Court Holds Criminal Statute of Limitations Commences on Due Date of Return and Summons Suspends for Husband but not Wife

In United States v. Buckler, 2011 U.S. Dist. LEXIS 39839 (WD KY 2011), the court made two holdings relevant for this blog in a criminal tax prosecution of husband and wife.

First, the Court held that the criminal statute of limitations for a return filed before the normal due date of the return (April 15 for individuals) commences on the normal due date (April 15), thus making the indictment timely. The Court cited for this proposition Section 6513(a) and United States v. Habig, 390 U.S. 222, 225 (1968). Section 6513(a) provides that "For purposes of section 6511," which deals with claiming refunds, (i) the statute of limitations commences on the due date rather than an earlier filed date and (ii) the due date "shall be determined without regard to any extension of time granted the taxpayer and without regard to any election to pay the tax in installments." Section 6531, dealing with criminal statutes of limitation, provides that "for the purpose of determining [such] periods of limitation . . . the rules of section 6513 shall be applicable." In Habig, the defendant sought to interpret the bold faced provision of Section 6513(a) to mean that it applied to returns filed after the due date, so that returns filed during the extension period required a due date commencement of the civil and criminal statute of limitations. The Habig Court rejected that argument, holding that returns filed after the due date have their statutes of limitation commence on the date of filing rather than the earlier due date of the return. In Buckler, the return was filed before the normal due date and hence fell squarely within the rule that the return is deemed filed on the normal due date of the return.
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New Sixth Circuit Failure to Pay Over Case

In United States v. Blanchard, ___ F.3d ___ (6th Cir. 2010), the defendant was "convicted of fifteen counts of Failure to Account for and Pay Over Withholding and FICA Taxes, in violation of 26 U.S.C. § 7202, and three counts of Making and Causing the Making of a False Claim for a Tax Refund, in violation of 18 U.S.C. § 287." The decision in the case is useful because it covers a lot of the key issues presented in failure to pay over cases which seem to be coming more frequently in recent years

1. Statute of Limitations. The Court holds that the statute of limitations under § 6531 is 6 years. The defendant's argument was that "pay" in the 6 year statute (§ 6531(4)) was a different concept than "pay over" which is the concept in § 7202 and thus that the default tax crimes statute of limitations of 3 years applied. The defendant argued that, not only was it a different concept, but analysis of the 1954 Code predecessor -- the 1939 Code -- supported this reading of § 6531(4). The Court rejected the argument, consistent with the mainstream (but not unanimous) holdings. The Sixth Circuit provides a good discussion of the cases on the subject.

2. Admission of Evidence of Discretionary Expenditures. The Court held that the evidence of defendant's discretionary expenditures was relevant to his willfulness and thus was properly admitted at trial.

3. Ability to Pay is Not An Element. Following the Ninth Circuit's holding in Easterday (discussed here), the Court rejects the argument that the Government must prove ability to pay as an element of the offense. The essence of the holding is that a defendant cannot immunize himself or herself from criminal tax charges by avoiding having the resources to pay -- such as by spending the money otherwise available to pay.

4. Failure to Instruct on the Defendant's Theory of the Case. Failure to properly instruct on a defendant's theory of defense is viewed as reversible error (at least if not harmless), as we noted in discussing Kottwitz. But, unlike Kottwitz, the Sixth Circuit finds no reversible error because the other instructions covered the gravamen of the defense. So, let's see. The defendant's claim was that he relied upon his accountant / return preparer. There was sufficient evidence that he did so, at least sufficient to support the requested instruction on the defense. The Sixth Circuit held that there was no reversible error because the defense was subsumed in the willfulness and good faith instructions the trial court did properly give to the jury. In other words, if the jury understood those instructions, it would have known that the defendant would have a defense if he indeed relied upon the accountant / return preparer. This notion, of course, relies upon the legal construct that juries understand jury instructions as given and are able to extend the concepts beyond the instructions. Finally, the Court does state as its final sentence that there was "no error here." I read the analysis as being a no reversible error opinion. I think that in a case with the proper evidentiary predicate for a reliance defense, the defendant is entitled to the instruction and the general willfulness and good faith instructions will not cover the ground. Hence, I think the Court's concluding sentence is unfortunate.

