Federal Tax Crimes

Questions for Tax Crimes and Tax Procedure Students on Trump's "Settlement" in Trump v. IRS (8/6/26)

noreply@blogger.com (Jack Townsend) — Thu, 06 Aug 2026 04:12:01 +0000

I have posted my Federal Tax Procedure Book to SSRN, see here. Since it is timely, although a moving target that we sure have not heard the last of yet, I thought I would post the concluding paragraphs of my discussion of Trump v. IRS that Trump and his buddies at DOJ (most notably Blanch, but not only Blanche) tried to use as a pretext to raid the Treasury.

In my opinion, Trump and his buddies new they would draw flack on that package, so they must have realized that the Anti-Weaponization Fund was just a ploy, a stalking horse. The real goal was tax audit immunity which for now has not been taken off the table. I discuss that in the Federal Tax Procedure Book (Student Edition pp. 802-805; Practitioner Edition pp. 1118-1192). I conclude that discussion with some further discussion questions for students of tax crimes and tax procedure:

Exercise for Students: Readers of Chapter Six discussing tax and tax-related crimes should be able easily to spot several tax and tax-related crimes that this conduct might implicate, particularly the ubiquitous defraud conspiracy. One possibility is that anyone participating materially in the audit immunity could be an affirmative act of evasion with respect to the taxes covered or an overt act of conspiracy (offense or defraud). In theory, if that were viable, all of the key players in this drama stand exposed to criminal prosecution. Of course, the prosecutions, if any, will have to be brought by DOJ which Trump can prevent while he is President but can then be brought in the next Administration unless Trump gives sweeping pardons to all who were involved. (I suspect and have read that those actors are counting on such pardons.) One final question worth asking is whether Trump’s control of DOJ and IRS could implicate some conduct for which the Supreme Court has given full or qualified immunity in Trump v. United States, 603 U.S. 593 (2024).
Another Exercise for Students: Tax procedure students should think about the settlement authorities discussed earlier in this text. Thus, generally, only the IRS has settlement authority for cases that it has not yet referred to DOJ. DOJ has settlement authority only for cases that the IRS referred. Facially, it appeared in Trump v. IRS that the IRS had only transferred authority to DOJ over the § 7431 wrongful disclosure suit. There is no indication that the IRS referred all of the matters sweepingly released in the Release Order to DOJ, and there is no indication that the IRS “settled” those claims.
Concluding thoughts: If nothing else, Trump v. IRS and its resulting commotions will occupy tax procedure and tax crimes enthusiasts for a long time.

This blog entry is cross-posted on the Federal Tax Procedure Blog here.

2026 Federal Tax Procedure Book Student and Practitioner Editions (8/4/26)

noreply@blogger.com (Jack Townsend) — Wed, 05 Aug 2026 02:36:25 +0000

I have published to SSRN my Federal Tax Procedure Book Student and Practitioner Editions. For information on the SSRN links to download see the page on my Federal Tax Procedure Blog “Federal Tax Procedure Book (2026 Editions) (8/4/26)” here.

FTPB 2016 Editions Discussion of Trump v. IRS and Its Resulting Machinations (8/3/26)

noreply@blogger.com (Jack Townsend) — Mon, 03 Aug 2026 20:11:01 +0000

I am trying to wrap up the 2026 Editions of my Federal Tax Procedure Book but the ongoing drama by DOJ’s $2.77 billion Anti-Weaponization Fund and Trump and related party tax immunity does not permit an easy stopping point. But I have to stop and have just concluded all that will be in the 2026 Editions that I hope to publish later this week. I thought I would post the discussion below (the Student Edition version without footnotes by copy and paste into the blog below) and the Practitioner Edition version with footnotes that can be downloaded here.

                   2.     Examples (Including Trump v. IRS).
A prominent example of this remedy is a suit brought by a Kenneth Griffin, a hedge fund billionaire. An employee of a third party contractor to the IRS, Booz Allen Hamilton, Inc., illegally accessed and disclosed the tax return information of Griffin and others to a news organization, ProPublica, which in turn published some of the tax return information. Griffin sued the IRS under (i) § 7431, alleging violation of § 6103, and (ii) the Privacy Act. The employee was prosecuted and pled guilty, receiving a five-year sentence. Griffin and the IRS settled the civil action resulting in a dismissal with prejudice. All of the terms of the settlement are not available, but apparently there was no monetary consideration and the IRS agreed to and did issue a public apology. Another reputed billionaire brought related action against the employee’s employer, Booz Allen Hamilton, Inc.
A more prominent example arising from the same mass disclosures is a 2026 suit Donald J. Trump filed in his nominal personal capacity for $10 billion damages (asserting both the minimum $1,000 per disclosure with disclosures at $1,000 justifying $10 billion or actual damages of $10 billion) and for punitive damages in an amount not stated. The Plaintiffs included Trump’s sons and The Trump Organization, LLC. (referred to collectively as the Trump Plaintiffs). Before the DOJ filed an answer, the Judge asked the parties to brief whether, given President Trump’s control over the Government parties (IRS and DOJ) and personal interest as Plaintiff, the case met the required Article III case or controversy requirement. The Court also appointed amici to provide independent briefing on that issue. Before the parties presented their briefing but after the amici provided its initial brief, the Trump Plaintiffs moved to dismiss with prejudice under FRCP Rule 41(a)(1)(A)(i) which requires dismissal with prejudice. On May 18, 2026, the Court dismissed with prejudice, noting:
Because the Notice does not reference any settlement or include a stipulation of settlement, there is no settlement of record. Additionally, Defendants—federal agencies represented by the Department of Justice, which has an independent obligation to uphold the “public’s strong interest in knowing about the conduct of its Government and expenditure of its resources” and the “fair administration of justice,” 28 C.F.R. §§ 50.9, 50.23—neither submitted any settlement documents nor filed any documents ensuring that settlement was appropriate where there was an outstanding question as to whether an actual case or controversy existed.
In short, the Court smelled a rat but under the Rule was required to dismiss with prejudice.
   On the same day shortly after the dismissal, proving that the rat the Court smelled was real, DOJ announced that it had “settled” the underlying dispute (and all other disputes known or unknown between or among the opposing parties). The key terms of the “settlement” are:
   • Recitals including (i) the tax return information disclosure discussed above; (ii) administrative claims arising from the Biden administration “unlawful raid on Mar-a-Lago” and the Russia-collusion “hoax”; and (iii) but for the settlement, the Trump Plaintiffs planned to amend the complaint in Trump v. IRS to include other parties as a “putative class claim.”
          • As the Trump Plaintiffs “sole and complete relief,” the United States will issue a “formal apology” to the Trump Plaintiffs (citing the Griffin settlement); that relief will not include “monetary payment or damages of any kind” to the Trump Plaintiffs (citing the Griffin settlement). Trump Plaintiffs will dismiss with prejudice the claims in Trump v. IRS (discussed above) and withdraw the administrative claims noted in the Recitals.
          • DOJ will create an “Anti-Weaponization Fund” for a nominal $1.776 billion to pay damages to others than the Trump Plaintiffs and affiliates for prior administration’s weaponization and lawfare improperly targeting others for political purposes.
          • By separate agreement dated May 19, 2026 (which I call the “Release Order” because that is what the Court called it in a later Order discussed below), Treasury and the IRS (the Defendants in the litigation) release the Trump related parties (the Trump Plaintiffs and any “related or affiliated individuals (including, without limitation, family or others filing jointly), or parties including trusts, parent, sister, or related companies, affiliates, and subsidiaries”) that had accrued and thus could have been asserted by the Defendants (Treasury and IRS) as of the Effective Date. The Release Order purports to give the stated beneficiaries (Trump and related parties, although there is some murkiness as to who precisely the related parties are) immunity from tax investigations, audit, or other tax related matters (civil and criminal).
   This “settlement” or “settlements” created a firestorm of public pushback back resulting in the following:
   • In Trump v. IRS (the dismissed case), 35 retired federal judges moved the Court to reconsider the dismissal based upon potential fraud on the Court in moving to dismiss under Rule 41. Other filings were made raising issues as to aspects of the settlement or settlements.
          • Another case was commenced in N.D. Virginia to enjoin the creation of the Anti-Weaponization Fund. The judge issued a temporary injunction and set a hearing on the injunction.
          • On July 13, 2026, the District Court in Trump v. IRS entered an Order calling the suit a sham to give the illusion of bona fide “settlements” of a court case. See Trump v. IRS, 2026 WL 1145973, 2026 U.S. Dist. LEXIS 94772 (April 24, 2026). In effect, Trump and his underlings at DOJ (Blanche, et al.) who serve the President under Trump v. Slaughter, 609 U.S. ___, 225 L. Ed. 2d 664 (2026) had raided the public fisc and colluded to use the case as cover. The opinion is excellent and highly recommended.
          • As a result of the public pushback and perhaps the filings in Trump v. IRS and N.D. Virginia, AAG Blanche announced that the “Anti-Weaponization Fund” would not go forward but resisted putting that “commitment” in writing. Since that “commitment” was facially nonbinding, the judge in the N.D. Virginia expanded the scope of the injunction and gave the DOJ one-week to provide a sworn statement that the Fund would not go forward. DOJ gave no such assurance. During his confirmation hearing for his appointment as Attorney General, AAG Blanche continued his refusal to make the commitment in writing. The refusal caused two Republican Senators required for confirmation to say that they would not vote for confirmation if he did not make his commitments in writing. Blanche then, in order to save his nomination, released two documents the purport to (i) close all possibility of the $1.77 billion weaponization fund and (ii) scale back the IRS audit and investigation immunity to (a) include only the names plaintiffs in Trump v. IRS–Trump, his sons, and his corporation and (b) apply only retroactively to claims in existence on the date of the Release Order. There are problems now surfacing with this gambit but given the fact that I am trying to publish this book hopefully on August 4, 2026, I cannot delve further into them. I likely will post further on my Federal Tax Procedure Blog.
          • In any event, if the original settlement documents were binding contracts, the Plaintiffs and perhaps even the other related parties who were beneficiaries of the contract would have to agree, presumably in writing. None of the documents have been signed by any parties other than DOJ which was itself not a formal party in Trump v. IRS.
          • One problem with getting such assurances that the Fund will not go forward is that the DOJ via AAG Blanche can “settle” or compromise legally cognizable claims brought anyone, including the intended beneficiaries of the Fund, and thus achieve the same goal with no oversight whatever (unless Congress flexes its muscles (i.e., power) and morals on the issue). The Attorney General’s settlement authority for such claims does not require any pending case, so AAG Blanche could just do it on the quiet (at least in theory). As with many of Trump’s violations of norms for his financial benefit, however, the “discretionary” exercise by AAG Blanche (or anyone else serving in the role of AG) has never been tested when that discretion has been exercised for arguably corrupt or political purposes when the claims settled have little or no merit.
          • I just want to state the inference I draw that the Weaponization Fund and even the audit and investigation immunity for most persons covered was all a feint to give Trump some bona fides for “settling” back to just audit and investigation immunity for himself, his sons, and his corporation. That’s all he really cares about, and if it came down to taking away the immunity of his sons and his corporation to save himself, he would do so.
Exercise for Students: Readers of Chapter Six discussing tax and tax-related crimes should be able easily to spot several tax and tax-related crimes that this conduct might implicate, particularly the ubiquitous defraud conspiracy. One possibility is that anyone participating materially in the audit immunity could be an affirmative act of evasion with respect to the taxes covered or an overt act of conspiracy (offense or defraud). In theory, if that were viable, all of the key players in this drama stand exposed to criminal prosecution. Of course, the prosecutions, if any, will have to be brought by DOJ which Trump can prevent while he is President but can then be brought in the next Administration unless Trump gives sweeping pardons to all who were involved. (I suspect and have read that those actors are counting on such pardons.) One final question worth asking is whether Trump’s control of DOJ and IRS could implicate some conduct for which the Supreme Court has given full or qualified immunity in Trump v. United States, 603 U.S. 593 (2024).
Another Exercise for Students: Tax procedure students should think about the settlement authorities discussed earlier in this text. Thus, generally, only the IRS has settlement authority for cases that it has not yet referred to DOJ. DOJ has settlement authority only for cases that the IRS referred. Facially, it appeared in Trump v. IRS that the IRS had only transferred authority to DOJ over the § 7431 wrongful disclosure same. There is no indication that the IRS referred all of the matters sweepingly released in the Release Order to DOJ, and there is no indication that the IRS “settled” those claims.
Concluding thoughts: If nothing else, Trump v. IRS and its resulting commotions will occupy tax procedure and tax crimes enthusiasts for a long time.

This blog entry is cross-posted to my Federal Tax Procedure Blog here.

