Saturday, December 9, 2017

More on the Marinello Transcript of Oral Argument (12/9/17)

On Wednesday, I posted First Comments on the Marinello Oral Argument Transcript (Federal Tax Crimes Blog 12/6/17), here.  I had then anticipated a later offering a more detailed analysis of the transcript, here.  After reading the transcript through more I decided to offer some general comments rather a comprehensive discussion or try to predict the outcome.  In these comments, I often add my own thoughts and these thoughts may or may not be correct or may or may not be known to the Justices having to decide the case.  I will try to indicate the part that reflects my own thoughts.

1.  There was some discussion as to the role of the tax obstruction crime, § 7212(a)'s Omnibus Clause, in relation to other lesser or greater tax crimes.  Most pertinent was the concern expressed by Marinello's lawyer that a crime defined as a misdemeanor (such as failure to file a return, § 7203, or filing a false W-4 to lessen the withholding, § 7205) could be charged as felony tax obstruction at the discretion or whim of the prosecutor.  See e.g., Tr. 8-10 & 63-64.  The related concern is that Congress, by providing for the lesser misdemeanor for the described conduct, could not have meant to have the conduct charged as felony tax obstruction.  JAT Comment:  This genre of concern, however, is baked into the criminal laws and tax crimes specifically.  Conduct is often described in more than one criminal law with different punishments (maximum sentences).  Specifically, in the tax context, the prosecutor often has the discretion to charge particular conduct as either tax evasion, a five year felony under § 7201, or tax perjury, a three-year felony under § 7206(1).  Yet, that does not compel the prosecutor to charge the greater crime rather than the lesser crime or the lesser crime rather than the greater.  (By lesser crime, I do not mean the same as the concept of the lesser included offense, for tax perjury is not a lesser included offense to tax evasion.)

2.  In a related vein, there was discussion (Tr. 46-47; 55-56) of the general DOJ policy to charge the more serious offense. The question was whether this guidance would require or tilt in favor of charging the more serious crime, tax obstruction, rather than a misdemeanor crime that more precisely describes the conduct.  JAT Comment: The provision referenced, I presume, is USAM 9-27.300 - Selecting Charges—Charging Most Serious Offenses, here. (Note that the table of contents says this section is titled Selecting Charges—Conducting an Individualized Assessment, but the section itself is titled as indicated).  That provision directs the prosecuting attorney to make an individualized assessment which "will generally conclude that he or she should charge, or should recommend that the grand jury charge, the most serious offense that is consistent with the nature of the defendant's conduct, and that will probably be sufficient to sustain a conviction."  The most serious offense is one that "yields the highest range under the Sentencing Guidelines."  However, SG Appendix A - Statutory Index directs that the Sentencing ranges are calculated under either § 2J1.2 (obstruction  of justice) or § 2T1.1 (the tax guidelines).  In most cases, the sentencing is under § 2T1.1, so that the range is calculated the same as tax crimes, including the misdemeanor failure to file.  Since failure to file is rarely prosecuted for a single year, in all failure to file cases that get prosecuted, the indicated guidelines sentence would be the same and would not be limited by the counts of conviction cap.  (In other words, if the Guidelines range exceeded a single year, the prosecutor would not accept a plea for a single year which would otherwise limit the sentence to one year.)  Finally, I am fairly confident that where failure to file, even for multiple years, was the only conduct, the failure to file crime would be charged even if theoretically the obstruction crime could be charged.  Marinello's concern, echoed by some Justices, was that the obstruction crime if described broadly enough could make the same conduct either a misdemeanor or felony when Congress described the specific conduct as a misdemeanor.

3.  Also, in a related vein, the Government attorney said (Tr. 61) that
[Mr. Parker] The government would have brought a tax evasion charge in this case but for the fact that Mr. Marinello so destroyed his records that it was unable to prove beyond a reasonable doubt that there was an actual tax deficiency.
And so what I think Petitioner's proposed construction would do is it would effectively allow individuals to evade their taxes and then obstruct their way down to a misdemeanor charge, or if they are particularly good at it, maybe obstruct their way out of criminal penalties at all. 
And the government could do nothing about it, unless the individual actually happened to be obstructing a pending audit or investigation.
4.  Also, in a related vein, Marinello's lawyer suggested (Tr. 64-65) that the ability to charge the greater tax offense rather than the lesser misdemeanor (failure to file for example) gives the prosecutor greater leverage in the case where the conduct is only failure to file which Congress specifically said was a misdemeanor.  JAT Comment:  That leverage may be exercised to force a misdemeanor plea where, without the felony threat, the defendant would go to trial.  Even if the sentence would be the same with a single tax obstruction count as with multiple year misdemeanor counts, the threat of a felony conviction could give the prosecutor undue leverage because a felony conviction has adverse consequences that a misdemeanor conviction does not have.