5. The Net Wage Entitlement to Credit for Withheld Taxes. In reporting his personal income tax liability, the defendant claimed a credit for the tax he was supposed to cause his "employer" to withhold and pay over but did not; based on this notion, the defendant claimed that he could not be guilty under 18 USC § 287 (false claims) for claiming those credits. The general scheme for withholding is that, upon payment of net wages, the employee gets the credit for taxes withheld whether or not the withholding agent (the employer) ever pays over those withheld (or deemed withheld) amounts to the IRS. Of course, that is the general scheme. This general scheme was not designed to benefit the person who is responsible for the failure to pay over in the first instance. Interestingly, in this regard, the Sixth Circuit relied (or at least found persuasive) an unpublished decision affirming a § 7201 conviction in a similar circumstance. The defense is just a bit too cute.

6. Amount of Restitution for Tax Crimes. The Court reversed the imposition of restitution related to the tax crimes (as opposed to the Title 18 crimes). Restitution is just not available for tax crimes except as a condition for some benefit (such as condition of probation) conferred on the defendant.

Seventh Circuit on Speedy Trial, Prosecutor Misconduct and Statute of Limitations

In United States v. Hill, ___ F.3d ___ (7th Cir. 2010), the Seventh Circuit addressed many common defendant arguments for reversal of their convictions and, for the most part, rejected them on grounds familiar to practitioners. The opinion is 45 pages long so I pick out only a few items that I think worthy of calling to the attention of readers.

1. Speedy Trial. The court rejected arguments that the statutory and constitutional rights to speedy trial had been violated. During the pre-trial phase, the attorney for one of the defendants made a strategic decision that he needed more time to prepare for trial even though his client did not want him to seek a continuance.

Notwithstanding [his client's] position, however, [the attorney] thought it best to continue the trial. [The attorney] told the district court that he had explained to [his client] that seeking a continuance was within his discretion as an attorney, and that he believed it was in [his client's] best interests to have the trial continued.

The other defense attorneys also were not ready for trial, so the court continued the case. The court of appeals ultimately sustained that continuance under the speedy trial analysis. In doing go, the court said (Some text, quotation marks and case citations omitted for readability):

Certain rights are fundamental, and therefore personal, to a defendant. Such rights include the waiver of the right to a jury trial, the right to plead guilty, the right to testify on one's own behalf, or the right to take an appeal. Although Appellants assert that the waiver of a right to a speedy trial is among these rights, they are incorrect. The right to a speedy trial is certainly an important right, yet trial tactics have always been within counsel's province. There is no requirement that counsel obtain the defendant's consent prior to making purely tactical decisions such as the decision to seek a continuance.

2. Improper Reference to Invocation of Fifth Amendment. The court reversed one of the defendant's conviction for prosecutorial misconduct. Despite being warned by the trial court, in closing argument, the prosecutor said:

And you don't really need to worry about that Fifth Amendment protection unless you're worried that you're [d]oing something illegal. They knew perfectly well precisely what they were doing.

* * * *

There are a number of things that are inconsistent with good faith in this case. Hiding things from the IRS, hiding records, lying to the IRS, paying a little tax to make it look like it's legitimate, creating entities that really do nothing except to funnel money through, taking the Fifth Amendment. In this case, they're using the Fifth Amendment not as a shield to protect themselves from incrimination, but as a sword to prevent the IRS from getting the information that they are entitled to.

There was some noise about which of the defendants the prosecutor was referring to, but apparently the defendant complaining on appeal was the only defendant who did not testify at trial. (Arguably, just arguably, the prosecutor's references were to a prior invocation of the Fifth Amendment by the other defendants during the investigation.) In any event, the court resolved any doubt by holding that the error was sufficiently egregious to warrant reversal. The court said:

What ultimately guides our conclusion that these comments were made in error was the fact that the prosecution cast invocations of the Fifth Amendment in a negative light, which is surely the very thing that the right against self-incrimination seeks to protect. As such, we are unable to say that the jury did not "naturally and necessarily" conclude that the prosecution's comments regarding the Fifth Amendment referred to Hills, the only defendant who did not testify in her own behalf. We therefore conclude that it was error for the government to make these references.