Report on CI Chief's Discussion on the State of IRS CI (7/29/26)

noreply@blogger.com (Jack Townsend) — Wed, 29 Jul 2026 16:11:47 +0000

This entry is to alert readers to a recent article on CI. Joseph De Gregorio, Changes to IRS Disclosure Program Should Spark Compliance Checks (Bloomberg Tax 6/26/26), here. The author summarizes some points made by CI Chief Jarod Koopman at the NYU Tax Controversy Forum.

Key points of the article are (I have bold-faced some from the quotes):

1. “The last 18 months produced a detection gap. Approximately 1,700 IRS-CI employees had been reassigned to Immigration and Customs Enforcement operations by September 2025. Abusive tax scheme investigations collapsed 63% in fiscal year 2025 from 92 to 34, the lowest level in a decade. The enforcement budget was cut 8% for 2026, to its lowest inflation-adjusted level since 1988.”

2, The diverted CI agents are “coming back.”

3. Technology should permit CI to do its job more efficiently. “IRS-CI is running large language models inside its own firewalls, on its own data. The output is enhanced pattern recognition across the Form 1099 universe, the Foreign Bank and Financial Accounts database, the beneficial ownership registry, financial institution suspicious activity reports, and the international information exchange pipeline built under Foreign Account Tax Compliance Act and the common reporting standard. Fewer agents, but agents working with a detection instrument the prior enforcement cycle never had.”

4. “Koopman confirmed that approximately 60% of CI’s current work is on tax fraud.”

5. “Reduced IRS-CI headcount doesn’t mean reduced criminal tax risk. It means the risk shifted from broad detection across a wide population to deep detection concentrated on the cases AI-assisted analytics uncovers from third-party reporting, international data exchange, and financial institution data.

6. “When enforcement resources are constrained, agencies prioritize cleaner, more provable cases with strong paper trails. Clients with amended K-1s, offshore account statements, and Form 8938 discrepancies are exactly who the algorithm finds first.”

7, The improved investigative techniques allegedly mean “reconstituted workforce will face a lower declination threshold and a faster path to indictment than at any point in the past three years. Tax practitioners whose clients have unreported income or undisclosed offshore accounts should assume that a CI referral today moves to prosecution faster, not slower, than it did during the enforcement gap.”

My only comment is: Assuming the author accurately summarizes what CI Chief Koopman said, I infer that the new priority is to find the easy cases. Easy cases will address some of the problems. Complex cases require a lot more focused investigative attention to develop. I am concerned that CI with diminished budget resources and fewer agents will be able to support the overall tax system effectively when it goes for easy pickings.

D.C. District Court Dismisses Tax Evasion and Tax Perjury Counts for Lack of Venue in D.C. (7/23/26; 7/26/26)

noreply@blogger.com (Jack Townsend) — Fri, 24 Jul 2026 00:00:51 +0000

In United States v. O’Donoghue, ___ F.Supp.4th ___ (D.D.C. 7/22/26), the Court (Judge Colleen Kollar-Ketelly) dismissed 8 Counts of a 9 Count indictment for lack of venue in the District of Columbia. The opinion can be viewed: CL here, TN here, and GS here; the indictment can be viewed: CL here. The dismissed Counts were for tax evasion § 7201 and subscribing to false tax returns § 7201(1) (aka tax perjury). The undismissed count (Count 9) was for making false statements in a proffer session at DOJ offices in D.C., in violation of 18 U.S.C. § 1001.

This post will initially be a notice of the opinion with limited comment. I will post further analysis tomorrow. In the meantime, my initial reading is that it covers a lot of ground familiar to fans of tax crimes (the study rather than the commission). I say that because many leading tax crimes cases make at least a cameo appearance in the opinion.

The overall crux of the case is Constitution Article III’s requirement that trial “of all Crimes . . . shall be held in the State where the said Crimes shall have been committed.” This limits statutes that might otherwise permit venue elsewhere. The Government was relying upon such statutes to permit venue. More on this later. The Government was also arguing that the essential conduct for the 8 dismissed counts included conduct that was outside the U.S., thus permitting venue in the District of Columbia. The Court swatted that down. More on this later.

So, I will just post my quick reactions here and be back with more tomorrow.

1. The lawyering for O’Donoghue appears to have been great! He had good counsel, identified in CL here (click the Parties and Attorneys tab). I haven’t read the briefs but may do so tomorrow or even later—emphasize may because I am otherwise busy). I assume that there was good briefing because I infer that the Court worked from the submissions. Added 7/24/26 4:00pm: The CL Docket Entries are here (some with links to the briefing at ## 79, 89, 95 & 113 (all of . those key documents can be viewed rom the CL docket sheet, except the first; if someone who has joined CL will the CL docket sheet and retrieve it from PACER, it should show up on the CL Docket Sheet; I messed it up on PACER and PACER will not let me retrieve it again.)

2. This may be a pyrrhic victory because, even if the statute of limitations has otherwise closed, 18 U.S.C. § 3288, here, extends the statute of limitations for 6-months after dismissal, assuming an original timely indictment in D.C. Thus, it appears that the Government can seek an indictment in the Western District of Texas which will be a bit of an inconvenience because the undismissed Count (Count Nine, for false statements) will presumably be tried in the District of Columbia, which could add major costs to the Government and O’Donoghue.

Added 7/24/26 1:15pm:

This will be the analysis I promised in the original post (above). I continue the numbering started in the original post.

3. A defendant may waive venue. Singer v. United States, 380 U.S. 24, 35 (1965); and United States v. Knox, 540 F.3d 708, 716 (7th Cir. 2008) (“universally recognized as waivable"). Presumably, O’Donoghue felt that by pressing the venue issue in moving for dismissal, the Government might either not indict in the Western District of Texas or, if it did and the grand jury returned an indictment, he would have a more favorable venue (judge and jury). Of course, I doubt that O’Donoghue could make that assessment alone; presumably his lawyers made the assessment and, after explaining to him, he made the decision to seek dismissal for lack of venue. Alternatively, now if on re-assessment as to where he wants the case tried (either D.C. or Western District of Texas), I wonder whether O’Donoghue can get the dismissal voided to waive venue in D.C.? I think his principal counsel are located in D.C., but Texas may be have judges or juries that are more taxpayer friendly.

4. The Court provides a good (I think) summary of the law on venue, called the “Legal Standard” (Slip Op. 7-8):

In a criminal prosecution, the Government “bears the burden of establishing by a preponderance of the evidence that venue is proper with respect to each count charged against the defendant.” United States v. Morgan, 393 F.3d 192, 195 (D.C. Cir. 2004). “Proper venue in criminal trials is more than just a procedural requirement; it is a constitutionally guaranteed safeguard.” United States v. Root, 585 F.3d 145, 155 (3d Cir. 2009); Travis v. United States, 364 U.S. 631, 634 (1961) (“. . . questions of venue are more than matters of mere procedure.”).
“Proper venue in criminal proceedings was a matter of concern to the Nation’s founders,” and this concern has been channeled into our Constitution, which “twice safeguards the defendant’s venue right” by tying venue in criminal trials to the place of the alleged criminal conduct. United States v. Cabrales, 524 U.S. 1, 6 (1998). Under Article III, the trial “of all Crimes . . . shall be held in the State where the said Crimes shall have been committed;” only when a crime is “not committed within any State” may Congress direct venue elsewhere. U.S. Const. art. III, § 2, cl. 3. The Sixth Amendment “reinforces that command,” Abouammo v. United States, 146 S. Ct. 1571, 1576 (2026), by protecting a defendant’s right to be tried by a jury “of the State and district wherein the [charged] crime shall have been committed,” U.S. Const. amend. VI. In sum, and as the Federal Rules of Criminal Procedure explain, the constitutional baseline for venue in criminal proceedings is that “the government must prosecute an offense in a district where the offense was committed.” Fed. R. Crim. P. 18.
“A crime is ‘committed,’ for venue purposes, where its ‘essential conduct elements’ are completed.” United States v. Jin, No. 23-cr-091-2 (CKK), 2025 WL 2409749, at *13 (D.D.C. Aug. 19, 2025) (quoting United States v. Rodriguez-Moreno, 526 U.S. 275, 280–81 (1999)). [*8] Accordingly, “[t]o implement [the] constitutional rule—meaning, to decide where the crime was committed—courts generally must determine the location of the offense’s ‘essential conduct elements.’” Abouammo, 146 S. Ct. at 1576 (quoting Rodriguez-Moreno, 526 U.S. at 280). To determine the “essential conduct elements” of an offense—also referred to as “the conduct constituting the offense”—courts must identify “the things a defendant must do to violate the statute at issue.” Id.; see also Jin, 2025 WL 2409749, at *13 (quoting Rodriguez-Moreno, 526 U.S. at 280) (explaining that “courts must consider not only the ‘verbs of the statute,’ but also any other elements that the Government must prove to obtain a conviction”). An offense’s “essential conduct elements” may be committed in one district, multiple districts, or, in the case of an entirely foreign crime, no districts at all. Regardless, “the [venue] inquiry remains one into the place of the crime’s conduct elements—the acts that the prosecution must prove to secure a conviction.” Abouammo, 146 S. Ct. at 1577.

4. The Court then applies the legal standard to the facts and the charges (tax evasion and tax perjury) in the balance of the opinion.

a. The Court first addresses the tax perjury (§ 7206(1), which it calls the “false-subscription charges.” Under O’Donoghue’s facts, the only act in the United States for venue purposes was the filing of the returns in the Western District of Texas. The returns were prepared by a return preparer in Croatia and were signed by O’Donoghue somewhere outside the U.S. The Government sought to apply the “high seas” venue statute, 18 U.S.C. § 3238, titled Offenses not committed in any district, here, which provides venue for “offenses begun or committed upon the high seas, or elsewhere out of the jurisdiction of any particular State or District” in the District the defendant is first brought into the U.S., the last known U.S. residence of the defendant, or, if no such residence is known, in the District of Columbia. The Court focused on whether the significant acts in the elements of the crime (which it calls “essential conduct elements”) and where they or it occurred. As the Court analyzed § 7206(1), the essential conduct element was the filing which occurred in the Western District of Texas. Although the signature on the return is essential to the crime, the filing is the essential conduct element. Indeed, it is fair to say that no crime is committed if the filing is completed.

I am a bit surprised at this result. I ask some questions. Would signing a false return without filing it be a crime? Of course the answer is no. Would, for purposes of venue, a signing of the return in D.C. and filing of the return in the Western District of Texas permit venue in D.C.? I would think the answer to that question is yes? If the answer to that question is yes, then I question the holding. (Caveat, I have not specifically researched that question, so I am not saying the Court misapplied the law; I just question for further research as I am compelled to address the issue.)

b. The Court applies a similar analysis (but with more twists) to the tax evasion charges, which the Court calls evasion of assessment (as opposed to evasion of payment). (Slip Op. 22-45.) Of course, for that analysis the Court does not have the handy foil that § 7206(1) offered—the essential conduct element of a filed return. Tax evasion can be committed in whole or in part by a filed return (in the jargon an affirmative act of evasion), but a filed return is not necessary—other affirmative acts of evasion are sufficient for tax evasion. And certainly, in the tax evasion charges such offshore acts of evasion can be charged.

c. The Court also swats down a claim that O’Donoghue’s statements made in a proffer session in the District of Columbia were acts of evasion. (Slip Op. 27-44.) The Court surveys the law of tax evasion to derive some concept, attributed to United States v. Grunewald, 987 F.2d 531 (8th Cir. 1993) that criminal tax investigations (such as the grand jury investigation prompting O’Donoghue’s proffer session) which are not civil tax investigations where the tax liability is investigated. By slicing and dicing the alleged facts of the proffer, the Court concludes that tax evasion was therefore not an object of any alleged false proffer session statements.

