Appellate Law & Practice

CA1: proper punishment for a stalker that refused to retain a lawyer before not paying taxes

USA v. Steirhoff, 08-1183.  Selya tries to be dramatic.  He says “The tale of how the stalker became the stalked follows.”  Anyway, the defendant seems like a bad guy because he talked to the police without a lawyer.  And he had about $100,000 in cash lying around.  A true American would have the money in CDs or municipal bonds, and only terrorists and furries talk to the police without lawyers.  Just like people that try and avoid taxation on their interest income, this defendant said that he didn’t pay taxes and didn’t trust banks.  I hate him already. 

Anyway, the state called the IRS, and the IRS started investigating him and found out that he wasn’t pulling his weight tax-wise. 

Anyway, the legal issues are fairly straight-forward, especially when the defendant is a simpleton.  This is absolutely no evidence that he retained a tax lawyer, and, as I said he is the kind of America-hating person that talks to the cops and consents to a search without a lawyer.

So, it should come as no surprise that a search of a briefcase is held to be within the scope of the consent this idiot gave the police.  If he was a real American he would not have given the consent, and certainly not on boilerplate forms that say “letters, papers, or other property."  The defendant meekly asserted that he meant to consent only to a search of part of his computer for poetry.  Ha ha.  No cop wants to look for poetry.  All they want are looking for his guns, pr0n and cash.  Obviously, because Selya sees that this guy isn’t really acting like an American, he sides with the cops.  As he usually does.  He adds, “A police officer is not required to take a suspect's statements concerning the whereabouts of incriminating evidence at face value.”  See, if the defendant was a true American he would have not made a statement.

He also makes some BS argument that he wasn’t subject to the tax code.  Obviously this fails.  There was no evidence that he had retained a law firm to write him an opinion letter.

There is an interesting Cheek issue regarding “willfullness.”  And, in this case, since the defendant had a bunch of aliases, it was enough to infer that he was willfully not paying taxes. 

Also, the Selya says that a “summary witness” was okay.  Selya let’s it pass by saying that the witness was just adding numbers up.

And, after affirming the sentence, Selya sends the guy that couldn’t be bothered to retain counsel until after he was arrested to jail by saying “For aught that appears, the defendant was fairly tried, justly convicted, and lawfully sentenced.”

CA1: surprise! creating false invoices to defraud Uncle Sam is corrupt

U.S. v. Marek, No. 07-2437 (11/26/08). This is sort of interesting.  There was an audit by the IRS.  The defendants appeared to participate in the audit in good faith.  Problem was that they went so far as to procure back-dated invoices from vendors that would explain why some amounts paid were expenses rather than under-the-table untaxed salaries.  This satisfied the agents, who were not told that these were recreations.  The defendants were indicted under a “Klein Conspiracy” theory under 26 U.S.C. § 7212(a).  The First Circuit says:

...the plain language of the statute supports an interpretation requiring proof that the defendant 1) corruptly, 2) endeavored, 3) to obstruct or impede the due administration of the Internal Revenue laws. See 26 U.S.C. § 7212(a); see, e.g., United States v. Wilson, 118 F.3d 228, 234 (4th Cir. 1997). Supplying false documents knowing that the documents will be used to deceive the IRS during an audit is a quintessential violation of the statute.

The First seems at a loss to explain why went wrong was bad, especially when it comes to intent.  But, the First says that a businessman would have had some suspicions that creating invoices out of thin-air was okay.

I ain’t losing sleep about this.  He didn’t get a long prison term, and his whole conspiracy seems to be to defraud the government of employment taxes which ultimately hurt his employees.

CA1: tax blindness instruction

US v. Anthony, No. 07-1670.  Oh god, this is sad.  This guy was a Coastie for two decades.  Then he decided he didn’t need to pay taxes.  On the one hand, I hate tax cheats.  On the other hand, I can’t help feeling sorry for the guy.  He was convicted under 26 U.S.C. § 7201.  The District Court gave a “willful blindness” instruction.  There is a good discussion of the law here, but it concludes that there was no error.  Essentially, there was evidence that he “willfully” blinded himself to the state of current law, the government was entitled to such an instruction.  The defendant also loses on his bid to have a bunch of “statutes” admitted, though he was permitted to read summaries to prove up his subjective belief.  Fine by the First.   

All the sentencing errors are affirmed.  However, I should note that the District Court did rely on a guideline that says that a sentence should instill respect for a duty to pay taxes.