And, not only was it error, it was plain error and affected that defendant's substantial rights sufficient to warrant reversal but without prejudice:

The government's references to the Fifth Amendment cast insinuations of guilt upon defendants who linger in its protections. Were we to allow these sort of references, the government would have an incentive to undercut a defendant's Fifth Amendment rights in future cases, which is, of course, unfair to defendants. The public would be at a disservice because a fundamental protection ensured by our Constitution would be severely hampered. And the integrity of the judicial system and the respect for the rule of law established by our Constitution would be strained because we would be ignoring the very rationale for the Fifth Amendment's existence. We cannot permit the government's comments to pass without consequence under these circumstances. We must vacate Hills's conviction.

That does not mean, however, that Hills will necessarily walk free. Because Hills's convictions are being vacated due to the government's improper references to the invocation of the Fifth Amendment right against self-incrimination, there is no double jeopardy bar to her retrial. United States v. Doyle, 121 F.3d 1078, 1083-86 (7th Cir. 1997). In Doyle, we squarely addressed whether the prosecution's reference to the Fifth Amendment in closing arguments amounts to misconduct that would bar retrial. 121 F.3d at 1086. We explained that our circuit has implicitly rejected the idea that a prosecutor's intent to "prevail at trial by impermissible means" is enough to bar retrial. Id. (internal quotation marks omitted). Instead, we noted our position that the only misconduct that bars retrial is "the prosecution's intent to abort the trial. . . ." Id. (emphasis added). We declined to determine expressly our position, however, because Doyle did not present evidence that the prosecutorial misconduct at issue in his case was designed to secure a victory by resorting to impermissible tactics. Id.

We also decline to elaborate on this issue today. Instead, we find that because the government's references to the Fifth Amendment, although improper, likely were intended to refer to Tylman's use of that Amendment, there was no deliberate intent to secure a victory by using impermissible tactics. Because we have already addressed Hills's sufficiency of the evidence claims and found them to be lacking in merit, there are no other obstacles to the government's retrial of Hills. See id. at 1083. Her convictions will be vacated and remanded.

3. Calculation of Starting Point for Statute of Limitations. This is a really picky point, but the Seventh Circuit was just wrong in its statement (or, perhaps it was less precise than it should have been). In rejecting a statute of limitations argument, the Court gave the following dicta (case citations omitted):

The date on which an offense is complete, and thus, the date on which the statute of limitations begins to run, depends on whether the return is timely filed. If a return is timely filed, the statute of limitations begins to run on the due date of the return. For returns that are untimely, the operative date is the filing date, or the date on which the IRS receives the return. In such a case, the statute of limitations begins to run on the date that the IRS received the return.

The rules are more nuanced than the court suggests. The concepts turn upon whether the return is filed on or before the original due date of the return (for individual returns, April 15). Returns filed on or before the original date of the return are deemed filed on April 15. § 6501(b)(1); see Regs . § 301.6501-1(a) (deemed filing date applies to the original due date only). Returns filed after that original due date are still timely returns if there is an extension which normally extends to October 15. But, returns filed during the extension period are filed on the date they are received by the IRS. (The foregoing discussion does not take into account the special rules for returns due on a holiday or weekend or returns that the IRS receives outside the period otherwise allowed but which qualify for the timely-mailing, timely-filing rule of § 7502.) Are you yawning yet? But this is important because it can make a difference. Although we discuss here the criminal statute of limitations where the Government must act, there are parallel statutes of limitations, such as the refund statute of limitations, requiring the taxpayer to act within a certain number of years from the filing of the return; many practitioners assume that returns filed during the extension period have their statute of limitations calculated from October 15, the last date that they could have timely filed.  During the extension period, the statute of limitations is calculated from the date of actual filing, not the last day that the return could have been timely filed pursuant to the extension.