I am not sure that is correct but again I have not researched the issue or thought in as much depth about it as have the Court and the parties’ counsel.

d.The Court also rejects an O’Donoghue argument as follows (Slip Op. 35, footnotes omitted):

However, O’Donoghue’s proposed general rule—that tax evasion charges based on the filing of false or fraudulent returns are necessarily complete at the time of filing—is also in tension with Section 7201’s broad prohibition against any attempt to evade or defeat any tax or the payment thereof “in any manner,” 26 U.S.C § 7201, which has been interpreted to apply to “any conduct, the likely effect of which would be to mislead or to conceal,” that is accompanied by a “tax-evasion motive,” Spies, 317 U.S. at 499. In light of this expansive prohibition, a number of circuit courts have explained that the statute of limitations for tax evasion begins to run upon the “last evasive act,” and that “evasive acts following the filing of a return may be considered part of the offense.”15 United States v. Anderson, 319 F.3d 1218, 1220 (10th Cir. 2003). The Court, however, is not aware of any caselaw applying the “last evasive act” analysis to the question at issue here—i.e., whether, for purposes of venue, post-filing conduct can be considered part of a charged assessment-evasion offense that is based on an allegedly false filing—and there appears to be some disagreement as to whether the analysis applies only to payment-evasion cases or extends to assessment-evasion cases based on the filing of allegedly false returns. Compare Uscinski, 369 F.3d at 1247 n.* (holding that the analysis does not apply to assessment-evasion cases based on false filing because “[w]here a tax return has been filed, Sansone applies; and the tax evasion is complete upon filing”), with Orrock, 23 F.4th at 1209 (holding that “the last affirmative act of evasion rule applies to both cases” of payment-evasion and assessment-evasion). [*36] But the parties have not addressed these issues, and the Court need not reach them to resolve the matter at hand. For present purposes, the Court concludes that, while an assessment-evasion offense based upon the filing of an allegedly false return will typically be complete upon the filing of said return, there may be certain circumstances where a post-filing act of evasion constitutes a part of such an offense.16

c. Along the way, in both holdings, the Court cites iconic tax crimes cases for various steps in its reasoning.

Some side (perhaps far-side or dark-side) points:

5. The Court “finds” that a precedent applies in full force. (Slip Op. 22.) I don’t think the Court’s choice of the word “finds” is critical to its opinion. Thus, I think the Court could have used “holds” or some such to signal that it was using legal reason rather than a finding of fact. I have recently focused on “lawfinding” as a legal counterpart to “factfinding” and have developed authority for the proposition that “lawfinding” can have a burden of persuasion just like factfinding. If the party with the burden of persuasion fails to convince the court that the facts and the law compel (usually by burden of persuasion) a favorable result, the party loses on that point. Indeed, as I develop in an article for the ABA Tax Lawyer, the APA compels that result in § 706(2)(A) which permits a court to “set aside” an agency action (interpretation in an interpretive regulation) only if it is “not in accordance with law.” Dobson v. Commissioner, 320 U.S. 489 (1943), a tax case involving that precise standard of review for Tax Court decisions (really opinions). The Dobson interpretation of the words functions like deference (which is now something like the legal equivalent of a dirty word); rather it is just a default rule to apply when the court is in ambiguity (i.e., interpretive equipoise). Of course, I am swimming against the tide because the Supreme Court in Loper Bright at least suggested that there can be no statutory ambiguity. That claim, if it is a fair reading of Loper Bright, is nonsense. In any event, even though it does not cite Dobson or even § 706(2)(A) except in passing without understanding that it was inserted in the APA to adopt the Dobson reasoning, the Supreme Court has spoken ex cathedra so that, although false, it must be accepted in the legal community because the Supreme Court has spoken.

6. The Court has redacted some lines. (E.g., pp. 4 & 5-6.) I don’t think the redactions take away from the learning readers can derive from the opinion.

7. Two of the pages in the CL version (pp. 23 and 29 do not permit copying and pasting; I note that the TN version seems to get the text right but does not provide page numbers for the slip opinion. (A lament: why does TN not provide the slip opinion page numbers; of course, as a free user to the resources TN offers free, I have should not question.)

Added 7/26/26 11:00pm:

8. I have revised the tax crimes portion of the chapter on penalties in my Federal Tax Procedure Working Draft (Practitioner Edition); the revision to date is here. After those revisions, I continue to suspect that O'Donoghue may be incorrect.

Supreme Court Denies Cert in Murrin on Issue of Whether Taxpayer's Fraud is Required for § 6501(c)(1) Unlimited Statute of Limitations (6/22/26)

noreply@blogger.com (Jack Townsend) — Mon, 22 Jun 2026 19:26:56 +0000

Today, the Supreme Court denied the petition for certiorari in Murrin v. Commissioner (Sup. Ct. No. 25-988), docket here. See Order List dated 6/22/26, here at p.3, The Third Circuit opinion from which Murrin sought cert was Murrin v. Commissioner, 158 F.4th 527 (3rd Cir. 2025), here.

The question presented in the petition here was:

Whether, under 26 U.S.C. § 6501(c)(1), the IRS may assess tax beyond the Code’s three-year limitations period based solely on the fraudulent intent of a third-party, even when the taxpayer herself neither intended to evade tax nor knew of any wrongdoing.

The question as framed by the SG in the Commissioner’s Brief in Opposition here was:

Whether the indefinite limitations period in 26 U.S.C. 6501(c)(1) applies to a false or fraudulent return prepared by a tax return preparer who acted with the intent to evade tax.

Notice the none-too-subtle rephrasing by the SG’s office to limit the question to the tax return preparer rather than any other person whose fraud infected the return (such as, most prominently, tax shelter promoters and implementers). I discuss that reframing in Update on Murrin Petition for Cert re Unlimited Civil Statute of Limitations for Non-Taxpayer Fraud Reported on Tax Return (Federal Tax Procedure Blog 5/19/26), here. The denial of cert leaves that difference in framing unresolved. However, if the Government is serious about its reframing above (as discussed in the blog), the IRS may not assert the unlimited statute in § 6501(c)(1) where the fraud on the return is not the taxpayer’s or the tax return preparer’s.

For a link to all posts mentioning Murrin, see here (by relevance) and here (by date).

Note to readers of the Federal Tax Crimes blog: Most of my discussions of Murrin have been on my Federal Tax Procedure Blog, hence the links above are to my Federal Tax Procedure Blog.

Justice Thomas' Misleading Statement in Solo Dissent about Maximum Exposure Considered in a Plea Agreement (6/20/26; 6/21/26)

noreply@blogger.com (Jack Townsend) — Sat, 20 Jun 2026 20:01:36 +0000

In Hunter v. United States, 608 U. S. ____ (2026), SC here and GS here [to come], the Court held (from syllabus):

An agreement [plea agreement] not to appeal a sentence is unenforceable when it would result in a miscarriage of justice—meaning, when it would leave in place the kind of egregious error that would bring the judicial system into disrepute.

That’s a broadly stated general rule that will be fleshed out in its application. However, I will not discuss the holding further. Rather, I focus on a misleading statement made by Justice Thomas in his solo dissent that states a common misconception about plea bargaining.

Justice Thomas states (Slip Op. 39 of pdf, indicating p. 1 of dissent here, emphasis supplied by JAT):

Thanks to the [plea] agreement, Hunter received a 51-month prison term, followed by three years of supervised release, less than 2% of the prison time to which the indictment exposed him.

Added 6/21/26 2:30pm: Justice Thomas makes the statement to explain what the benefit of the bargain was for Hunter in order to support his [Thomas'] claim that the agreement appeal waiver should be binding.

No competent lawyer negotiating the plea would have negotiated against the maximum suggested in Justice Thomas’ statement; rather they would have negotiated against the sentence ranges provided by the Guidelines. I demonstrate with a simple example:

Assume that a taxpayer is convicted of 3 counts of tax evasion, with each count carrying a 5-year maximum sentence. In theory, that might permit "stacking" to reach the maximum sentence of 15 years if convicted of all counts. In fact, the Guidelines Offense Level maximums range from 6 months for tax losses from $2,500 or less to 36 for more than $550 million. Assuming no other adjustments (such as criminal history, etc.), looking at the maximum Offense Level of 36, the Guidelines Sentencing Table maximum range is 188-185 months (about 16 years). Most tax evasion convictions involve tax loss far less than $550 million, so the realistic range is far less than 25 years.

I illustrate with a more realistic tax loss example: Assume tax evasion loss of, say, $20 million (aggregate on 3 counts) producing a Guidelines Offense Level of 26 and Sentencing Table range of 63-78 months (about 5-6 years), again assuming no other adjustments.

Since we are considering a plea agreement, assume in the same example, the taxpayer would qualify for the acceptance of responsibility downward adjustment of 3, which lowers the Guidelines Offense Level to 23 and Sentencing Table range to 41-51 months, say about 4 years. (I assume no other adjustments or criminal history.) Hence, it is misleading to simply aggregate statutory maximums on the counts charged in considering the benefits of a plea bargain to one or perhaps two counts.

Further, no competent lawyer negotiating such a plea agreement (which often involves dropping charged counts or forgoing uncharged counts) would brag to the taxpayer/defendant/client that the plea agreement avoids 98% of the incarceration exposure. The concept of relevant conduct includes in the sentencing factors (most prominently the tax loss in tax crimes) the tax loss on the dropped counts. When that occurs, the Probation Office’s PSR will usually include a statement that, at least for the dropped counts, the dropped counts do not affect Guidelines calculations.

So, Justice Thomas' ill-considered notion that the defendant in Thomas got a hell-uv-a-deal is just nonsense which is not uncommon among the Justices.

Fourth Circuit Affirms Convictions of Bullshit Tax Scam Promoters (6/14/26)

noreply@blogger.com (Jack Townsend) — Sun, 14 Jun 2026 18:36:44 +0000

In United States v. Chollet, ___ F.4th ___ (4th Cir. 2026), CA4 here and GS here, the 4^th Circuit panel (Judges Niemeyer, Thacker, and Rushing) affirmed the conviction of three defendants, specifically rejecting various points that I discuss below.

The defendants were convicted of a variant of a marketed bullshit tax shelter. Two of the defendants—Kohn and his daughter Chollet—were tax lawyers; the third defendant was an insurance broker. I will not get into the specifics of the shams they created for their clients to (i) improperly hide their clients' income and resulting tax liabilities from the IRS and (ii) to make money for themselves as they shared in the false tax savings the taxpayers (clients) claimed. Suffice it to say that the scheme involved meaningless (i) limited partnerships, (ii) fake charitable contributions, (iii) fake royalties and management fees, and (iv) supposed life insurance policies.

Like all bullshit tax shelters and some bogus tax shelters that avoid the bullshit categorization, they work if they are not audited or otherwise discovered in the tax enforcement system. These tax enforcement system discovered and prosecuted these defendants. Most often, such scams result, if discovered, in civil tax and perhaps civil penalties. But, for some reason this one turned criminal. (I dare say that many similar bullshit tax shelters escape tax enforcement scrutiny and therefore “work” because of inadequate enforcement resources; for which I make an editorial comment: more enforcement resources would pay for themselves in multiples and promote fairness in and respect for the system.)

The counts of conviction are described as follows (Slip Op. 5-6]:

After a two-week trial, the jury convicted all three defendants of conspiracy to defraud the federal government, in violation of 18 U.S.C. § 371; Kohn on 16 counts of assisting in the filing of false tax returns, in violation of 26 U.S.C. § 7206(2); Chollet on 13 counts of assisting in the filing of false returns, in violation of § 7206(2); and Simmons on 11 counts of assisting in the filing of false returns, in violation of § 7206(2), and on 5 counts of filing false tax returns, in violation of § 7206(1).

Some of the defendants’ arguments on appeal are of the “Hail Mary” procedural footfault genre. (The best recent example of that genre is the commotion plaguing the IRS and the courts about § 6751(b)’s written manager approval for penalties requirement as courts have flailed around trying to interpret and apply nonsensical statutory text. See e.g., Tax Court Rejects Various Hail Mary Claim, Including APA Claims, to Get Out of Penalty Free (10/8/25), here).

I will address the defendants’ points on appeal that I think readers of this blog may find interesting. I refer to these points as DEFENDANTS' POINT 1 (with serial number incrementing). a short description of the point and then a discussion of the point; in the final points discussion I am rather summary just putting readers on notice).

DEFENDANTS POINT 1: IMPROPER AUTHORIZATION OF CRIMINAL TAX PROSECUTION (SLIP OP. 6-11):

Defendants argued that the authorization of the criminal prosecution by Deputy AAG Tax (DAAG) Goldberg rather than by Acting AAG (AAAG) Hubbert means that the criminal prosecution had not been properly authorized. The panel held that Goldberg was properly authorized. Those interested in the maze of authorizations for tax prosecution might read that portion of the opinion.

Although this argument fails, I wonder if those defending tax prosecutions must now have an item on their checklists early in tax crimes prosecutions to check whether the prosecution was properly authorized. (This is analogous to the current civil penalty litigation checklist item for proper written manager approval for civil penalties.)

DEFENDANTS POINT 2: IMPROPER VENUE IN NORTH CAROLINA (SLIP OP. 11-15).

Proper venue requires that some significant element of the crime occurred in the district of prosecution, here WD NC. The panel opinion finds adequate facts to support venue in WD NC. I will not get into the details of its findings supporting venue.

