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Lexis Nexis Tax Crimes
Tax Crimes, now in it's Second Edition, covers both the substantive and procedural issues involved in the investigation, prosecution, and defense of criminal tax cases.
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Tax Crimes, now in it’s Second Edition, covers both the substantive and procedural issues involved in the investigation, prosecution, and defense of criminal tax cases. The book begins with an overview of the criminal tax system and the personnel involved followed by the elements of the numerous crimes for which a defendant may be charged, focusing on key aspects such as willfulness. Next, the book covers how tax cases are investigated, including the most common steps from a civil tax examination through indictment. These chapters examine the tools the Government has at its disposal to obtain information, as well as the defenses a person under investigation may assert. The book then turns to trial and sentencing issues, including the ethical issues and collateral consequences that arise in the investigation and litigation of criminal tax cases.
Finally, the book provides a review of the criminal tax system, allowing the reader to put all the foregoing concepts together, with a special emphasis on practical tips for handling these complex and exciting cases. Each chapter closes with a practical problem designed to highlight some of the key issues addressed in the cases and materials. The problems are based on situations encountered in practice or found in decided cases and many of them require analysis of a given set of facts to first determine and then resolve the critical issues.
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Table of contents
Table of Contents
Chapter 1 OVERVIEW OF THE CRIMINAL TAX SYSTEM . . . . . . . 1
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. SCOPE OF THE BOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
III. INTRODUCTION TO THE CRIMINAL TAX SYSTEM . . . . . . . . . . . . . 4
A. Purpose of the Criminal Tax System . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. Mens Rea; the Guilty Mind; Willfulness . . . . . . . . . . . . . . . . . . . . . . . . 5
Bryan v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
C. Overview of the Procedural Aspects of the System . . . . . . . . . . . . . . . . 8
1. IRS Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2. DOJ Tax Approval Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. Grand Jury and Prosecution Phase . . . . . . . . . . . . . . . . . . . . . . . . . . 10
a. The Prosecutor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
b. The Grand Jury Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
c. Indictment and Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Sentencing Phase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. Judicial Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
IV. SOME POLICY ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. Causes of Criminal Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
B. Purposes of the Criminal Justice System . . . . . . . . . . . . . . . . . . . . . . . 15
C. Interface of Tax and Non-Tax Enforcement . . . . . . . . . . . . . . . . . . . . . 16
D. Extent of Criminal Tax Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 17
E. Federal Tax Amnesty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
V. PLAN OF THE BOOK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
A. Chapters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
B. Terms and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
C. Additional Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Chapter 2A CRIMES UNDER THE INTERNAL REVENUE
CODE—TAX EVASION . . . . . . . . . . . . . . . . . . . . . . . . . 27
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
II. AFFIRMATIVE ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Spies v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
United States v. McGill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
United States v. Beacon Brass Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . 36
III. WILLFULNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
A. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
United States v. Pomponio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
v
Cheek v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
B. Willfulness and Tax Protesters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
C. Willful Blindness or Deliberate Ignorance . . . . . . . . . . . . . . . . . . . . . . 50
D. Willfulness—Reliance on Professional . . . . . . . . . . . . . . . . . . . . . . . 55
E. Willfulness—Complexities and Uncertainties in the Law . . . . . . . . . . 56
United States v. Garber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
United States v. Harris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
F. Proving Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
United States v. Ytem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
IV. TAX DUE AND OWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
A. No Tax, No Tax Evasion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
United States v. Cruz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
B. Substantiality and Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
C. Criminal Tax Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
D. Corporate Diversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
United States v. Bok . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
V. EX POST FACTO SOLUTIONS TO TAX EVASION . . . . . . . . . . . . . . 74
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Chapter 2B CRIMES UNDER THE INTERNAL REVENUE
CODE—OTHER OFFENSES . . . . . . . . . . . . . . . . . . . . . 77
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
II. SECTION 7206(1) TAX PERJURY . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
A. The Elements Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
B. Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
C. Declaration of Perjury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
D. Belief as to Truth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
E. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
F. Tax Due and Owing Not Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
G. Required Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
H. Ingredient Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
I. Further Notes on Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
J. True But Misleading Answers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
III. SECTION 7206(2) AIDING AND ASSISTING FALSE RETURN . . . . . 87
A. The Elements Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
B. Willful Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
C. Document False as to a Material Matter . . . . . . . . . . . . . . . . . . . . . . . 89
D. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
IV. SECTION 7212(a) CORRUPTLY IMPEDING TAX
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
A. The Elements Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
B. Corrupt Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
C. Endeavoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
D. Obstructing or Impeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
E. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
F. Relationship to More Specific Crimes . . . . . . . . . . . . . . . . . . . . . . . . . 94
United States v. Kelly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
G. Post-Filing Conduct Only? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
United States v. Kassouf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
V. SECTION 7203 FAILURE TO FILE, KEEP RECORDS, SUPPLY
INFORMATION, OR PAY TAX . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
A. The Elements Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
B. Duty to File Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
C. Failure to File Timely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
D. Willfulness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
E. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
F. Failure to Pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
VI. SECTIONS 7202 AND 7215 FAILURE TO COLLECT AND PAY
OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
A. The Elements Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
B. The “Withhold and Pay Over” Obligation . . . . . . . . . . . . . . . . . . . . . 106
C. Relationship of Sections 7202 and 7215 . . . . . . . . . . . . . . . . . . . . . . 107
United States v. Evangelista . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
VII. SECTION 7207 FRAUDULENT RETURNS, STATEMENTS, OR
OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
A. Elements Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
B. Overlap with Other Tax Crimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
C. DOJ Tax Charging Policy for Section 7207 . . . . . . . . . . . . . . . . . . . . 113
D. Government Choice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
VIII. SECTION 6050I CURRENCY TRANSACTION REPORTING . . . . . . . 114
A. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
B. Failure to File . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
C. Filing a False Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
D. Assisting in Filing False Forms 8300 . . . . . . . . . . . . . . . . . . . . . . . . 115
E. Structuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
F. Additional Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Chapter 3 RELATED CRIMES OUTSIDE THE INTERNAL
REVENUE CODE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
II. CONSPIRACY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
B. The Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
1. The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
2. Knowing and Voluntary Participation in the Conspiracy . . . . . . . . . 131
United States v. Krasovich . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
3. Overt Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
C. Pinkerton Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
D. Conspiracy to Commit a Substantive Offense . . . . . . . . . . . . . . . . . . 135
E. Conspiracy to Defraud the United States . . . . . . . . . . . . . . . . . . . . . . 137
F. Klein Conspiracy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
United States v. Caldwell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
G. Indictments: Offense or Defraud Conspiracy or Both? . . . . . . . . . . . . 143
H. The Withdrawal Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
III. AIDING AND ABETTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
B. The Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
1. Associated with the Criminal Venture . . . . . . . . . . . . . . . . . . . . . . 146
2. Participation and Success of Venture . . . . . . . . . . . . . . . . . . . . . . . 146
3. Knowing Participation in the Venture . . . . . . . . . . . . . . . . . . . . . . 147
C. Further Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
IV. FILING FALSE CLAIMS (18 U.S.C. SECTIONS 286 AND 287) . . . . . 1
47
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
B. False Claims for Refund (Section 287) . . . . . . . . . . . . . . . . . . . . . . . 148
C. Conspiracy to File False Claims (Section 286) . . . . . . . . . . . . . . . . . . 149
V. FALSE STATEMENTS (18 U.S.C. SECTION 1001) . . . . . . . . . . . . . . 150
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
B. The Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
C. The “Exculpatory No” Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
VI. MONEY LAUNDERING (18 U.S.C. SECTIONS 1956 AND 1957) . . . . 153
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
B. Section 1956 Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
1. Transaction Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
2. Transportation Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . 156
C. Section 1957 Money Laundering . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
D. Tax Division Control of Tax and Money Laundering Crimes . . . . . . . . 157
VII. FINANCIAL REPORTING CRIMES (31 U.S.C. SECTIONS 5322
AND 5324) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
B. Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158
C. Criminal Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
D. Offshore Voluntary Disclosure Initiative and FBARs . . . . . . . . . . . . . 161
VIII. MAIL FRAUD AND WIRE FRAUD (18 U.S.C. SECTIONS 1341
AND 1343) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
B. The Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
C. Materiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
D. Overlap with More Specific Criminal Provisions . . . . . . . . . . . . . . . . 165
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Chapter 4 MODES OF PROOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
II. BURDEN AND STANDARD OF PROOF . . . . . . . . . . . . . . . . . . . . . . 169
A. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
B. Standard of Proof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
C. Shifting Burden of Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
United States v. Tarwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
III. DIRECT, INDIRECT, AND HYBRID METHODS OF PROOF . . . . . . . 175
A. Direct Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
B. Indirect Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
1. Net Worth Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Holland v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
2. Expenditures Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Taglianetti v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