Criminal Statute of Limitations and the Timely-Mailing, Timely-Filing Rule

In Luparella v. United States, 335 Fed. Appx. 212, 2009 U.S. App. LEXIS 12440 (3d Cir. 2009) (unpublished), the defendant was convicted of tax crimes (conspiracy, aiding and assisting and, apparently, tax perjury). In relevant part, defendant signed his tax return on 9/24/96. Defendant alleged that he mailed the return on 9/25/96. The IRS received the return by mail on 10/2/96, "six postal days after Luparella allegedly mailed the return." The indictment was returned on 9/25/02, There are no other relevant facts recounted in the opinion. The issue in this habeas corpus case was whether the indictment was untimely.

Defendant argued that, under the timely mailing, timely filing rule in Section 7502, since he filed the return on 9/25/96, the indictment on 9/25/02 was one day short of the 6 year statute of limitations. Here's how the court handled / mishandled the argument:

Luparella argues that a tax return is "filed" on the date it is mailed, and insists that his tax return was mailed on the date it was signed, September 25, 1996. Since the Indictment was not returned until September 25, 2002, he contends that it is untimely by one day, and that his counsel was ineffective for failing to object to the admissibility of the tax return and for failing to move to strike Count 2 as untimely.

We are not persuaded. This is because Luparella has offered no relevant support for his assertion that a tax return is considered "filed" for statute of limitations purposes on the date it is mailed. He cites to 26 U.S.C. § 7502, which states that "[t]imely mailing [is] treated as timely filing and paying" for the purposes of processing a tax return. This provision does not speak to when the statute of limitations begins to run for a charge of criminal tax fraud. n5

n5 Although we do not reach the merits of this issue, we note that the Government's position -- that the statute of limitations begins to run on the date the return is filed with the IRS (which is also the date of receipt by the IRS service center) -- finds support in caselaw. See United States v. Matis, 476 F.Supp. 1287, 1293 (S.D.N.Y. 1979) (noting that the statute of limitations began to run in a tax fraud case on the date the return was received by the IRS); United States v. Stella, 745 F. Supp. 195, 197 (S.D.N.Y. 1990) (stating that the date of the "receipt" stamp by the IRS indicates the date at which the receipt was filed, and begins the statute of limitations for a tax fraud prosecution).

Further, even if Luparella's legal argument had legal support, he has provided no evidentiary support for the assertion that his return was mailed on the date it was signed. In the absence of such support, his assertion is unconvincing, particularly since the IRS did not receive the tax return until October 2, 1996 -- six postal days after Luparella allegedly mailed the return.

The Court got the right result -- timely indictment -- but for the wrong reasons. Section 7502(a), the timely-mailing, timely-filing rule, provides in pertinent part:

If any return * * * required to be filed * * * on or before a prescribed date * * * is, after such period or such date, delivered by United States mail to the agency * * * with which such return, claim, statement, or other document is required to be filed, * * * the date of the United States postmark stamped on the cover in which such return * * * is mailed shall be deemed to be the date of delivery* * * *.

The provision is a relief provision designed to treat a return that is otherwise untimely when filed (i.e., the date received by the IRS) as timely filed. Stated otherwise, this provision applies only if the return is untimely filed (for this purpose, received by the IRS) but timely mailed, in which case it is deemed timely filed. If the return is timely filed (i.e., received by the IRS during the period that it is required to be filed), then it is filed on the date that it is received and 7502 does not apply. For example, if the taxpayer mails his 01 return to the IRS on 4/1/02 and it is received and filed 4/4/02, then it is actually filed 4/4/02. (There is another rule that says that a return received before the original due date for the return, in this case 4/15/02, is deemed filed on the original due date (4/15/02); this rule does not apply during extensions.) So for all purposes, including criminal prosecution purposes, the starting due date in this example is 4/15/02. But the taxpayer in Luparella did not mail or file by the original due date (4/15/02 in the example and 4/15/96 in the actual case).

So we now look to the rules that apply to returns filed after the original due date. Keep in mind that the actual filing date is the date the IRS receives it. In Luparella, the taxpayer could benefit only if the timely-mailing, timely-filing rule permitted an earlier filing date. We have two possible scenarios.