I do note that fans of criminal venue should read Abouammo v. United States, 608 U. S. ___ (2026), SC here and GS here [to come]. Abouammo addresses venue for the crime of knowingly falsifying a document with the intent to obstruct a federal investigation. 18 U. S. C. §1519, here. The holding (excerpted from the Syllabus) is:

A defendant charged with violating §1519 must be tried in the district where the falsification occurred; he cannot be tried in a different district where the investigation was located because no “conduct constituting the offense” happened there. The Constitution twice safeguards a defendant’s venue right: Article III instructs that “Trial of all Crimes” shall “be held in the State where the Crimes shall have been committed,” §2, cl. 3, and the Sixth Amendment entitles criminal defendants to a jury “of the State and district wherein the crime shall have been committed.” To implement that constitutional rule, courts generally determine the location of the offense’s “essential conduct elements” by identifying “the conduct constituting the offense”—the things a defendant must do to violate the statute—and then ascertaining the place where those criminal acts occurred. United States v. Rodriguez-Moreno, 526 U. S. 275, 279–280.

Tax crimes enthusiasts know that tax crimes involving false returns often are committed for venue purposes in a local district where the taxpayer files the return (either by mail or electronically) and in the service center where the return is filed. The more direct tax analogy to Abouammo is a criminal tax investigation that often occurs in the district in which the taxpayer resides, but for multiple participant investigations might be in one of several districts including the district where the investigation is centered. For example, I represented a defendant in the sprawling criminal grand jury investigation centered in SDNY of KPMG and related persons and parties involved in tax shelters such as BLIPS in the first decade of 2000. The tax schemes investigated and prosecuted were marketed by KPMG and related parties throughout the country. The resulting criminal prosecution in SDNY had 19 defendants spread geographically throughout the United States with critical factual elements in the districts where they resided or promoted the tax shelters. If that investigation had been obstructed (not to suggest that it was) by any of the geographically distributed defendants, targets, or subjects in their local districts or in districts other than SDNY, the tax crimes and obstruction charges would have permitted venue either in the local districts where the obstructive event occurred or in SDNY where the investigation obstructed was centered. Abouammo's narrow holding may have some gravity in this context.

DEFENDANTS POINT 3: LITERALLY TRUE BRONSTON DEFENSE (SLIP OP. 15-17):

The Bronston-inspired literal truth defense often is raised where some element of the crime is a false statement that may be literally true but misleading. The defendants make a convoluted argument that the § 7206(2) false return convictions were based on return reporting line items that were literally true because they accurately summarized other reporting positions (which may be false). The panel opinion rejects that defense.

DEFENDANTS' MISCELLANEOUS POINTS 4 (SLIP OP. 17-24):

The penal opinion rejects the following points in a miscellaneous discussion:

1. Constructive amendment of the indictment (Slip Op. 17-18).

2. Admission of expert testimony by an IRS Special Agent not qualified as an expert (Slip Op. 18-20).

3. Improper Admission of one defendant’s past criminal tax conviction (Slip Op. 20-22). Of all the miscellaneous points rejected, this is the most interesting one to read because the defendant Kohn was a two-timer—meaning stupid. (Even one-timers are stupid because tax crimes require willfulness (knowing violation of a known legal duty); but two-timers are stupid squared. The clients I represented in criminal investigations and prosecutions were not stupid enough to do it again (well, with one exception anyway). Significantly, apparently to guard against Kohn’s targeted purchases of this current criminal scheme learning about his prior conviction,

One of the allegations in the indictment was that in promoting the GEP to clients, Kohn not only misrepresented his educational background, but also told clients false and incomplete information about his previous guilty plea, bragging that it showed that he would go to great lengths in representing and protecting his clients.

That’s pretty stupid too, but I suspect that, like many purchasers of bullshit tax schemes, Kohn’s purchasers thought that, if anyone were investigated or prosecuted, the promoters (such as Kohn) would be and the purchasers would not be; they simply wanted to believe that Kohn would fall on his sword to protect them; hence Kohn's bragging may have been a feature to make purchase of the scam more palatable. (Relatedly, in the early KPMG investigative stages of the KPMG matter, KPMG foolishly pulled out all stops to delay the investigation (thereby, they thought, running out the statute of limitations on civil and criminal enforcement; that is a long story, so I won’t get into it here).

4, Failing to give reliance-on-counsel instruction (Slip Op. 22-23).

5 Evidence Insufficiency for Conspiracy conviction (Slip Op. 23-24).

Failure to Pay Employer's Share of FICA Is Not Included in Tax Loss for § 7202 Convictions for Failure to Withhold and Pay Over Employee's Share (5/27/26)

noreply@blogger.com (Jack Townsend) — Wed, 27 May 2026 15:20:58 +0000

In United States v. Fecondo (3rd Cir. No. 24-1618 5/26/26) (NonPrecedential), CA3 here and GS here the court held that Fecondo’s crimes of conviction under § 7202 for failure to withhold and pay over the employee share (or portion) of FICA does not include the tax loss from the employer’s failure to pay the employer share. (The employee share is sometimes called a "trust fund" tax because deemed to be held in trust to pay over to the IRS.) The employer share is not a tax collected from the employee (by deduction from wages) withheld within the scope of § 7202, the offenses of conviction. Thus, the unpaid employer share could not be included in the tax loss for the counts of conviction. Moreover, the Court held that the employer share is not “relevant conduct” for inclusion in the tax loss under the Sentencing Guidelines. The reasoning is that, although the two portions are related in the sense that they arise from the employer’s payment of wages, failure to pay a direct tax (employer’s share) is not related to the crime of failure to withhold and pay over the employee’s share for relevant conduct purposes. They are related but not relevant conduct to the counts of conviction.

I wonder if that works in reverse. Say the defendant was convicted of tax evasion, § 7201, for failure to pay the employer’s taxes (including the employer share of FICA). Could the failure to withhold and pay over the employee share of FICA be relevant conduct?

District Judge Dismisses Wire Fraud Counts with Overlapping Facts for Tax Counts Because the Lesser Burden of Proof for Wire Fraud Violates Due Process (5/7/26; 6/16/26)

noreply@blogger.com (Jack Townsend) — Thu, 07 May 2026 12:09:00 +0000

In United States v. Garza (N.D. TX 3:22-CR-0390-8), Memo and Order dated 5/6/26, CL here and GS here, the Court dismissed certain counts in a long-standing indictment. (No speedy trial here.) In broad strokes, the indictment alleges that Garza, a Dallas attorney (at least at the time of the charged conduct) and the other co-defendants participated in promoting a “fraudulent tax shelter plan to clients.” (I have a somewhat fuzzy recall that it was Garza’s version of a BLIPS variant.) They were indicted for tax crimes (§ 7206(1)) and for wire fraud crimes, on some counts related to the charged tax crimes.

The Court describes the defendants’ motion as (Slip Op. 2):

Defendants move to dismiss the Wire Fraud Counts under Federal Rule of Criminal Procedure 12 on the grounds that: (1) the Wire Fraud Counts function as an end-run around the willfulness mens rea requirement for tax fraud in violation of the Fifth Amendment’s Due Process Clause; (2) 26 U.S.C. § 7206(2) (“Tax Fraud Statute”) preempts the application of 18 U.S.C. § 1343 (“Wire Fraud Statute”) “when both rest on the same alleged scheme”; and (3) the Wire Fraud Statute, interpreted according to its text and constitutional footing, does not extend to tax fraud against the Federal government and cannot be used to prosecute tax conduct.

The Court granted the motion as to the overlapping charges, dismissing the wire fraud counts related to the tax counts but leaving the false tax return counts. The gravamen of the holding is that by charging basically the same conduct (or at least intertwined conduct) as tax crimes with the high “willfully” standard of proof (the Cheek standard) and as wire fraud, the Government was trying to bootstrap a conviction for that conduct under the lesser burden of proof for wire fraud. The Court concluded, somewhat conclusorily, that the phenomenon violated due process, almost as if she knew a due process violation when she saw it. (To paraphrase Potter Stewart’s famous comment on pornography.) She thus says (Slip Op. 3):

In this case, the Government’s prosecution of the same tax conduct under both the Tax Fraud Statute and Wire Fraud Statute violates the Due Process Clause by enabling the Government to avoid proving every fact necessary to constitute tax fraud.

The opinion is short and, since I am leaving Charlottesville for D.C., the primary purpose of this blog (at least as preliminarily offered) is notice. Readers can read the opinion and draw such conclusions as they wish. (I may add to this blog later, likely not until Monday.)

Quick questions:

1. I don’t think the opinion is correct and, in any event, seems to be short of analysis other than “I know it when I see it.”

2. What if the indictment had charged only wire fraud for the conduct that could also have been charged as a tax crime? Could the defendants have obtained dismissal on the ground that tax crimes require the higher Cheek standard, so that charging wire fraud violated some notion of fairness rising to a violation of due process? I think the court would not do that and, if it did, it would be reversed.

3, It would be interesting on the Court’s understanding of the overlapping facts to see (hear) how a Judge could meaningfully describe the different burdens of proof. I know it technically and mechanically can be done. I ask here whether it can be meaningfully done for the jury to understand and apply?

Added 5/12/26: On 5/8/26, the United States filed interlocutory appeal from the district court dismissal described above. The notice of appeal is here.

Added 5/19/26 5:15pm: I have received copies of the motion documents and link to a zip file for them here. I think the Motion and Reply are quite good. I specifically the Reply’s discussion (pp. 3-5) of United States v. Henderson, 386 F. Supp. 1048 (S.D.N.Y. 1974), GS here. I suggest that readers (i) consider Judge Weinfeld’s analysis which is not based on due process but seems to foreshadow a due process issue and (ii) whether the dismissed counts might affect the sentencing if Garza is convicted of that related tax counts.

Added 6/16/26 5:30pm: See Robert S. Horowitz, District Court Shoots Down Use of Wire Fraud Statute to Charge Tax Crimes (Tax Litigator 6/16/26), here.

Tax Court Sustains Deficiencies Equaling Restitution with No RBA (4/4/26)

noreply@blogger.com (Jack Townsend) — Sat, 04 Apr 2026 18:03:00 +0000

In Thody v. Commissioner, T.C. Memo. 2026-30, the Court sustained the deficiencies asserted against Thody with respect to the tax loss that had been subject to a restitution order against Thody in an earlier criminal tax prosecution. The Thody opinion can be viewed at TC No. 27415-21, here, at #50 dated 3/30/26 and GS here. Actually, the original notices of deficiency exceeded the amount in the restitution order, but the IRS conceded (pp.. 4-5) the excess deficiencies asserted in the notice of deficiency, so that with that concession, the amounts of deficiencies the IRS asserted in the case equaled the amounts in the criminal restitution order. The Court then sustained the deficiencies based on the evidence.

One unexplained apparent oddity is that the IRS did not make a restitution-based assessment (“RBA”) allowed by § 6201(a)(4). The Court offers no explanation and treats the case as a straight-forward deficiency case permitting Thody to contest the amounts. If the IRS had made the RBA in the same amounts, Thody could not have contested the amounts of the RBA. In that regard, the IRS can assert deficiencies in amounts exceeding the amounts of restitution, whether or not asserted in an RBA. I don’t know why the IRS conceded the excess amounts. The IRS may have known or believed that it could not sustain that excess, so that this would be a normal concession in a deficiency case. But, if as a straight deficiency case, the IRS could have sustained the excess deficiency amounts, there was no reason to concede them. The IRS may have conceded just to move the case to a prompt decision with less hassle. A related question is whether, once the IRS decided to concede the excess before the trial level consideration was concluded, the IRS could have made an immediate RBA which would preclude Thody from contesting the amounts. I am not sure that there is a statute of limitations on RBAs because I have not researched that issue. And I am not sure that the Court would have treated such a belated RBA as mooting the deficiencies case.

Moreover, the Court seems not to have not the distinction between a tax deficiency and restitution. Thus, at p. 3, the Court says that the Government reduced the restitution (not the RBA) to judgment. In doing so, the Court cites in fn. 4 the IRM for the purpose of suits to reduce tax claims to judgment is to extend the statute of limitations. The IRM provision, I think, relates to tax assessments rather than criminal restitution. Of course, if there is a statute of limitations on restitution (likely), the reason to reduce restitution to judgment may be for the same.

Thody made the argument that the payments he had made for restitution should reduce the amount of the deficiencies. The Court (pp. 7-8) did correctly find that Thody’s argument was incorrect. The Court notes that, although in collecting on any resulting deficiencies approved by the Tax Court, the IRS would have to credit the restitution payments against the tax liabilities.

This blog content is cross-posted on the Federal Tax Procedure Blog here.

Prominent Convicted Tax Shelter Lawyer Fails on Appeal in CDP Case Involving Restitution Based Assessments (4/1/26)

noreply@blogger.com (Jack Townsend) — Wed, 01 Apr 2026 15:50:00 +0000

I start with a caveat: although this posting is on April 1, sometimes called April Fools Day, this is intended as a serious discussion.