3. Bank Deposits and Cash Expenditures Method . . . . . . . . . . . . . . . . 186
United States v. Esser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
4. Percentage Mark-Up Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
5. Indirect Methods to Prove Overstated Deductions . . . . . . . . . . . . . . 189
6. Defense Strategies in Indirect Method Cases . . . . . . . . . . . . . . . . . 190
C. Hybrid Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
D. Direct Method and Indirect Methods Contrasted . . . . . . . . . . . . . . . . 191
United States v. Black . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192
IV. GOVERNMENT EMPLOYEES AS WITNESSES . . . . . . . . . . . . . . . . 194
A. Differentiating the Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
United States v. Pree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
B. The Summary Witness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
United States v. Sabino . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
United States v. Bishop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
C. The Expert Witness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
United States v. Tarwater . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
V. PRESUMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204
United States v. Silkman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
Chapter 5 PROSECUTION POLICIES AND AFFIRMATIVE
DEFENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
II. DECLINING PROSECUTION: GETTING PROSECUTORS TO
JUST SAY NO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
A. Prosecutorial Discretion in General . . . . . . . . . . . . . . . . . . . . . . . . . . 211
B. Deciding Whether and Whom to Prosecute . . . . . . . . . . . . . . . . . . . . 212
C. Prosecution of Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
D. Deciding Which Crime to Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
E. Lesser Included Offense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218
Sansone v. United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
F. Dual and Successive Prosecution Policy (“Petite Policy”) . . . . . . . . . . 222
G. Plea and Sentencing Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
III. AFFIRMATIVE DEFENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
A. In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228
B. Forgotten-Deduction Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
C. Good-Faith-Belief Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
D. Cash-Hoard Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
E. Fifth Amendment Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
F. Statute of Limitations Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234
1. When the Statute of Limitations Begins to Run . . . . . . . . . . . . . . . . 235
2. Statute of Limitations and Conspiracy Under 18 U.S.C.
Section 371 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
3. Suspension and Tolling of the Statute of Limitations . . . . . . . . . . . . 238
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Chapter 6 INVESTIGATION AND DEVELOPMENT OF
CRIMINAL TAX CASES . . . . . . . . . . . . . . . . . . . . . . . . 241
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
II. THE PLAYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
A. IRS Civil Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
B. Special Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
C. CI Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
D. DOJ Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
III. ADMINISTRATIVE CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
A. Origin of the Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
B. Investigation by CI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
C. Moving the Case from CI to DOJ . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
1. Recommending Criminal Prosecution . . . . . . . . . . . . . . . . . . . . . . 250
2. The Special Agent’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
3. DOJ Referral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
D. Processing by DOJ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
1. Main Justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
2. AUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
E. Conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
1. CI Conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
2. DOJ Tax Conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
3. Conferences with AUSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
F. Criminal Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
1. Indictment, Information, or Complaint . . . . . . . . . . . . . . . . . . . . . . 255
2. Arrest or Summons for Initial Appearance . . . . . . . . . . . . . . . . . . . 257
3. Pre-Arraignment Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
4. Arraignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
IV. GRAND JURY CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
V. HYBRID CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
VI. TYPES OF CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
A. Legal Source Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
1. Nonfiler Enforcement Program . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
2. Employment Tax Enforcement Program . . . . . . . . . . . . . . . . . . . . 261
3. Abusive Trust Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
B. Illegal Source Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
