Lawyers and Obstruction: the Stevens Case (NonTax) Lessons for Tax Lawyers (9/5/11)

This is a guest blog by Scott Schumacher.  Scott is an Associate Professor of Law and Director of the Graduate Program in Taxation at the University of Washington School of Law in Seattle, Washington. Prior to entering academia, he was an attorney with the Department of Justice Tax Division and in private practice with the law firm of Chicoine & Hallett in Seattle. He writes frequently on criminal tax matters and is one of the authors, along with our blog host Jack Townsend, of the book Tax Crimes, here.

In May of this year, the U.S. District Court for the District of Maryland granted a motion for judgment of acquittal in the case of United States v. Stevens (No.: RWT 10 CR 0694 (D. Md. 2011), here. Lauren Stevens, former vice president and associate general counsel of pharmaceutical giant GlaxoSmithKline (GSK), had been charged with obstruction of justice and making false statements during a civil investigation by the FDA.

In a stinging rebuke of the government’s case, the court held that “only with a jaundiced eye and with an inference of guilt that's inconsistent with the presumption of innocence could a reasonable jury ever convict this defendant, and that “it would be a miscarriage of justice to permit this case to go to the jury.” The court concluded that “the defendant in this case should never have been prosecuted and she should be permitted to resume her career.”

Even though the court acquitted Stevens, as I discuss in the Tax Notes article, “Stevens: Is Zealous Advocacy Obstruction of Justice?”, 132 Tax Notes 1169 (9/12/11) here, this prosecution has implications for any lawyer, including tax lawyers, who regularly deal with the government.
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Materiality and Corruptly in Tax Obstruction under Section 7212(a) (9/10/11)

In United States v. Bonds, ___ F.Supp. 2d ___, 2011 U.S. Dist. LEXIS 96051 (ND CA 2011), the jury had found Barry Bonds guilty of obstruction of justice in violation of the so-called Omnibus Clause of 18 U.S.C. section 1503. The court rejected Bonds' Rule 29 for acquittal and Rule 33 for new trial. The Court's discussion is interesting for tax crime afficionados because the tax obstruction statute, section 7212(a), has its roots in the general obstruction statutes in 18 U.S.C., including specifically section 1503(a)'s Omnibus Clause. See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 277-314 (2009), here.

The key elements of 1503's Omnibus Clause for present purposes are: (i) the defendant must endeavor (ii) corruptly to (iii) obstruct or impede the due administration of justice. The Court has the obligatory discussion of the leading case, United States v. Aguilar, 515 U.S. 593, 598 (1995), which is fascinating but need not detain us here.
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Tax Obstruction Crimes -- Section 7212 and Klein Conspiracy (5/26/11)

Today, I pick up a thought I threw out in a comment in my blog entry titled "Jury speaks in the Daugerdas Case -- Guilty! (5/24/11)" regarding the overlapping tax obstruction under Section 7212 and the Klein conspiracy crimes and convictions. Here are Judge Pauley's instructions on these crimes in Daugerdas. I present the tax obstruction charge first, although it was presented second in the charge to the jury:

Tax Obstruction Charge (Section 7212)

Counts 20 and 21: Corruptly Endeavoring to Obstruct and Impede the Functions of the IRS

Count 20 of the Indictment charges that, from in or about 1994 to in or about October 2005, defendants Guerin, Field, Brubaker, and Parse corruptly obstructed and impeded, and endeavored to obstruct and impede, the due administration of the Internal Revenue Laws.

Count 21 charges that, from in or about 1994 to in or about October 2005, defendant Daugerdas corruptly obstructed and impeded, and endeavored to obstruct and impede, the due administration of the Internal Revenue Laws.

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Corruptly in Obstruction Crimes (Including Tax Obstruction) Really Means Something

In United States v. Doss, 630 F.3d 1181 (9th Cir. 2011), a nontax case, the Ninth Circuit addressed the circuit split over the term "corruptly persuades" in 18 USC 1512(b)(1). Section 1512 is captioned "Tampering with an witness, victim or informant." The crime defined in Section 1512 is not a tax crime, nor is it a crime normally encountered in criminal tax trials. Still, as I have developed in an article, the crime's corruptly element may help define the similar element in the tax obstruction statute, 26 USC Section 7212(a). Both crimes are derived from the concepts in 18 USC Section 1503, the traditional obstruction of justice crime. See John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255, 334-335 (2009)).

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Honest Services Supreme Court Cases Might Portend Constriction of Scope of Tax Obstruction Crimes

I was reading a White Collar Crime Prof Blog's summary here of the two "honest services" cases argued before the Supreme Court today and was struck by the report that the Justices' concerns are so strikingly similar to concerns expressed by courts as to the amorphous reach of the tax obstruction crimes (§ 7212(a) and the Klein / Defraud Conspiracy in 18 USC § 371. In part material, the WCCPB summary includes the following:

4. Two primary concerns stand out from today's argument: (1) all justices expressed unease with identifying what sort of "bad conduct" is covered by the statute in the absence of any meaningful guidance from Congress; and (2) the Solicitor General's proposed test is not going to sufficiently narrow the statute. No one, in fact, seemed particularly inclined to adopt the SG's interpretation of the statute. At one point, Justice Breyer suggested that 140,000,000 people throughout the country had probably violated the honest services law as the SG described it, by fibbing to an employer in order to do something his or her boss wouldn't like. Justice Scalia described a similar scenario in which an employee tells the boss he is going to work hard all afternoon if the boss leaves him alone, but makes this misstatement so the boss will go away and he can sit at his desk and read the racing form. The government had a very hard time explaining why this conduct would not fall within the statute as it had defined it, and ultimately suggested that prosecutors wouldn't bring those sort of cases and/or jurors wouldn't convict. That answer did not engender a positive response. No one seemed comfortable with leaving such broad, undefined discretion in the hands of prosecutors and juries.