1. If the taxpayer applied for and obtained an extension (let's say the usual one through 10/15/02 in the example and 10/15/96 in the case), then the IRS would have received the return within the filing date as extended and 7502 would not apply. (When teaching this, I encourage my students to think about why that is the case -- that taxpayer, having timely filed, does not need timely-mailing, timely-filing relief and the statute thus does not provide the relief.)

2. If the taxpayer did not file for the extension and thus was not timely when he mailed the return or it was received by the IRS, § 7502 simply does not apply because it requires a timely mailing in any event.

Under either of these scenarios (the only two possible), the taxpayer loses on a straight-forward application of the statute. The Court just did not get it. (I have not read the briefs, so do not know whether the Government served it up to the Court.) For more reading on this, I offer my current draft of the relevant portion of my Tax Procedure book here (note that in my book materials I discuss the § 7502 timely-mailing, timely-filing rule and the common law mailbox rule (which also would not apply in the Luperella facts) and provide extended examples).

Notable Decision in SDNY Criminal Tax Shelter Case

I have previously blogged that John B. Ohle was an unindictead alleged co-conspirator in the Daugerdas et al. indictment.  See here.  Ohle was indicted apart from that indictment.  He was indicted along with a guy named Bradley.  That indictment generated a significant decision from Judge Leonard Sand in United States v. Ohle, 2010 U.S. Dist. LEXIS 2150 (SDNY No. S2 08 Cr. 1109 (LBS)).  The following are the points that attracted my particular attention:

1. The Court rejected a challenge to the wire fraud count (Count One). Ohle argued that "Count One of the indictment impermissibly uses the wire fraud statute to reach an alleged criminal tax conspiracy, citing United States v. Henderson, 386 F. Supp. 1048 (S.D.N.Y. 1974)." The Court essentially took the life out of Henderson. Prosecutors have their choice of how to charge tax conspiracies. Why does it matter if a conspiracy is a conspiracy and there is a single punishment scheme in 18 U.S.C. § 371? Ah, but there are other potential consequences of wire and mail fraud -- forfeiture and even ramping up to money laundering or RICO -- which are not available for tax crimes and tax conspiracy (either offense or Klein defraud conspiracy). See fn. __ on page __. For the DOJ Tax Division policy for prosecutors to make the choice, see Directive No. 128 here (noting that virtually all tax crimes can be charged as mail or wire fraud, and attempting to provide guidance and preclearance directives so the mine-run tax cases are not willy-nilly charged as mail or wire fraud). Thus, these charging decisions are not tweedle dum / tweedle dee from the defendant's perspective.

2. The Court rejected a challenge to another conspiracy (Count Five) as duplicitous. The indictment contained a "boilerplate" allegation that appeared to allege a single conspiracy. The overt acts, however, seemed to suggest multiple conspiracies. Yet, because the apparent multiple conspiracies were related and involved players not acting in a vacuum, with compensation flowing around, the Court concluded that the allegation is of a single conspiracy and not multiple conspiracies so as to implicate duplicity concerns. In the process of getting to that holding, the Court had a nice discussion of the concerns that are implicated by duplicity in counts (case names and quotation marks omitted to easier see the logical flow):

An indictment is duplicitous if it joins two or more distinct crimes in a single count. Duplicitous pleading is not presumptively invalid; rather, it is impermissible only if it prejudices the defendant. Duplicity is only properly invoked when a challenged indictment affects one of the doctrine's underlying policy concerns: (1) avoiding the uncertainty of a general guilty verdict, which may conceal a finding of guilty as to one crime and not guilty as to other, (2) avoiding the risk that jurors may not have been unanimous as to any one of the crimes charged, (3) assuring the defendant has adequate notice of charged crimes, (4) providing the basis for appropriate sentencing, and (5) providing the adequate protection against double jeopardy in subsequent prosecution.