CA1: a bad, unpublished case on tax evasion and privileged materials

US v. Schussel, No. 07-2095 (8/29/08) (unpublished).  Again, why the hell was this unpublished.  This is freakin’ major case in criminal and tax practice.  What the hell is the First thinking?  Are they trying to hide something?  Or are they trying to avoid writing a “precedential” case on tax privilege issues, because there are other ones in the pipeline which are not criminal -- yet.  Essentially this is what happens when you think you can hide assets in Bermuda and hope that it all turns out okay in the morning.  I don’t have too much sympathy for this kind of person.  He also fabricated documents, and tried to replace computerized records.  I know a couple of the actors in this case (and they luckily they are documented as behaving ethically as they always do).  However, this case demonstrates the principles in tax practice known as “what goes around comes around.” 

In October 2001, Darlene Flint, who had worked as Gomes’ secretary for 18 years, walked into the IRS office in Stoneham, Massachusetts, with a box of DCI records that included the Bermuda account records.  This disclosure triggered a criminal investigation of DCI and its employees

It also demonstrates why certain kinds of tax clients are really a bitch to deal with, and what sort of trouble tax lawyers flirt with.  Anyway, back to that law stuff.

The biggest problem with this opinion is that the First seems not to understand that there is a difference between rules of professional responsibility and privilege.  Rules of professional responsibility generally govern the relationship between the client and the lawyer.  Usually they are written to make it easier to represent a client, and in the case of privileges, many rules reflect our common-law understanding of such privileges.  But these are different issues.  The First seems to flip back and forth between privileges and rules of professional responsibility to reach the result it wants.  This makes this one of the worst opinions of the year.

Looking at the actual holdings... oh wait.  They appear below the fold.

CA1: First explores Gall in a GVR

US v. Taylor, No. 06-2216. ... Taylor was sentenced to one year in a halfway house, five years of probation, and a $10,000 fine, for aiding and assisting in the preparation of false tax returns, in violation of 26 U.S.C. § 7206(2)” The government appealed.  The First remanded, but the Supreme Court, post-Gall remanded again.  The First now explains Gall as follows, “makes clear that in the post-Booker world, district judges are empowered with considerable discretion in sentencing, as long as the sentence is generally reasonable and the court has followed the proper procedures.... [and a] ‘need for an increased degree of justification commensurate with an increased degree of variance.’” Therefore, seeing that the First didn’t think that the District Court explained its reasoning, “we think it best to remand to the district court for reconsideration with the benefit of all of these developments, as well as the concerns we expressed in our prior opinion.”  Earlier case here and our coverage here.

CA1: Tax Court stipulations are like contracts and are interpreted under Federal Common law

Nault v. US, No. 07-1455 affirms the decision of District Court which essentially interpreted stipulated decisions by the Tax Court in litigation involving a partnership which this plaintiff was involved in.  The plaintiff filed amended returns and essentially claimed that he was entitled to “ordinary loss deduction for the taxable basis that was ‘restored’ [by the conclusion of the tax court litigation] to his then-worthless partnership interests.”  The claims were denied and he brought suit for a refund.  This would be an interesting tax discussion, but the First sees it purely as a matter of interpretation of the Tax Court’s decision.  Again, this plaintiff was not the Tax Matters Partner, so he wasn’t really in the drivers seat in the Tax Court litigation.

The First says that the stipulations are governed by contract principles, and the court applies whatever the federal common law of contracts is.  The First looks at the stipulations and concludes that they are not ambagious, and concludes that the Tax Court parties had stipulated that some transactions lacked economic substance.  Moreover, since these stipulations are like contracts (while they are interpreted as contracts, I am not sure that they really *are* contracts), the First says that only in extreme cases should the District Court consider extrinsic evidence.

CA1: Breaking news. First Affirms “Survivor” conviction

US v. Hatch, No. 06-1902.  Okay, this is the appeal of that guy that won “Survivor” and didn’t pay taxes on his winnings.  He was convicted of three counts of filing false tax returns, in violation of 26 U.S.C. §§ 7201 and 7206(1).  He signed a contract which said that he would pay all taxes on his winning in this stupid show.  He later made some other money by appearing on some pilots of even stupider TV shows. 

Anyway, stepping back from the stupidity of popular culture, let’s take a look at the live issues.