I discuss this genre of concern in my article on the tax obstruction crimes -- John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough?, 9 Hous. Bus. & Tax L.J. 260 (2009). The article may be reviewed or downloaded here, and the related online appendix may be reviewed or downloaded here. Two prominent cases discuss this concern in the context of the defraud conspiracy (the Klein conspiracy in a tax setting): Hammerschmidt v. United States, 265 U.S. 182 (1924) and United States v. Caldwell, 989 F.2d 1056, 1058 (9th Cir. 1993). If this concern continues into the decisions in the pending Supreme Court cases, we might see some real and very helpful restrictions on the Government's imagination as to the expansive scope of the tax obstruction crimes. Stay tuned!

Update on 12/12/2009: I refer readers to Tom Kirkendall's Houston Clear Thinkers discussion here of Jeff Skilling (Enron fame) SCOTUS brief on honest services fraud and recommend readers with the inclination substitute Tax Obstructions Statutes for the Honest Services Statute. Frightening!

Unthinking Criminality - Where is the Line?

Thanks to the Tax Prof Blog, I picked up this article written by prolific tax lawyer and author, Robert W. Wood. The Article is "Ten Ways to Audit Proof Your Return" (published online by Forbes)

The strategies offered by Mr. Wood are variations on a theme I discuss in a recent article, John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009). Some of these strategies I present in more detail in the online appendix to the article.

The issue is whehter a tax obstruction crime exists when a taxpayer performs an otherwise legal act (illustrated by the strategies in Mr. Woods' article and in my article and appendix) with the intent to impair or impede the IRS's administration of the tax laws? Are Mr. Woods' and my examples which are specifically intended to lower the audit profile examples of conduct that should be subject to criminal punishment? Can readers discern a line between such conduct that is criminal and not criminal? Keep in mind that a bedrock principle of the tax law and other types of related crimes is that a hypothetical reasonable actor should be able to discern the line with clarity, otherwise there can be crime. If there is no discernable line, is there only prosecutorial discretion that keeps practitioners (including Mr. Wood and myself) who have engaged in variations on this theme over the years from prosecution? And, finally, would the courts cry foul as did Judge Kozinski in the Caldwell case?

I'll let my readers chew on those questions. I have already spoken ad nausuem. I would appreciate the readers' responses.

Have a great weekend!

Houston Business & Tax Journal Symposium on Tax Evasion and White Collar Crime

Houston Business and Tax Journal
Volume 9 Part 2

The University of Houston Business and Tax Law Journal has published papers from a symposium on Tax Evasion as White Collar Crime. All of the papers are availble through the link above. The specific papers may be linked below:

Geraldine Szott Moohr, Introduction: Tax Evasion as White Collar Crime, 9 HOUS. BUS. & TAX L.J. 208 (2009) - available here. Professor Moohr offers a good introduction to the series. Readers might use her article as a good introduction to the other articles in order to determine where to focus their reading. Professor Moohr's bio is here.

Stuart P. Green, What Is Wrong with Tax Evasion? 9 HOUS. BUS. & TAX L.J. 221 (2009) - available here. Professor Green's Bio is here. Professor Green is the author of a prominent book on White Collar Crime -- STUART P. GREEN, LYING, CHEATING AND STEALING: A MORAL THEORY OF WHITE COLLAR CRIME (2007) (see here). Professor Green treats tax evasion in his book and again in the article.

Robert E. Davis & Danny S. Ashby, Federal Criminal Tax Enforcement in 2009: The Role of Criminal Tax Enforcement in the Federal “Voluntary” Self-Assessment and Payment Tax System, 9 HOUS. BUS. & TAX L.J. 237 (2009) - available here. Bob Davis' and Danny Ashby's bios are here and here.

John A. Townsend, Tax Obstruction Crimes: Is Making the IRS’s Job Harder Enough?, 9 HOUS. BUS. & TAX L.J. 260 (2009) Article available here; Appendix to article available here. Jack's bio is here.

Townsend Publication on Tax Obstruction

The Tax Prof Blog here reports that an appendix to my article, John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? (article to be published later by the Houston Business and Tax Journal), has been put online here. The article addresses the Government's expansive claim as to the two principal tax obstruction crimes -- 26 U.S.C. (IRC) § 7212(a) and the Klein / defraud conspiracy under 18 U.S.C. § 371. The Government claim is that even legal actions undertaken to impair or impede the IRS may be prosecuted under these provisions. Sometimes, although often not in outcome determinative context, courts rotely say that also. In the article (to be published), I address the Government's claim in the context of audit avoidance, a common feature of tax practice. The article argues that something more than mere legal action to impair or impede or influence an audit is required for the obstruction crimes. There must be a false component of the action in order to sustain a prosecution. The Supreme Court so held in the defraud conspiracy context in Hammerschmidt v. United States, 265 U.S. 182 (1924), but the Government continues to attempt to end-run that holding. It is that end-run that is the focus of the article. As noted, the article is not yet published (indeed, I am making my final changes after receiving back the edited draft as we speak). I will post here later when the article is published.