In Daugerdas v. Commissioner, ___ F.4th ___ (7th Cir. 2026), CA7 here and GS here, the Court held that § 6201(a)(4)(A), which authorizes the IRS to assess and collect restitution awarded in a criminal proceeding for unpaid tax, was a stand-alone collection authority unaffected by the payment schedule the district court imposed for the restitution behind the tax assessment. The assessment is sometimes called “restitution based assessment,” and acronymed to RBA which I use here. The holding seems like a straight-forward holding. But there are some issues lurking in the case that tax procedure enthusiasts may enjoy or at least understand.

First, I offer background worthy of note:

1. Daugerdas, a lawyer, is a notorious promoter of bogus tax shelters who was convicted. The Court says (pp. 2-3, emphasis supplied by JAT):

In 2013 a federal jury in Manhattan found Daugerdas guilty of one count of conspiracy to defraud the IRS (18 U.S.C. § 371), one count of mail fraud (18 U.S.C. § 1341), four counts of client tax evasion (26 U.S.C. § 7201), and one count of obstructing the internal revenue laws (26 U.S.C. § 7212(a)). His sentence brought with it an obligation to pay restitution of $371,006,397 jointly and severally with his co-conspirators for the tax losses resulting from the fraud perpetrated on the U.S. Treasury. The district court established a schedule of payments requiring Daugerdas to pay 10% of his gross monthly [*3] income starting 30 days after his release from prison. The Second Circuit affirmed Daugerdas’s convictions and sentence. See United States v. Daugerdas, 837 F.3d 212 (2d Cir. 2016).

I have not tried to break down the components of the restitution amount. Specifically, I have not tried to determine whether the restitution relates to Daugerdas’ tax liabilities (he did make a whopping amount of gross income that he likely attempted to shelter with similar bullshit strategies) or includes in whole or in part the liabilities of other persons reporting on the basis of bullshit tax shelters he promoted with legal opinions and related services. I don’t know that the difference makes a difference in terms of the RBA.

I have written on Daugerdas several times on my Federal Tax Crimes Blog, here (the results are initially by relevance but may be sorted by date).

2. The Seventh Circuit opinion arises from a Tax Court CDP proceeding, Daugerdas v. Commissioner (T.C. No. 7350-20L), here. The Tax Court bench opinion with oral findings of fact and opinion is at Dkt # 126. In the bench opinion in this CDP case, Judge Goeke sustained the IRS filing of the notice of federal tax lien but did not sustain the IRS levy against Daugerdas that could be effective against the only available asset—a residence in the wife’s name—only under a nominee theory requiring the IRS to assert the nominee liability against the wife. In other words, the Court held that, under the facts, the IRS could not use a levy against Daugerdas to levy the residence in the wife’s name. The IRS did not appeal that holding. (I include relevant portions of the bench opinion below.)

3. In this light, it seems to me that the Seventh Circuit panel's opening statement of the issue it is deciding is imprecise. The Court frames the issue in the opening sentence:

This appeal presents an issue of first impression for us and indeed all circuit courts: whether the Tax Code, and specifically 26 U.S.C. § 6201(a)(4)(A), authorizes the Internal Revenue Service to assess and collect restitution following a person’s conviction of a federal tax-related crime under Title 18. We hold that the answer is yes, * * * *

Of course, the clear and obvious answer to that question is yes.

4. In my mind the tougher issue perhaps not directly addressed because the IRS did not appeal the Tax Court’s rejection of the levy is whether the IRS could levy the otherwise proper RBA in a way that is not consistent with the conditions the district court placed on the collection of the underlying restitution. My instinct is that the IRS should not levy on a 6201(a)(4)(A) assessment inconsistently with the district court conditions on collection of restitution. Whether that is a technically correct reading of the text or a providential consideration, that just seems right to me. Of course, since the Tax Court rejected the levy (see below), that was not an issue the Seventh Circuit panel had to address.

5. One issue inherent in considering the foregoing is whether, if an asset is titled in the name of a person who is a nominee of the taxpayer (holding title for the beneficial owner-taxpayer), can the IRS treat the asset as the taxpayer’s asset permitting the levy (assume that the levy is not inconsistent with the conditions imposed by the district court)? Of course, the IRS could have some protection by filing a nominee lien, in this case against the residence. Here is a copy and paste of the text (no footnotes) in my Federal Tax Procedure book (2026 Practitioner edition, pp. 838-839; and 2026 Student Edition, p. 553).

The nominee lien is not specifically authorized by the Code but is authorized administratively and recognized by the courts. The nominee lien names the third party who the IRS has determined is acting as nominee for the taxpayer and identifies the taxpayer and the property to which the nominee lien attaches. The nominee lien is filed to preserve the IRS’s interest in the property allegedly so held. In contrast to the general tax lien filed against the taxpayer, the nominee lien requires special approval within the IRS. The effect of the nominee lien is to put the public on notice that the IRS believes the property may be property of someone other than the nominal title owner, thereby clouding title of the third party (the putative nominee) and effectively preventing that third party from dealing with the property. Obviously, this could be a major problem to a third party who really owns the property and is not in fact acting as nominee.

Now, focusing on the nominee levy issue, Judge Goeke addressed the issue (Bench Opinion, pp. 18-23):

We now turn to discuss the levy, which is primarily based upon Respondent's analysis that Respondent has an opportunity to collect funds through the nominee lien. Basic case law, as applied by the Northern District of Illinois, is helpful in considering Respondent's argument. Stone v. United States, 2014 Westlaw 1289788, (Northern District of Illinois, 2014), finds that Illinois State Courts have not specifically addressed the nominee theory. In the absence of specific guidance from the State courts, Federal courts have used a multi-factor standard to determine whether an individual is a delinquent taxpayer's nominee. See United States v. Cohen, 930 Fed.Supp.2d, 962, 979 (C.D. Ill., 2013); and United States v. N. States Investment, Inc., 670 F.Supp.2d 778, 788-89 (N.D. Ill., 2009).

          The applicable standard, as determined in Stone [*19] v. United States, is as follows. Whether a title holder is a nominee depends on the facts and circumstances of each case, including whether; (1), a close personal relationship exists between the nominee and the transferor; (2), the nominee paid little or no consideration for the property; (3), the parties placed the property in the name of the nominee in anticipation of collection activity; (4), the parties did not record the conveyance; and (5), the transferor continues to exercise dominion and control over the property. See United States v. Schaut, 2001 WL 1665314, at 3 (N.D. Ill., December 28th, 2001); United States v. McClellan, 1994 Westlaw 374471, at 3 (S.D. Ill., May 17th, 1994). In Stone, the Court weighed the factors and held that the wife was the husband's nominee. It called the recording of the deed the least significant factor, because the other factors were not so easily manipulated.

          Of importance, in the present matter, the Northern District of Illinois in Foreman v. Department of Treasury, 2005 WL 928508 (March 3rd, 2005), held that the taxpayer did not have standing to oppose a nominee lien, because he would not be legally injured if the IRS took the nominee's property. And that he can only benefit because the tax would be paid. This statement in this holding is consistent with the general concept of nominee [*20] liens, that the collection action is on the nominee, and that generally it begins with the service of a Notice of Federal Tax Lien on the nominee. And the nominee then has the right to pursue defenses, including that the underlying taxpayer has no interest in the subject property. However, the action begins with service upon the nominee, and does not directly involve the taxpayer.

          This case is not an appropriate forum to decide the nominee issue, because Petitioner's wife is not a party to the case. It is not appropriate to adjudicate her rights in the Wilmette property without her participation. The Notice of Federal Tax Lien at issue here does not attach to the Wilmette property, because Petitioner does not hold legal title to the property. If the IRS files a nominee lien, Petitioner's wife would have an opportunity to assert her ownership and to litigate the question in an appropriate forum. Jewell v. Commissioner, T.C. Memo 2016-239 at 19.

          As stated previously, Rule of Procedure 121(d) provides that when a Motion for Summary Judgment is made and supported as set forth in this rule, the nonmovant may not rest on the allegation or denial of that party's pleadings. The nonmovant must respond, setting forth specific facts, and supporting those facts as required by Rule 121(c) to show that there is a genuine dispute.

[*21] We conclude that regarding the use of the nominee lien as a basis for the underlying levy in Respondent's opposition to Petitioner's Motion for Summary Judgment, Respondent has not provided sufficient evidence to sustain a rebuttal argument to Petitioner's Motion for Summary Judgment regarding collection by levy, because the facts Respondent alleges concerning the nominee lien are mere allegations, and are inconsistent with established facts in the administrative record. Respondent's allegations are not sufficient to sustain the denial of a Summary Judgment under our Rule 121(d).

          Secondly, levy is not necessary for the IRS to pursue the only collection Respondent has suggested. The nominee lien, the case law establishes, is pursued by serving a Notice of Federal Tax Lien on the owner of the property, which in this case would be Petitioner's wife. The IRS would seek to collect the nominee lien from her, and a levy on Petitioner would serve no purpose, even if Respondent could establish the elements of the nominee lien against Petitioner's wife, which we believe Respondent has failed to do so in the administrative record in the present case.

          Likewise, it is not necessary to resolve the nominee lien issue to decide whether Appeals abused its discretion to sustain the proposed levy. Given the [*22] contradictory determinations regarding whether to sustain the proposed levy, we cannot say the Appeals determination was reasonable, especially in light of the fact that that determination was not based upon any significant facts.

          And there were no significant facts to support the determination in either the undated Supplemental Notice of Determination, nor in the later dated Notice of Determination.

          We find that the inconsistent Appeals determinations regarding Petitioner's ability to pay, based upon the threat of a nominee lien on the Wilmette property, to be inconsistent with the assertion that the Court should not decide whether, in fact, Petitioner's wife holds the property as Petitioner's nominee. The IRS believes that Petitioner's wife is the nominee. It should pursue that action against the property in the appropriate forum, and not as some ad hoc basis for supporting the levy in this case, because levy is not the remedy generally used to pursue a nominee lien. And a levy on the Petitioner clearly is misplaced, based upon the precedent, especially the precedent in the Northern District of Illinois and other district courts in the State of Illinois. We believe that the change of position by the Settlement officer between the initial Supplemental Notice and the later dated Supplemental Notice is not [*23] supported by the law, nor the facts. And therefore, it is an abuse of discretion.

Judge Goeke assumes that the IRS can levy on an alleged nominee based solely on the RBA against the taxpayer rather than based on the nominee lien. The particular notice of intent to levy, however, failed on the facts that were insufficient to support the prudence of the levy.

This blog entry is cross-posted on the Federal Tax Procedure Blog here.

Second Circuit Rejects Tax Court's Fahry Holding That IRS Can't Assess and Collect the § 6038(b) Penalty (2/27/26)

noreply@blogger.com (Jack Townsend) — Fri, 27 Feb 2026 19:53:00 +0000

I have written on the issue of whether the § 6038(b) penalty can be assessed (with the assessment collection tools available) or must be collected by a collection suit in the district court. See posts here. The Tax Court held in Farhy v. Commissioner, 160 T.C. 399 (2023), GS here, that the IRS could not assess and collect but rather must sue and collect. The D.C. Circuit reversed. Farhy v. Commissioner, 100 F.4th 223 (D.C. Cir. 2024), CADC here**, and GS here. The Tax Court stuck to its Farhy holding in cases appealable to Circuits other than the D.C. Circuit under its Golsen rule, feeling that its original Farhy holding was correct.

Today, the Second Circuit has now aligned with the D.C. Circuit, saying that the IRS can assess and collect the § 6038(b) penalty. Safdieh v. Commissioner, ___ F.4th ___ (2d Cir. 2/27/26), CA 2 here, TN here, and GS here. Other than to say that I think the D.C. Circuit and the Second Circuit are correct, I can’t add any discussion not evident from my earlier posts linked above. Thus, this is a notice-only blog.

This post is cross-posted in my Federal Tax Procedure Blog, here.

9th Circuit Holds that Documents Delivered to Government Attorneys in Response to Grand Jury Subpoena Grand Jury Matters Subject to FRCrP Rule 6(e)'s Secrecy Requirement (2/3/26; 2/4/26)

noreply@blogger.com (Jack Townsend) — Mon, 02 Feb 2026 19:54:00 +0000

I write today on facets of Rule 6(e)(2), Federal Rules of Criminal Procedure, relating to grand jury secrecy. Rule 6 may be viewed here. Rule 6(e)(2) in part relevant to this blog entry requires that Government personnel participating in a grand jury investigation “must not disclose a matter occurring before the grand jury." Rule 6(e)(2)(B).