He wanted to argue that the procedures of the show were cheating and feeding the contestants.  The producers, he claims, in exchange for his silence on the issue, promised to pay his taxes and therefore under Cheek v. United States, 498 U.S. 192 (1991) he wasn’t willfully failing to pay his taxes.  But, nobody actually testified to such a promise, and it doesn’t seem like he was actually prevented from offering such testimony, though the actual rulings that the District Court made in the heat of the trial seemed to come fast and furious during direct, so maybe someone misunderstand what doors were open to what testimony.

The First also says that the “expert” testimony of IRS agents was error.  But the First says that they were really “fact” witnesses.  The First says that objections were either waived or not plain error. 

The District Court has precluded certain testimony from the defendant’s accountant, but these seem to be on relevance grounds. 

On the other side, he argued that the District Court improperly imposed limits on his cross.  The First bashes counsel by saying that some of the proposed questions were “incoherent.”  The First also says that his cross-examination just wasn’t restricted. 

And, for all the sentencing buffs out there: a perjury enhancement was proper, even though he was acquitted of a perjury count.  The First says the issue (like the amount of loss) isn’t developed.

CA11: government wins Snipes motions

Just in case you 1) care; and 2) don’t know, the 11^th Circuit rejected all of Wesley Snipes’ pretrial motions (e.g. for a change of venue), on a motion from the government to dismiss as an “impermissible interlocutory appeal.”

CA9: Expert witness on mens rea of tax protester (and contempt)

The Ninth Circuit blog points to United States v. Lawrence Cohen, __ F.3d __, 2007 WL 4485629 (9th Cir. Dec. 26, 2007).  The defendant is one of those “crazy” tax protesters.  Now, most of us refer to tax protesters as “crazy” in the sense that “they behave in a way that nobody I want to associate with behaves, and they have ideas that are so far outside my reality that I don’t take them seriously.”  But, this guy is different.  His lawyers actually think that he is crazy.  A shrink writes a report which reads ““[h]is behavior is driven by a mental disorder as  opposed to criminal motivation . . . Although it is true Mr. Cohen was not delusional or psychotic and was in possession of basic mental faculties, his will was in the service of irrational beliefs as a result of narcissistic personality disorder.”  The Ninth says that this testimony could have helped the trier of fact, because the expert was proposing to testify that “...once Cohen adopted [Irwin] Schiff’s views, Cohen would not change his mind.... [and] a narcissistic personality disorder like Cohen’s can cause a person to continue to believe something to be true despite overwhelming evidence of its patent absurdity.”  The Ninth expresses some hesitation about allowing in all of the proposed testimony, because some of it might really be invading the province of the jury to determine mens rea, but it says that weeding that stuff out is for the District Court. 

Anyway, the guy did lots of things to annoy the District Judge.  He was held in contempt (fifteen times), but the judge “failed to file contempt orders as required by Federal Rule of Criminal Procedure 42(b).”  The Ninth says the remedy for this is to remand, but “On remand, the district court may reinstate the contempt convictions and resentence him so long as it does not increase the individual punishments for any of the fifteen convictions.”  It also mentions a mathematical error. The Ninth says, however, that the District Court’s procedure (of doubling the sanction for each time he did something contemptuous) doesn’t raise due process problems, because it happened immediately after the offense occurred, and sentencing him post-trial for some of the contempts does not run afoul of Taylor v. Hayes, 418 US 488 (1974).  Each sentence was less than six months, so there was no jury-trial problem.

The post ends with this: 

Cohen has sparked much interest among bloggers. For a taste of a law prof's sour grapes (he was on the government's early briefing), see Brian Galle's comments here. More mens rea analysis (and some interesting gossip on other details of the case) can be found here. 

CA1: is there any procedural justice in CDP hearings?

Drake v. CIR, No. 06-2507.  Oh good.  A Tax case.  The earlier proceedings were important to tax practitioners because they involved the extent to which Appeals Officers could engage in ex parte contacts with other parts of the service.  There was a remand by the Tax Court to the IRS.  He attempts to raise these issues again, but the First says that the remand purged the taint.

Starting with the worst part of the opinion: The First holds, without any real analysis that “the circuits that have all agree that a prevailing party must prevail in the final outcome of the case.”  Therefore, he doesn’t get attorneys fees.  Pathetically the First cites three cases.  One isn’t even under the Internal Revenue Code (which has its own fee-shifting provision), and the two are not directly on point with the petitioner’s argument – that he was entitled to fees for the initial tainted proceedings that the IRS botched. Instead, they deal fee issues relating to whether someone “substantially prevailed.”  I don’t know why the First dropped the ball on this.

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