burden of production sec_7491 places on the commissioner the burden of producing evidence that a taxpayer is liable for an addition_to_tax or penalty respondent has met the burden of production under sec_7491 with respect to the addition_to_tax for failure to timely file a return under sec_6651 by showing that petitioner filed hi sec_2001 return on date whether petitioner had reasonable_cause for failure to timely file hi sec_2001 return once the commissioner meets the burden of production the taxpayer must in order to not be found liable for the addition_to_tax produce evidence that the commissioner’s determination is incorrect eg that the failure was due to reasonable_cause and not willful neglect 469_us_241 116_tc_438 h conf rept pincite 1998_3_cb_747 reasonable_cause may exist if the taxpayer exercised ordinary business care and prudence but nevertheless could not file the return when due united_states v boyle supra pincite 93_tc_462 petitioner contends that his illness was reasonable_cause for failure to timely file hi sec_2001 return we disagree a taxpayer’s disability may constitute reasonable_cause for failure_to_file returns united_states v boyle supra pincite n however a taxpayer does not have reasonable_cause for failing to file tax returns if he or she was performing normal business operations see paradiso v commissioner tcmemo_2005_187 kemmerer v commissioner tcmemo_1993_394 bear v commissioner tcmemo_1992_690 affd 19_f3d_26 9th cir bloch v commissioner tcmemo_1992_1 petitioner operated jrc and rsc in and through the date of trial he continued to work on a reduced schedule after his illness was diagnosed he operated successful tax and accounting practices in new york and florida from through he also represented clients before the irs traveled between his offices in florida and new york signed all of jrc’s timely filed employment_tax returns for signed and filed annual reports with the state of florida for his florida corporation and received wages from jrc of dollar_figure per year for his work in and petitioner testified that he had not prepared his or any taxpayers’ returns in more than years and that he had others at jrc and rsc prepare them petitioner does not explain why someone at jrc or rsc did not prepare hi sec_2001 return hester prepared petitioner’s return and apparently was available to prepare and timely file petitioner’ sec_2001 return petitioner contends that united_states v isaac aftr 2d ustc par big_number e d ky affd without published opinion 968_f2d_1216 6th cir is virtually on ‘all fours’ with petitioner’s situation and thus controls here we disagree in issac the district_court found that the taxpayer could not function during the years for which the commissioner contended he should have filed his income_tax returns petitioner continued to function during the time at issue here we conclude that petitioner lacked reasonable_cause for his failure_to_file a return for to reflect concessions and the foregoing an appropriate order will be issued and decision will be entered under rule