In Kalbers v. Volkswagen AG, ___ F.4th ___ (9th Cir. 1/30/26), CA9 here and GS here [to come], the Court held in a FOIA proceeding that Rule 6(e)(2) applies to documents delivered in response to a grand jury subpoena. Professor Kalbers sought Volkswagen’s Counsel’s responsive “file” containing millions of documents that Volkswagen, a target or subject, delivered in response to the grand jury subpoena. I think the case assumes that at least some portion of the documents were never presented to, summarized, or otherwise considered by the grand jury. The Court held that subpoena-responsive documents are grand jury matters subject to Rule 6(e)’s secrecy requirement and therefore are not disclosable under FOIA. The reasoning appears solid to me. I won’t track the reasoning here because it is not necessary for the focus of this blog entry.

An issue I have spent time on is whether documents delivered by a subject or target of a grand jury investigation to attorneys for the Government conducting a grand jury investigation without a grand jury subpoena can be subject to Rule 6(e). Would it matter whether the attorneys for the Government asked nicely (pretty please) or threatened a grand jury subpoena (or some shade of gray between those extremes)? Would it matter if the Government sent the request in a letter (like the Branerton letter that must precede formal discovery in Tax Court proceedings)? What if in such a letter (or other communication), the Government mentioned that the person from whom the documents were sought was a target or subject of a grand jury proceeding? What if the person from whom the documents were sought had earlier received a letter notifying of grand jury target or subject status and the Government attorneys' participation in that investigation (i.e., no notice that the DOJ attorneys were also conducting an independent investigation)?

A tangentially related issue to this is whether, in a tax crimes case, DOJ Attorneys have authority to conduct at the same time (i) a grand jury investigation of potential tax crimes; and (ii) an independent DOJ investigation of the same tax crimes? Such a parallel investigation would necessarily involve grand jury matters bleeding into the so-called independent DOJ tax crimes investigation. Is that an improper use of grand jury matters in violation of Rule 6(e)?

Still another question in the context of the last paragraph is whether DOJ even has authority to investigate tax crimes independently of a grand jury investigation? In my past tilting with DOJ, DOJ attorneys have insisted that DOJ attorneys (then in the Tax Division) may investigate tax crimes independently of the grand jury. I have never been convinced that that is true. Some practitioners may remember William Webster’s statement that “CI is the only agency that can investigate potential criminal violations of the Internal Revenue Code.” William Webster, Review of the Internal Revenue Service’s Criminal Investigation Division (April 1999), to Charles O. Rossotti, Commissioner IRS, Publication 3388 (4-1999), here ((known popularly as the “Webster Report;” bold-face supplied by JAT). Webster was no uninformed bystander making off-the-cuff claims; he had been a district and appellate judge, Director of the FBI, and director of the CIA (see Wikipedia here) who was appointed to make this Review with a substantial budget and team to get it right.

Of course, DOJ can certainly be an attorney for the Government in a grand jury investigation of tax crimes, but the question I raise here is whether DOJ has authority to investigate tax crimes independent of a grand jury investigation. Certainly, William Webster would have said so in his report if he thought or were aware that DOJ had independent authority to investigate tax crimes.

I thought I would have some opportunity to litigate this issue in United States v. Stein, a tax crimes case involving the KPMG BLIPS and other tax shelters which produced many opinions in SDNY and CA 2. The litigation involved the prosecution of 19 KPMG-related defendants in the 2000s. But, my client and 12 others were dismissed after much district court thrrashing around and before I got to present that issue. See United States v. Stein, 541 F.3d 130 (2d Cir 2008), here (affirming the dismissal). That issue came up Stein because the DOJ attorneys (who served as attorneys for the Government in the grand jury proceeding) making the decision that a KPMG-employed person who was subject or target of the grand jury investigation was not “cooperating” in proffer sessions conveyed that information to KPMG who then fired the person. The question I thought would be worth pursuing was whether that notification to KPMG to punish the noncooperating person was a violation of Rule 6(e) which it certainly would be if the Government attorneys were functioning solely as attorneys for the Government assisting the grand jury without independent authority to investigate tax crimes. (I also thought that the Government attorneys conveyed to KPMG that my client was not cooperating by virtue of invoking the Fifth Amendment privilege in the actual grand jury proceeding.)

The foregoing is a high-level discussion of areas of the law with many complexities, but I think it is a fair summary that others may be inspired to pursue further in appropriate circumstances.

JAT Comments:

1. Added 2/4/26 11:00am: CNN today has this report that DOJ discovered that it’s persecutor-in-chief (perhaps clown but not in chief), Ed Martin, had disclosed grand jury material. Hannah Rabinowitz, Evan Perez & Paula Reid, Justice Department review found Trump ally Ed Martin improperly leaked grand jury material in probe of president’s foes (CNN 2/4/26), here. If true, the disclosure would violated Rule 6(e) and subject Martin to a criminal contempt charge. In addition, the article reports an allegation that “Martin initially denied sharing the material with unauthorized people when asked by department leaders, but emails soon surfaced showing that Martin had in fact shared the grand jury material.” Martin’s denial is also criminally chargeable as a false statement under 18 USC 1001. What do readers think is the likelihood of Martin being charged by this DOJ and, if charged, getting a Presidential pardon? Another instance of Trump’s many amateur hour appointments political actors to positions that should not be political and actors who are not very smart.

JAT Diversion on William Webster:

1. Fun Fact (at least for me although a diversion for the subject of this blog entry): I handled a Government appeal from a case District Judge Webster decided for the taxpayer in a § 482 case. Liberty Loan Corp. v. United States, 359 F.Supp. 158 (E.D.Mo.1973), here. The Government won the case on appeal, reversing Judge Webster when he had already ascended to the Eighth Circuit. Liberty Loan Corp. v. United States, 498 F.2d 224 (8^th Cir. 1974), here. The reason Liberty Loan is on my mind is not just the coincidence of Judge Webster, but I see that Liberty Loan is cited twice in the Government’s Petition for Rehearing in 3M Company v. United States, 154 F.4^th 574 (8^th Cir. 2025). See Petition for Rehearing En Banc, filed 1/29/26, at p. 17, CL here and TN here. (I am not sure that the cited local page from Liberty Loan stands for the proposition that the Government proffers; nevertheless, I guess, one has to go with what one has.)

Convicted Defendant After Sentencing in Seeking Third Delay to Report to Prison Files an Unusual Document (1/22/26)

noreply@blogger.com (Jack Townsend) — Thu, 22 Jan 2026 23:20:00 +0000

I write today on one of the more unusual documents I have seen filed in a criminal tax proceeding. By jury verdict, Richard Brasser and a co-defendant (Gregory Gentner), co-officers of rFactr (a software company) were convicted of 5 counts of § 7202 willful failure to account for and payover trust fund taxes and acquitted of 2 counts each of § 7201 false returns and one count (for Brasser) of §7201 tax evasion. The judge sentenced Brasser and the co-defendant to incarceration. The co-defendant started and completed his prison time. By contrast, Brasser strung out the time to report to prison, but that time fell due this month (January 2026).

As noted Brasser filed usual motions upon conviction but did not succeed. Finally, seeking the third delay to report to prison, Brasser, acting pro se, filed the document I discuss here. The document is at #161 of the docket entries. (The CL docket entries are here.) Unfortunately, the particular document is not available on CL, but I have posted it to my Google Docs here. At the point of filing the document, the issue before the court was whether the court would allow the third requested extension of time to report to prison.

The document is a letter dated June 9, 2024 from Mark Matthews to “Whom It May Concern” with a Re caption “Richard Brasser – Tax Matter.” The body of the motion says that the author had consented to its filing. The body of the letter is important so I copy and past it here (bold-face supplied by JAT):

I am writing on behalf of Richard Brasser to provide important context in connection with his conviction for what are commonly referred to as employment tax violations (while being acquitted of the more commonly known charges of false tax returns and evasion).

I have significant experience within our criminal tax system, having served as an Assistant US Attorney in the Southern District of New York, the Deputy Assistant Attorney General for the Department of Justice's Tax Division where I was responsible for all tax prosecutions nationwide, the Chief of IRS Criminal Investigation (which is the sole investigative agency for suspected federal criminal tax violations), and the Deputy Commissioner of the IRS (or the #2 official), responsible for all examination, collection, and investigation activities as well as taxpayer services. I have been involved in many hundreds of tax investigations and prosecutions for over 30 years on both sides of the table - as a prosecutor, investigator and as a defense attorney. Based on my experience the indictment of Mr. Brasser was entirely unwarranted and one of the most egregious examples of prosecutorial discretion I have ever encountered.

In full disclosure, I was a paid lawyer for Mr. Brasser for a brief period prior to his indictment. But I am not charging a fee for this letter. In my paid role for Mr. Brasser, I was joined by two other very senior former DOJ/IRS officials in an effort to try and convince the DOJ' s Tax Division what a terrible injustice would be brought by such an indictment and how much damage it would do to the tax system.

We argued strenuously that this prosecution should never have been brought. Mr. Brasser made a voluntary disclosure to the IRS of the issues his company was having keeping current on employment taxes. It is an extraordinary step of courage and accountability for a taxpayer to approach the IRS and self-report a serious compliance issue. Most taxpayers would prefer to play the audit lottery. It is almost unheard of for the government to indict a taxpayer who has approached the government, reported his issues, and made substantial efforts to come into compliance, and never in a case like this to my knowledge where the taxpayer has told the truth and made significant efforts to come into compliance. It is simply extraordinary, and we argued to the Tax Division what a terrible message this would send to other taxpayers and importantly, the thousands of tax professionals who would learn of it. As a tax practitioner, it is hard enough to get taxpayers to come forward and correct non-compliance, and this prosecution will make it even harder.

I had these same views of employment tax cases when I was the chief of the criminal investigators. In 2000, I spoke at a conference of over five hundred collection agents. These collection officers referred many employment tax cases to the criminal investigators when they saw instances of businesspeople not properly remitting employment taxes to the IRS. As collection officers, they were very unhappy that so few cases were accepted for additional investigation or prosecution. So, I carried an unpopular but important message to them. I acknowledged the undeniable fact that many tens of thousands of employers fall behind on employment taxes each year. Due to the essentially strict liability of our employment tax laws, each of those cases is a technical criminal violation, as was Mr. Brasser's. But I reported that the IRS saved the criminal sanction for the most egregious cases. While there may have been an egregious case unknown to me in the past, we simply did not prosecute businesspeople who made the error of paying vendors and employees before the IRS, when it was clear they were struggling. Given the abundance of employment tax cases to pursue, we were much more likely to select cases where the businessperson was spending those funds on themselves - for a big house or a new boat, for example. Had I been presented with a case like Mr. Brasser's when I was at the IRS, I would not have referred it to the Department of Justice for prosecution and when I was at the Justice Department, I would have declined such a case.

Unfortunately, several years ago, this philosophy changed, and now the IRS and DOJ occasionally will pursue an employment tax case simply where the taxpayer made bad decisions to save their business, even if they did not directly profit personally and spend the funds on themselves (sic). But when you add to this fact pattern that the taxpayer (a) made a voluntary disclosure, (b) always acknowledged taxes due and owing, (c) never lied to accountants, the IRS or created false documents, (d) did not use cash payments to conceal liabilities, and (e) repaid all taxes plus interest well before the indictment was issued, it is simply incomprehensible that the government chose to pursue a case like this.

Given the almost strict liability provisions of the employment tax, however, many of these important features of the case were technically irrelevant to the jury's deliberations. They had no choice but to convict if they followed the judge's instructions on the law. But the jury acquitted on every other charge where they could evaluate whether Mr. Brasser had a criminal state of mind - the false return and evasion charges.

As for the conviction in this case, the experienced federal judge noted: "I don't believe I've ever participated in a case where there was this much effort to settle a case civilly which ultimately ended in an indictment." Neither have I.

I hope that this information will be of value to anyone evaluating Mr. Brasser's fitness for work and attendant responsibilities.

Sincerely,

/s/ Mark Matthews

Mark Matthews

JAT Comments:

1. The story that Matthews summarizes in his letter (see particularly the bold-face) is different than the story told in the indictment, here, and the Government’s sentencing memorandum here. I will leave for readers with interest in the potential discrepancies to sort through the divergent stories and which may be the more accurate description of the relevant facts. I will note that, at Brasser’s sentencing, the sentencing judge did not have the Matthews letter and only received it much later on the third request to delay starting the prison sentence. Further, the letter is not mentioned in the Government's response to the motion to extend filed after the letter was filed and in the Court's denial of the request for the third extension to report to prison. Probably because the contents of the letter was not relevant at that stage of the case (if it were even relevant to an earlier stage).

Caveat: I know Matthews and know him to be an honorable and ethical lawyer and a good person. I am not saying that the story he tells is not a fair summary of relevant facts. I just say that the story diverges from key documents the Government submitted which were acted upon by the judge in sentencing. I have no idea whether the Matthews letter could have affected sentencing or even the earlier development of trial. Matthews does note in the letter that the jury had no option but to convict under the jury’s instructions. So, if those instructions hold up on appeal, the conviction will stand and probably the sentence as well.