VII. STANDARDS FOR PROSECUTING TAX CRIMES . . . . . . . . . . . . . . 262
VIII. VOLUNTARY DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
B. IRS Voluntary Disclosure Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
1. The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265
2. How Is Disclosure Made? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268
C. DOJ Tax Disclosure Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
D. Does Either Policy Confer Rights? . . . . . . . . . . . . . . . . . . . . . . . . . . 270
United States v. Tenzer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
E. Timeliness, Truthfulness, and Completeness . . . . . . . . . . . . . . . . . . . 276
F. Taxpayer Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
G. Events That Prevent Voluntariness . . . . . . . . . . . . . . . . . . . . . . . . . . 278
H. Practical Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
I. Voluntary Disclosure and Advocacy . . . . . . . . . . . . . . . . . . . . . . . . . 280
J. Special Voluntary Disclosure Initiatives . . . . . . . . . . . . . . . . . . . . . . 281
1. Offshore Voluntary Compliance Initiatives (and Related Audit
Initiatives) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
2. Tax Shelter Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
3. 2009 Offshore Account Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . 281
IX. EGG SHELL AUDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Chapter 7 GOVERNMENT INFORMATION GATHERING . . . . . . 289
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
II. IRS SUMMONS POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
A. General IRS Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
B. Rules on the Issuing of Summons . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
C. Summons Enforcement Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 291
D. Third-Party Recordkeeper Summons . . . . . . . . . . . . . . . . . . . . . . . . 293
E. John Doe Summons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
III. GRAND JURY SUBPOENA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297
IV. SEARCH WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
United States v. Lefkowitz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
V. STING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
VI. DEFENSES AND PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304
A. The Privilege Against Self-Incrimination . . . . . . . . . . . . . . . . . . . . . 305
1. The Privilege and Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
2. The Privilege and Document Production . . . . . . . . . . . . . . . . . . . . 307
3. The Required Records Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . 314
B. Immunity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
1. Immunity in General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
2. Kastigar Hearings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
C. Attorney-Client and Work-Product Privileges . . . . . . . . . . . . . . . . . . 320
1. Who Is the Client? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321
2. Do You Want Legal or Tax Advice? . . . . . . . . . . . . . . . . . . . . . . . 323
3. Waiver of the Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
4. The Privilege and Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 324
D. Work-Product Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 326
VII. INTERNATIONAL EVIDENCE GATHERING . . . . . . . . . . . . . . . . . . 327
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
B. Methods for Obtaining Foreign Evidence . . . . . . . . . . . . . . . . . . . . . 329
Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
0
Chapter 8 PRE-TRIAL ISSUES IN CRIMINAL TAX CASES . . . . . 333
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
II. DISCOVERY OF THE GOVERNMENT’S CASE . . . . . . . . . . . . . . . . 333
A. The Problem of Limited Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . 333
B. Practitioner Vigilance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
C. Administrative Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
D. Freedom of Information Act and Privacy Act . . . . . . . . . . . . . . . . . . . 334
E. Pre-Trial Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
1. Federal Rules of Criminal Procedure . . . . . . . . . . . . . . . . . . . . . . . 337
2. Case Law Requiring Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
a. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
b. Brady . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
Brady v. Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337
c. Giglio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
d. Henthorn Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
3. The Jencks Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341
4. The Prosecutor’s Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
United States v. Rodriguez . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342
5. Other Discovery Motions in Tax Cases . . . . . . . . . . . . . . . . . . . . . 347
F. Prosecutors’ Open File Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
1. Concept and General Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
2. Massive Document Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348
G. The Civil Case Gambit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
III. DISPOSITIVE MOTIONS AND MOTIONS TO SUPPRESS
EVIDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
A. Motions to Dismiss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354
B. Motions to Suppress . . . . . . . . . . . . . . . . . .