The Court of Appeals for the Second Circuit has recognized that application of the duplicity doctrine to conspiracy indictments presents "unique issues." In this Circuit, it is well established that [t]he allegation in a single count of a conspiracy to commit several crimes is not duplicitous, for the conspiracy is the crime and that is one, however diverse its objects. A single conspiracy may be found where there is mutual dependence among the participants, a common aim or purpose or a permissible inference from the nature and scope of the operation, that each actor was aware of his part in a larger organization where others performed similar roles equally important to the success of the venture. Each member of the conspiracy is not required to have conspired directly with every other member of the conspiracy; a member need only have participated in the alleged enterprise with a consciousness of its general nature and extent. If the Indictment on its face sufficiently alleges a single conspiracy, the question of whether a single conspiracy or multiple conspiracies exists is a question of fact for the jury. Accordingly, courts in this Circuit have repeatedly denied motions to dismiss a count as duplicitous.

 3. The Court rejected a challenge to joinder on Count 5 based on the "reasonable person" test - "We take a common sense approach when considering the propriety of joinder under Rule 8(b), and ask whether "a reasonable person would easily recognize the common factual elements that permit joinder." (Internal quotations and citations omitted.) The Court undertook a fact specific inquiry to show that the test was met so that the two conspiracies could be joined.

4. The Court granted severance as to the two conspiracy allegations (Counts One and Five) because they were not sufficiently related. Because of that severance, the Court also severed Counts Six through Eight involving individual tax counts for tax crimes arising from failure to report and pay tax on income from the conspiracy alleged in Count Five.

5. The Court held that, since a financial institution was involved in -- affected by -- the scheme, the 10 year statute of limitations in 18 USC § 3293(2) applies. Further, the tax crimes charged 6 years and one month after the return filings, although in untimely by a strict application of the 6 year limitations period could still be timely if the defendant were, during that period, out of the country for one month or more. The reason is that, while a person is outside the country (even for business or personal trips), the statute of limitations is tolled. § 6531. This is a good reminder that we, as practitioners, should not just assume a 6 year statute of limitations. Actually, it is a 6 year statute of limitations that just gets tolled for some period. All of us need to remember that nuance.

6. The Court easily moved past the venue objections. Although the defendants were not residents of SDNY, such broadly alleged conduct easily met the nexus requirement.

7. The Court then held that the tax obstruction count (Count Eight) was not unconstitutionally vague because it racked the statute and incorporated the specific allegations in prior paragraphs of the indictment. Further, the Court rejected the Kassouf argument (United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998)) that tax obstruction did not reach actions taken before an IRS investigation was commenced.

8. The Court rejected any consequence of the IRS and DOJ to offer pre-indictment conferences. The reasoning is short and bitter (case citations omitted):

However, IRS guidelines do not provide for a pre-indictment conference "if the taxpayer is the subject of a grand jury investigation," as was the case here. IRM 9.5.12.3.1 (July 25, 2007). The United States Attorneys' Manual ("USAM") provides that, "If time and circumstances permit, the Tax Division generally grants a taxpayer's written request for a conference with the Division in Washington, D.C." USAM 6-4.214 (Sept. 2007). However, the Second Circuit has held that the provisions of the USAM "reflect executive branch policy judgments" and "do not confer substantive rights on any party." United States v. Piervinanzi, 23 F.3d 670, 682-83 (2d Cir. 1994); see also United States v. Kelly, 147 F.3d 172, 176 (2d Cir. 1998) (stating that "[internal department] guidelines provide no substantive rights to criminal defendants" in discussing DOJ Criminal Tax Manual). The Government claims it decided not to offer Ohle a pre-indictment conference in order to prevent Ohle from dissipating assets subject to forfeiture before he was indicted and arrested. This decision does not provide a basis for dismissal of the indictment. See United States v. Goldstein, 342 F. Supp. 661, 666 (E.D.N.Y. 1972) (failure to offer pre-indictment conference in criminal tax case not grounds for dismissal of indictment because "such a conference is clearly not a matter of right").

This is a specific application of the Caceres doctrine (United States v. Caceres, 440 U.S. 741 (1979) (holding that IRM does not confer rights on taxpayers; hence, evidence obtained arguably in violation of IRM cannot be excluded).