5. Marinello's lawyer (pp. 10-11) alludes to the rise of the use of 7212(a) in the late 1990s.  But the Government's lawyer says that, in the universe of tax crimes prosecutions, tax obstruction is fairly small.  I think responding (Tr. 57-58) to that,
JUSTICE ALITO: Well, before you move off that point, why should we be comforted by the fact that prosecutorial discretion can be used in applying a statute, if this is a statute, with a really broad reach so that it reaches a lot of rather trivial conduct? Doesn't that make the situation worse rather than better? So then the prosecutors can decide where they want to use this.
MR. PARKER: I -- I don't think that it does. I mean, I think that the government has the -- the responsibility to enforce Congress's statutes.
And if Congress has provided that this particular conduct is criminal, then I think that that is appropriate. I don't think that there is anything that is particularly standardless or vague or -- or otherwise uncertain about this particular statute
6.  There was some discussion (Tr. 11-13; 18-19; 31-33 of a person having a Form 1099 requirement to notify the service provider and the IRS of cash payments in excess of a certain amount.  The discussion started in the context of a homeowner paying a person for gardening or snow shoveling services.  The discussion assumed  that there would be a Form 1099 requirement if the payments exceeded a certain amount.  They all had some difficulty with that because there is no Form 1099 requirement unless the payor is in a trade or business which, in this example, he is not. (The Government lawyer finally got this right, Tr. 33.)  But the larger point had to do with someone who did have a Form 1099 requirement who did not meet the requirement in order to "help" the service provider out with his taxes.  Marinello's lawyer argued that, although there is a criminal misdemeanor statute  for failure to file, Section 7203, the Government's interpretation could treat that failure to file as a § 7212(a) felony.  JAT Comment:  Of course, there could be an offense or defraud conspiracy charge if the homeowner and service person discussed and agreed upon not providing the required reporting form.  Remember that the defraud conspiracy, like the tax obstruction statute, has the object of impairing or impeding the IRS; the defraud conspiracy statute clearly covers conduct even in advance of an IRS investigation.  (As I suggested in the earlier posting, the decision as to the tax obstruction crime could have implications for the defraud conspiracy.)

