Jenner Lawyers Attack 'Uber Tax Crime Law' in New High Court Term
In a series of recent decisions, the U.S. Supreme Court has reined in prosecutors’ use of broadly worded statutes and clauses to charge criminal conduct. The federal tax code could be the justices’ next target.
Jenner & Block’s Matthew Hellman will face the government this term in Marinello v. United States in which, he argues, prosecutors are using an “omnibus” clause in the tax code as an “uber tax-crime statute” that puts at risk unwary businesses and individuals.
“This isn’t even a statute — it’s a clause in a statute that has been turned into the all-purpose tax felony,” said Hellman’s tax partner Geoff Davis.
At issue is the so-called residual clause in Internal Revenue Code section 7212(a), which states that whoever “in any other way corruptly or by force … endeavors to obstruct or impede the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both.”
The two lawyers tell the high court that the justices have long recognized the importance of not reading residual clauses broadly such that prosecutors can decide which conduct is criminal. They cite recent high court cases for support, including Yates v. United States (2015), Skilling v. United States (2010) and Arthur Andersen v. United States (2005).
The justices have agreed to decide whether the tax clause requires proof that the defendant acted with knowledge of a pending Internal Revenue Service action or proceeding, such as an investigation or audit.
The government argues that nothing in the tax law’s text requires that an IRS action, investigation, or proceeding be already underway when someone endeavors to obstruct the IRS’s administration of the tax laws.
“Tax administration is continuous, ubiquitous, and universally known to exist,” writes acting Solicitor General Jeffrey Wall. “People are therefore on notice that the IRS is administering the tax code, even when they are not aware of a specific, pending proceeding against them.”
Hellman said the government is “very frank” in saying it sees the clause as being violated any time there is hindrance of tax administration. “Businesses, individuals in their daily lives, are always acting under the tax code,” he said. “If you don’t keep a receipt, don’t organize your business affairs, potentially you could be at risk of an obstruction felony charge. With that broad a reach of what it means to obstruct, it’s not surprising they’re sweeping in so much.”
Hellman’s client, Carl Marinello, owned and managed Express Courier, which operated a freight service between the United States and Canada. For more than a decade, he failed to file corporate and personal income tax returns. He was convicted by a jury of one count of corruptly endeavoring to obstruct or impede the administration of the tax laws, and eight counts of willfully failing to file tax returns. He was sentenced to 36 months in prison and one year of supervised release and ordered to pay $351,763.08 to the IRS in restitution. The U.S. Court of Appeals for the Second Circuit affirmed his conviction last October.
“Our client, like many clients, was convicted of very serious tax misdemeanors — willful failure to file tax returns,” said Davis, the tax partner.
“We don’t challenge them. The issue here is there is a sort of pile-on effect — on top of those charges, a felony. If throwing away a receipt can be shown to be done corruptly, without any knowledge of any pending investigation, that just tells me as a taxpayer: be afraid,” Davis said.
But the government counters that the clause is limited by the requirement that the defendant act “corruptly” and that the government prove it beyond a reasonable doubt. The Marinello trial court defined “corruptly” as acts done with the intent to secure an unlawful benefit either for oneself or for another.
Marinello’s defense attorney, Hellman, contends that “a negligent or even reasonable error on the part of a taxpayer could be recast in an indictment as an intentional one made for the sake of obtaining an unlawful gain.” And the high court has said it is not enough of a limitation in similar cases involving statutes containing “corruptly.”
Source: Law Journal