2. For some reason, the indictment charges only for “Failure to Truthfully Account for and Pay Over Trust Fund Taxes.” As readers likely know, employment taxes involve (i) the employer’s share due and payable by the employer and (ii) the employee’s share due and payable by the employee but collected and paid over by the employer. Only the employee’s share is trust fund tax. Trust fund is an important designation because those monies are deemed paid to the employee with the employer withholding, accounting for, and paying to the IRS to credit against the employee’s taxes. In truth, the defendants caused rFactr to fail to pay over both the employer’s and the employees’ shares of the employment tax. It is not clear to me why the indictment only charged for failure to account for and pay over only the employee’s share.

I think that the sentencing loss calculation included both the employer’s and employees’ shares of the employment tax. The employer’s share would have been includible to the loss calculation as relevant conduct. See Government Sentencing Memo, here, at p. 6-8.

3. Brasser tried to enter the IRS’s Voluntary Disclosure Program (“VDP”) and received an initial acceptance, pending completion of all the requirements of the program. There is no indication that he completed all the requirements of the VDP. In any event, it appears that, through the VDP, he only sought to absolve himself of potential liability for the trust fund share and did not address the employer’s share. It is a practice used by some responsible persons and their practitioners to try to resolve only the employees’ trust fund share on the notion that the responsible person is not personally liable civilly for the employer’s share. However that practice plays out, it certainly cannot relieve the responsible person of criminal liability for either portion of the employment tax.

4. Readers with acces to Law360 can access the following article: Anna Scott Farrell, Former IRS Official Criticizes CEO's Tax Prosecution (Law360 1/8/26).

Propublica Article on Trump's Pardon of Alleged Tax Cheat, Roger Ver (1/22/26)

noreply@blogger.com (Jack Townsend) — Thu, 22 Jan 2026 18:50:00 +0000

I wrote on the pardon of Roger Ver, the self-described Bitcoin Jesus who fled the country and renounced his U.S. citizenship rather than face justice for his alleged tax crimes. A Sad Event for the Country’s Criminal Tax Enforcement System (Federal Tax Crimes Blog 10/15/25), here. Propublica today offered a reasonably in depth article on Ver’s pardon. Avi Asher-Schapiro & Molly Redden, How “Bitcoin Jesus” Avoided Prison, Thanks to One of the “Friends of Trump” (Propublica 1/22/26), here.

I don’t think I can add anything that would be meaningful to readers of this blog. I just strongly recommend the article.

One minor quibble. The article quotes me but erroneously states that I am a former federal prosecutor. While with DOJ Tax, I was not a prosecutor; rather I handled civil tax appeals and the civil tax trials.

Court Denies Rule 33 Motion Based on Alleged (But Unproven) Potential and Actual Conflicts from Benefactor Payments (1/12/26)

noreply@blogger.com (Jack Townsend) — Mon, 12 Jan 2026 20:10:00 +0000

In United States v. Lemay (S.D. N.Y. No. 1:21-cr-00573 Opinion & Order dated 1/2/26), CL here, GS here, TN here, the Court denied the convicted defendant’s Rule 33 motion based on alleged ineffective assistance of counsel. Lemay and another defendant had been convicted in SDNY of conspiracy to defraud the U.S. under 18 USC 371. Lemay was originally indicted for tax evasion as well, but the evasion counts were severed and moved to New Jersey based on his residence. At the end of the SDNY trial, the Court denied a Rule 29 motion for judgment of acquittal. Shortly prior to sentencing, Lemay filed his Rule 33 motion. The Court then held an evidentiary hearing on the motion; this Opinion & Order is the result of the hearing.

The gravamen of the motion is that a person allegedly agreeing to pay Lemay’s costs of defense in the investigation and prosecution caused Lemay to have ineffective assistance of counsel because of conflicts created by that arrangement and the relationship of Lemay’s counsel (2 different attorneys, one in the investigation prior to the indictment and the other in the criminal trial) to other counsel for other targets or defendants with allegedly competing interests under an alleged joint defense agreement ("JDA"). The facts are more detailed and well worth reading by students and practitioners to see the types of problems that might arise when a defendant is represented by counsel being paid by someone else. The Court calls those arrangements “benefactor payments.” Lemay’s counsel (2 of them) targeted in Lemay’s claims denied Lemay’s claims. After holding an evidentiary hearing in which the Court observed and assessed the credibility of Lemay and other witnesses (including the 2 counsel), the Court rejected Lemay’s claims and denied the Rule 33 motion.

Some points:

1. Perhaps the major point is that, for some reason, Lemay’s counsel (2 of them) allegedly failed to meet the requirement of “The Court’s Individual Rule” that stated "[w]henever defense counsel has received, or will receive, a benefactor payment that subjects counsel to a conflict of interest, he or she must immediately inform the Court and request a Curcio hearing." (See Slip Op. 8.) The Curcio hearing is named for United States v. Curcio, 680 F.2d 881 (2d Cir. 1982), here. At a Curcio hearing, the court can consider the nature of any conflicts the attorney may have and advise a defendant of the risks of the conflict, determine that the defendant understands those risks through questioning, and "give the defendant time to digest and contemplate the risks after encouraging him or her to seek advice from independent counsel. For a good discussion of the Curcio hearing in the Second Circuit, see United States v. Arrington, 941 F. 3d 24, (2d Cir. 2019), here.

2. This case should impress upon students and practitioners the requirement to be thoroughly familiar with a particular court’s (judge’s) specialized rule, here called Individual Rules.

3. The arrangement that the 2 attorneys allegedly entered into with the other attorney with a client having allegedly competing interests was a “joint defense arrangement” or “joint defense agreement.” (Slip Op. 7, 11-12, 30, 31-32.) The opinion does not say whether JDAs were in writing. I think best practices are to have the agreement in writing to avoid the types of claims Lemay made. In any event, the written bills that Lemay should have read did refer to “joint defense” communications. (Slip Op. 12.)

4. The credibility determinations are at Slip Op. 29-30, 35. (The Court also noted that, for credibility reasons, at the hearing and at the preceding criminal trial, it assessed credibility to support the jury verdict. (Slip Op. 36-37.)

5. Lemay’s counsel on the Rule 29 motion apparently made some filings without leave of court. Bad form. (Slip Op. 4 & 5.)

More on the Goldstein Trial; Herein of Lying and Cheating, Good Guys and Bad Guys (1/10/26)

noreply@blogger.com (Jack Townsend) — Sat, 10 Jan 2026 21:40:00 +0000

I have written about the Tom Goldstein prosecution. Tom Goldstein--SCOTUSblog founder, Prominent Supreme Court Advocate, and High-Stakes Gambler--Indicted for Tax and Related Crimes and False Statements to Mortgage Lenders (Federal Tax Crimes Blog 1/17/25; 1/19/25), here; Two Recent Tax Crimes Cases Involving Bitcoin (Federal Tax Crimes Blog 1/19/25; 2/9/25), here; Free CourtListener Docket Sheet and Documents for Major Tax Crimes Case (Also Major White Collar Crimes Case) (Federal Tax Crimes Blog 7/3/25), here.

I offer a new article and some comments. The article is Holly Barker, Tom Goldstein’s Defense Hinges on Giving the Jury Good Guy Vibes (BloombergLaw 1/10/26), here. Key excerpts for purposes of this blog relate to the general tax crimes element of willfulness, which per Cheek is the voluntary intentional violation of a known legal duty.

Tom Goldstein—the former US Supreme Court advocate and blogger with a years-long ultra-high-stakes gambling habit—heads to trial Monday in a case that may turn on whether the jury thinks he’s “a good guy or a bad guy.”

          That’s from Goldstein himself.

          The government rejected that framing at Friday’s final pretrial conference: What the jury will decide is whether Goldstein is guilty of tax evasion and making false statements, prosecutor Sean Beatty said. But there might be something to Goldstein’s point.

          Tax cases generally require a showing of willfulness—the knowing and intentional violation of an understood legal duty. In theory, proving that willfulness or an absence of good faith can be difficult due to the confusing nature of the tax code. But the precise standard might not make a practical difference, said Jeff Neiman, a former Assistant US Attorney and founder of Neiman Mays Floch & Almeida.

          “The jury will either conclude that Mr. Goldstein is a liar and a cheater, or that he simply made mistakes that led to erroneous filings,” he said.

JAT Comments:

I am reminded of the Enron case involving complex special purpose vehicle accounting. I quote Neiman and that example in a prior blog entry as follows (DOJ Tax's Further Attempts to Drum Up Business / Revenue (Federal Tax Crimes Blog 12/26/09), here)::

5. Jeff Neiman, an AUSA for SD Florida who is prominently involved in these prosecutions, said that he wanted to "avoid technical tax issues." Sheppard paraphrased: "Whether the defendant is lying, cheating, and stealing is what the argument to the jury boils down to for Neiman." See my earlier blogs on The Lie. This statement echoes the theme of the Enron prosecutions: "This is a simple case. It is not about accounting. It is about lies and choices." John C. Hueston, Behind the Scenes of the Enron Trial: Creating Decisive Moments, 44 Am. Crim. L. Rev. 197, 207 (2007). See also Stuart P. Green, Lying, Cheating, and Stealing: A Moral Theory of White Collar Crime 246-48 (2006)

I think that is probably right. Juries understand lies and choices; they also understand good guy or bad guy; they may have some difficulty embracing and applying willfulness in the Cheek sense.

Brockman Civil Case with Civil Fraud Penalties Settled (12/26/25)

noreply@blogger.com (Jack Townsend) — Fri, 26 Dec 2025 21:41:00 +0000

I have written before on the Brockman multi-year tax evasion scheme. See here. Brockman was indicted but, before he could be tried, he died, thereby resolving the criminal case without a verdict of guilty or not guilty.

The civil case was settled with entry of the Tax Court decision in Brockman Estate v. Commissioner (T.C. Case No. 764-22 Dkt. # 33 Order Dtd. 12/23/25), here. The decision document addresses the deficiencies and civil fraud penalties under § 6663. As is the nature of decision documents, the decision document does not address the interest on the tax and the penalties. The principal amounts of deficiencies and penalty are major, aggregating $750 MM; the interest which I roughly calculate to 12/24/25 at $782MM brings the total due to over $1.5 billion. I prepared a spreadsheet which I offer for review and download here. (Note that the interest calculations are rough and ready but should be in the ballpark.)

One small error in the Tax Court decision document is that the 2006 civil fraud penalty (§ 6663) is stated as $35,00,000.00 which I infer to be $35,000,000.00.

Obviously, given the numbers in the spreadsheet there is a facial anomaly because for the years 2006 and 2015 the civil fraud penalty amount exceeds 75% of the deficiency. I suppose there can be an explanation. There was a jeopardy assessment which may have applied some of the tax, but more likely there may have been an advance payment(s) that reduced the deficiency amounts (but not the civil fraud penalty amount). I just have not dug into that issue.

This blog entry is cross-posted on my Federal Tax Procedure Blog here.

IRS Seeks Comments on Proposed Revisions to Voluntary Disclosure Procedure (12/23/25; 2/27/26)

noreply@blogger.com (Jack Townsend) — Tue, 23 Dec 2025 20:21:00 +0000

On December 22, 2025, the IRS opened a 90-day public comment period, ending March 22, 2026, for proposed updates to its Voluntary Disclosure Practice. See IRS seeks public comment on Voluntary Disclosure Practice proposal (12/22/25), here. The indicated updates are short, so I will not summarize them here.

I mention the items that drew my particular interest with some comments as appropriate:

1. Pay all applicable taxes, penalties, and interest in full within 3 months of conditional approval. Previously, as I understood it, the VDP permitted the taxpayer to undergo IRS processes for installment payments or perhaps even compromise. The update requires full payment.

2. As before “The disclosure period will generally cover the most recent six years for delinquent and amended returns (the “Disclosure Period”).”

3. Taxpayers must start the process by submitting “Form 14457, Voluntary Disclosure Practice Preclearance Request and Application” where they "identify all years of noncompliance and provide a full and accurate description of the taxpayer’s willful noncompliance.” Note that, as stated, the disclosure of all years is not limited to the “Disclosure Period” as defined. The Form 14457 is now required, so this is not a change. I mention it because the Form itself seems to tie the disclosures to the Disclosure Period. See e.g., Instructions for “Line 3. Tentative years for which you are making the disclosure. See infra regarding determination of disclosure period.” Is the IRS really going to require all periods of willful noncompliance, even if prior the noncompliance in the Disclosure Period and even outside the normal criminal statute of limitations of six-years. Maybe.