9. The Court rejected Ohle's claims that two grand jury subpoenas after the original indictment and IRS investigations after the indictment were improper use of process in violation of the limited discovery allowed in criminal cases. As to the grand jury subpoena, the Court noted curtly that none were issued after the superseding indictment, and that was the end of the matter. As to the IRS investigations, the Court rejected Ohle's request for an evidentiary hearing to inquire into whether they were intended to circumvent the limited criminal discovery rules. The Court reasoned:

Although Ohle cites a number of legal propositions, he alleges no acts of bad faith on the part of the Government to support the contention that the Government conducted the civil tax proceedings in order to obtain evidence for the pending criminal trial. He argues only that the timing of the two civil audits conducted in the midst of the criminal tax investigation is "suspicious" without alleging relevant dates or information obtained. Notably, Ohle does not contest the Government's statement that he had counsel during both of the audits, and that one of the audits was commenced prior to the criminal investigation. (Gov't Opp. 77 n.45.) Ohle has not raised any issues or pointed to any potential infringement of his rights that would warrant an evidentiary hearing. Ohle's motion for an evidentiary hearing is denied.

Obviously, this can be a serious concern.  It implicates some of the same concerns as parallel investigations that have been a hot topic in the tax and SEC area over the last few years.

Is the Criminal Statute of Limitations Suspended under the Wartime Suspension Act?

There are rumors that the government in a tax shelter case is seeking to suspend the criminal statute of limitations under the "wartime suspension act", 18 USC Section 3287. The text of the statute is:

When the United States is at war or Congress has enacted a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)), the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States or any agency thereof in any manner, whether by conspiracy or not, or (2) committed in connection with the acquisition, care, handling, custody, control or disposition of any real or personal property of the United States, or (3) committed in connection with the negotiation, procurement, award, performance, payment for, interim financing, cancelation, or other termination or settlement, of any contract, subcontract, or purchase order which is connected with or related to the prosecution of the war or directly connected with or related to the authorized use of the Armed Forces, or with any disposition of termination inventory by any war contractor or Government agency, shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation, with notice to Congress, or by a concurrent resolution of Congress.

Definitions of terms in section 103 of Title 41 shall apply to similar terms used in this section. For purposes of applying such definitions in this section, the term "war" includes a specific authorization for the use of the Armed Forces, as described in section 5(b) of the War Powers Resolution (50 U.S.C. 1544(b)).

I have highlighted the portion upon which the Government is apparently relying.

I had not heard that the Government was doing that and have not researched the issue. The concern, of course, is that the statute of limitations is suspended on tax crimes as well as other crimes involving fraud or attempted fraud against the U.S. If any reader has any thoughts on this, I would appreciate hearing about it either as a comment to the blog or by separate email to jack@tjtaxlaw.com. I will post follow-through information as I learn it.

Update on 1/30/10:  See Erin M. Brown, Note: The Wartime Suspension of Limitations Act, the Wartime Enforcement of Fraud Act, and the War on Terror, 85 Notre Dame L. Rev. 313 (2009).  I think that the analysis and sources in the article will give ammunitiion to those who want to argue that plain vanilla tax crimes unrelated to the war effort should not be within the scope of 18 USC Section 3287.

Collateral Estoppel to Corporation After Conviction of President and Sole Shareholder

In Hi-Q Personnel Inc. v. Commissioner; 132 T.C. No. 13 (5/4/09), the Tax Court applied the doctrine of collateral estoppel from the conviction of the president and sole shareholder under Section 7202 (failure to withhold and pay over) to the corporation. Since collateral estoppel usually applies only to the same shareholder, the Tax Court found that there was sufficient privity between the president and sole shareholder on the one hand and the corporation on the other. The Tax Court noted the truism that corporations act through their officers and, given his relationship, the president's actions were the corporation's actions. The Tax Court alternatively made an affirmative finding independent of collateral estoppel that the corporation was guilty of fraud with respect to the failure to withhold and pay over. As a result of those alternative holdings:

1. The corporation was liable for the payroll taxes.

2. The corporation was liable for the civil fraud penalty.

3. The unlimited statute of limitations applies.