7.  For reasons I noted in the prior blog the exchange Tr. 37-42 gets to the core.  Although he was not echoing intentionally Judge Kozinski's question in Caldwell (""We consider whether conspiring to make the government's job harder is, without more, a federal crime."), Justice Alito asks (Tr. 37) "So anything that makes the work of the IRS more difficult impedes the work of the IRS."  Meaning, of course, that it would be within the scope of the tax obstruction crime.  Judge Kozinski answered that question no in Caldwell for the defraud conspiracy crime because of the additional mens rea element that the action must involve deceit and dishonesty -- a mens rea element.  Consider the following discussion with the Government lawyer (Mr. Parker):
MR. PARKER: I -- I -- well, I would disagree with the statement that anything that makes the work of the IRS more difficult. And I think this goes to what I was just about to say.
JUSTICE ALITO: Why? Why? Why do you disagree with that? On what basis?
MR. PARKER: So -- so you have -- you have to have the natural tendency to obstruct. You then have to have proof.
JUSTICE ALITO: You have the mens rea. What do you have besides the mens rea?
MR. PARKER: Well, you -- you then have to be acting corruptly, which means that you have to have the specific intent to obtain an unlawful advantage.
JUSTICE ALITO: That's the mens rea. What do you have besides the mens rea?
MR. PARKER: So let's say that you are engaged in lawful conduct, you're paying people in cash, or you have structured your corporate form in a way that may make it more complicated for the IRS to figure out what your income and expenses are.
Those things do not have a natural tendency to obstruct in and of themselves because there is nothing that says that the administration of the code has to be made maximally easy.
The only reason that those would end up having an obstructive effect is if you pair them with efforts to mislead or deceive the IRS into believing that the situation is not as it appears for an unlawful advantage. So in the --
JUSTICE ALITO: Well, where does this come from in the language of the statute? I mean, this -- that's what troubles me about this. If I read "impede" to mean what it means in ordinary language, slow the progress of, you don't even have to impede. It's enough that you endeavor to impede.
The only limiting thing I see here is corruptly. And, you know, the old, you know, the old saying, it's lawful for taxpayers to avoid taxes but not to evade taxes. So the line is -- the line can be very -- can be very thin.
MR. PARKER: I'm not sure actually that it is all that thin. And I think that the -- what -- what is important to remember here is that there has to be an effort to actually convert that completely lawful conduct into something that has the natural tendency to obstruct or impede the IRS in an unlawful manner to obtain an unlawful benefit.
JUSTICE ALITO: Well, let me just give you a variation of the hypothetical that's already been given.
So somebody -- somebody offers to clean my gutters, and he says $100 cash, $125 if you pay me by check. Is that a violation of this?
MR. PARKER: No, not at all.
JUSTICE ALITO: Why -- why not?
MR. PARKER: Well, because there -there is no -
JUSTICE ALITO: What if I -- what if I, you know, I understand why he's going to give me the discount by paying by cash, because he doesn't want to report it.
MR. PARKER: Well, again, I think that you would then have to pair that with other efforts to deceive the IRS, as you did here. I mean, Mr. Marinello -
JUSTICE ALITO: Why? Why isn't that sufficient in itself?
MR. PARKER: Because there's no natural tendency of the mere fact that you give him $100 in cash to obstruct anything. What becomes obstructive about that is if that is then not reported to the IRS or is falsely reported to the IRS.
JUSTICE SOTOMAYOR: I know he's not going to report, and he doesn't report.
MR. PARKER: Well, I think that if -if you actually have the subjective specific intent that you are giving him this money with the intent that he is not going to report it to the IRS, and you are engaged in a common endeavor to -- to obstruct the IRS's ability to duly administer to the code, I think - 
JUSTICE KAGAN: But doesn't everybody know -- doesn't everybody know when they're given an offer like this, you know, I'd rather have cash than a check, doesn't everybody know why people would rather have cash than a check?
MR. PARKER: Well, that may be true, but, again, this is I think precisely why these sorts of things, A, are -- are not charged under this statute but, B, I think would be incredibly difficult to charge under this statute.
JUSTICE BREYER: Why? Why? I mean, that's -- you have used several times the words "specific intent." So is it the -- specific intent to me in the law means knowledge that the particular action is unlawful.
MR. PARKER: Uh-huh.
JUSTICE BREYER: So are you saying the government's position is we cannot under this statute prosecute any person for anything he does unless that person knows that what he is doing, such as giving money to a person in cash, will be used to provide a benefit to that person that is unlawful, he knows that doing this, what he is doing, is unlawful, and unless he knows that, the statute does not permit prosecution?
MR. PARKER: I -- I think that that is accurate. I mean, you -
JUSTICE BREYER: No, don't think it's accurate. I want to know if the government of the United States is saying this statute does not permit us to prosecute any person, unless that person knows that the action he is taking -- I'm repeating myself -- such as giving the money in cash, breaks the federal law, and he also knows that what he is doing in giving that money breaks the federal law?
MR. PARKER: Well, he has -
JUSTICE BREYER: If he does not know both of those things, he cannot be prosecuted under this statute. Now, I'm interested in the position of the United States, on that question of interpretation, it is an interpretation of the word "corruptly."
MR. PARKER: Yes. Both of the things that -
JUSTICE BREYER: Yes, the answer is the position of the United States is what I just said is correct. No one can be prosecuted unless both those things are true?
MR. PARKER: Both of those things, I think, are -- are entirely subsumed by the definition of corruptly. You have to have the specific intent -
JUSTICE BREYER: All right. I would like a yes or a no answer to that question.
MR. PARKER: Yes. I mean, as I said
JUSTICE BREYER: The answer is yes.
Okay. Thank you. That's helpful.

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