4. A reminder: The IRS revised Form 14457 in July 2025 to eliminate the checkbox requiring admission of willful conduct about the noncompliance reported. The instructions still state that the Form should be filed only to report willful conduct. I think the omission of the checkbox was to address concerns that, if for any reason the filing of the form did not eliminate the possibility of criminal prosecution, the mere filing of the Form with the checkbox checked could be used as an admission of willfulness in a criminal case. But I am not sure elimination of the checkbox solves the issue, for the 2025 Form still seems to limit its applicability to willful conduct. I have included a footnote in the working draft of the 2026 Practitioner Edition of my Federal Tax Procedure book illustrating examples of this point from the July 2025 Form:

Part II, 7. b. “Identify all individuals who aided in your willful noncompliance”
Part II, 7. c. “The noncompliance narrative must include a thorough and detailed discussion of all Title 26 and Title 31 willful failures to report income, pay tax, and submit all required information returns and reports.”
Instructions: “The IRS-CI VDP provides taxpayers whose conduct involved willful tax or tax-related noncompliance with a means to come into compliance with the tax law and avoid potential criminal prosecution.”
Instructions, “You should consider applying for the IRS-CI VDP if you engaged in willful noncompliance that exposes you to criminal liability for tax and tax-related crimes.”

5. A related issue might be that the disclosures in the Form might be used in any subsequent period criminal prosecution (although I suspect that the mere filing of the Form would show the taxpayer was aware of the legal duties). Filers and their practitioners should be aware of this problem, although only an incredibly stupid person would continue the conduct after the Disclosure Period. Still, I wonder if a statement that, nothing in the responses should be considered an admission of willful conduct in any criminal prosecution; the risk of such as statement is that it might be treated as the filer not having filed a proper Form, thus eliminating a claim that the filer should not be criminally prosecuted.

6. (added 2/27/26 2:00pm): The National Taxpayer Advocate has this post to remind those interested to comment on the IRS proposals and to offer some of her thoughts. The IRS Seeks Public Comment on Proposed Voluntary Disclosure Practice Changes – It’s a Start, But Is It Enough? Your Input Matters! (NTA Blog 2/26/26), here. One key comment noted regarding the change to dropping of a civil fraud penalty for one year to accuracy related penalties for up to six years:

The shift from the longstanding 75% civil fraud penalty to a 20% accuracy-related penalty is a meaningful and welcome change. I have long recommended that the IRS reassess whether the civil fraud penalty was overly severe and discouraged participation. Reducing the penalty should encourage more taxpayers to come forward. However, refinement is still needed. Depending on the facts, the cumulative 20% or FBAR penalties across six years could approach or even exceed what some taxpayers might have faced under the prior structure. The IRS should ensure the revised framework truly incentivizes participation rather than recreating similar deterrents in a different form.

This blog was cross-posted on the Federal Tax Procedure Blog here.

Interest in DOJ Tax Reunion/Wake for DOJ Tax Alumni (10/17/25)

noreply@blogger.com (Jack Townsend) — Fri, 17 Oct 2025 15:32:00 +0000

I am trying to assess interest among DOJ Tax Alumni for a Reunion/Wake for the Tax Division. Since some DOJ Tax Alumni read this blog, I offer this link to the blog post on the DOJ Tax Alumni Blog I maintain: Fillable On-Line Form to Assess Interest in DOJ Tax Alumni Reunion/Wake (10/7/25), here.

WSJ Article Reporting Possible Political Changes to IRS CI (10/16/25)

noreply@blogger.com (Jack Townsend) — Thu, 16 Oct 2025 15:24:00 +0000

Yesterday’s Wall Street Journal has an article about the Trump Administration’s alleged plan to weaponize IRS Criminal Investigation (“CI”). Brian Schwartz, Richard Rubin, and Joel Schectman, Trump Team Plans IRS Overhaul to Enable Pursuit of Left-Leaning Groups (WSJ 10/15/25), here [which requires a subscription to read].

The article reports that Trump Administration is preparing to make “sweeping changes” at the IRS by installing “allies of President Trump” at CI “to exert firmer control over the unit and weaken the involvement of IRS lawyers in criminal investigations.” The changes reportedly are “being driven by Gary Shapley, an adviser to Treasury Secretary Scott Bessent.”

The article reports on efforts to have the IRS investigate and revoke tax-exempt status for organizations, such as Harvard University, that do not bend the knee to Trump.

As respects CI, the article reports.

Shapley and those close to him are also proposing changes to the rules on how IRS criminal probes are conducted, according to people familiar with the matter. Attorneys from the IRS chief counsel’s office typically work with IRS-CI agents as they move through investigations, particularly for steps such as search warrants and bringing a case to the Justice Department for potential prosecutions. The Internal Revenue Manual, the agency’s procedure handbook, spells out the involvement of chief-counsel lawyers and the CI chief in criminal cases. It includes extra steps for sensitive cases, such as those involving federal elected officials and tax-exempt groups.

Shapley wants to change the manual so that the chief-counsel lawyers have less of a role, these people explained.

Some senior IRS criminal tax attorneys are already voicing concern about the methods of investigators while Trump encourages his administration to target donors and nonprofit groups, according to people familiar with the matter. Some of the criminal tax attorneys have privately argued against moving ahead with at least one case, with the argument it is vindictive prosecution and seems politically motivated.

Shapley has previously complained about the IRS criminal-tax attorneys’ work with IRS-CI agents. Criminal-tax counsel “is not a respected organization within IRS-CI,” Shapley said in a 2023 congressional hearing about the Hunter Biden probe.

My editorial comment is that CI is a respected branch of the IRS, or at least was before the Trump Administration. Further, Shapley, Wikipedia here, and Joseph Ziegler contributed to any disrespect of CI by turning political to attack President Biden and the Republican Special Counsel investigating Hunter Biden.

Of course, this type of initiative would generate lots of work for private attorneys that have a criminal tax practice. I have done criminal tax work for years, but am now pretty much retired, although I continue to follow what is going on and write on criminal tax topics.

Stepping back from any personal interest I may have, this is really scary if the article is anywhere near accurate. The future credibility and effectiveness of CI to serve its mission of undergirding the tax system will be severely damaged.

I am reminded of the person who, I think, caused me to be hired at DOJ Tax Division, Johnnie M. Walters, who was then AAG Tax and thereafter continued his interest in my career. From 1971 through 1973, Walters served as Commissioner of Internal Revenue. The key event from his service as Commissioner is described in his Wikipedia page here:

Nixon appointed him [Walters] as Internal Revenue Commissioner, to replace Randolph W. Thrower, who had been fired for resisting attempts by the administration to order tax audits or obtain tax records on Nixon's political opponents. In 1972, three months after the Watergate break-in, Nixon's White House Counsel John Dean gave Walters a list of "enemies" and told him to order IRS investigations on them. Instead, Walters put the list in an envelope, sealed it, and locked in his safe, after obtaining permission to do nothing from his superior, Secretary of the Treasury George Shultz. Walters later commented, "By refusing to implement the request we preserved our tax system and also kept me out of jail." A few months later, after knowledge of the list became public, he turned the still-sealed envelope over to the executive director of the Congressional Joint Tax Committee.

If only we had now Presidential appointees and underlings with the integrity of Johnnie Walters. I hope Treasury Secretary Bessent will rise to this occasion (if the WSJ report is correct). Bessent did right in removing Shapley as Acting Commissioner of Internal Revenue after Shapley served just a few days. Hopefully, Bessent will also take a cue from Treasury Secretary Schulz and stymy this reported travesty.

A Sad Event for the Country’s Criminal Tax Enforcement System (10/15/25)

noreply@blogger.com (Jack Townsend) — Wed, 15 Oct 2025 20:47:00 +0000

I today write on what to me is a very sad story for our country. Roger Ver, a crypto mogul and tax evader (by his admission in the story I tell here), just bought his way out of charged tax crimes by the amounts (tax, penalties, and interest) he already owed the Government for the charged years. (There is no indication that he will pay anything for uncharged years for which the civil statute of limitations would be open if civil fraud was involved (which he did not admit under the plea agreement), nor is there any agreement that he will be required to cooperate in the determination and payment of tax liability for any other years). In other words, he bought his way out of a criminal indictment and prosecution by paying what he admitted he owed. Worse, there is more to the story as I tell below.

The key documents are

The plea agreement, here.
The DOJ Press Release, here, which says in part:

“We are pleased that Mr. Ver has taken responsibility for his past misconduct and satisfied his obligations to the American public. This resolution sends a clear message: whether you deal in dollars or digital assets, you must file accurate tax returns and pay what you owe,” said Associate Deputy Attorney General Ketan D. Bhirud.

“Mr. Ver is accepting responsibility for his actions and has agreed to pay a substantial penalty,” said Acting United States Attorney Bill Essayli of the Central District of California. “Every person, whether you’re a millionaire or not, is required by law to pay taxes and we will not hesitate to hold anyone accountable.”

“Today’s resolution demonstrates that there are consequences for those who intentionally conceal their assets and evade their tax obligations,” said Kareem Carter, Executive Special Agent in Charge. “No matter how sophisticated the technology or the asset, IRS-CI will continue to follow the money, ensure compliance, and protect the integrity of our tax system.”

The NYT article here that offers some key background including the following key paragraphs:

The case is poised to become the latest example of how the Trump administration has systematically dismantled a yearslong government crackdown on the crypto industry, a sector rife with fraud, scams and theft.

Like other beneficiaries of the rollback, Mr. Ver sought to curry favor with President Trump by linking his case to the president’s grievances about the weaponization of the justice system.
This year, Mr. Ver paid $600,000 to Roger Stone, a longtime associate of Mr. Trump, to try to abolish the tax provisions at the heart of the case. And the crypto investor hired David Schoen, a lawyer who represented Mr. Trump during his second impeachment trial. Lobbying filings show that Mr. Ver also hired Christopher M. Kise, a lawyer who defended Mr. Trump against various criminal and civil charges, as well as the lobbying firm run by Brian Ballard, a major Trump fund-raiser.

I am not so much concerned about the effect on crypto criminal enforcement, because that is not my “beat,” so to speak. I am concerned about the message it sends to tax cheats. By acting while the Trump administration is in power and, by engaging friends of DJT, one can get out of jail free by paying the taxes, penalties, and interest otherwise owed.

How about charged tax cheats who cannot pay the costs of engaging friends of DJT? They will have to just suffer criminal prosecutions, incarcerations if convicted, and payment of the tax, penalties, and interest they owed.

Of course, this is in line with Trump’s pardon of the January 6 convicted defendants. Actually, the January 6 convicted defendants now pardoned may get off better because they are being forgiven or returned the restitution ordered as a result of their convictions. E.g.,. Kyle Cheney, Judge reluctantly authorizes refund of restitution paid by Jan. 6 rioter (Politico 8/28/25), here. On a timely related topic, the Supreme Court just held argument yesterday on whether restitution under the Mandatory Victims Restitution Act is a criminal punishment or, as the name restitution implies, compensatory to victims (the IRS (standing for all taxpayers in the U.S.) is a victim in tax crimes). See Ronald Mann, Justices debate whether restitution imposed on convicts is criminal, civil, or perhaps a little of both (SCOTUSBlog 10/15/25), here. There are technical arguments in the case, but the general concept of restitution is to compensate victims for the harm resulting from the criminal conduct.

In any event, why couldn’t Hunter Biden be released from his tax charges by paying the amounts due rather than having to rely upon a pardon? And, on the subject of Hunter Biden, in my mind he was just a tax cheat at worst (from DJT's claims); he was not a person who committed acts as morally repulsive to our country's fabric as the January 6 defendants who Trump praises and has pardoned.

And, at least while the Trump administration is in, how do attorneys answer their clients’ inevitable question as to whether the criminal tax investigation and/or prosecution can go away simply by paying the tax, penalties, and interest? (Every person I have represented in a criminal tax investigation has asked that question.) The answer seems to be to engage the right persons that Trump likes, pay them lots of money (premiums for their relationship with Trump and his minions), and avoid the criminal punishment consequences of their criminal conduct. Shameful.

Sure, Ver admitted to being a tax cheat (without the criminal and related consequences of being a tax cheat). But, in the hidden crypto eco-sphere that is likely to make him a hero and encourage others in the eco-sphere to commit tax crimes and commit other crimes that crypto's anonymity will help avoid discovery.

One question I have is whether this "deal" could have been obtained when the DOJ Tax Division were still in place? The plea agreement is signed by Mathew J. Kluge formerly with the Tax Division but is not identified as with the Tax Division on the plea agreement or on the DOJ Public Announcement of the deal.

10th Circuit Reverses on Defraud/Klein conspiracy instruction and Advice of Counsel Instruction, with Reminder on Limitations of Pattern Jury Instructions (9/4/25; 9/7/25)

noreply@blogger.com (Jack Townsend) — Thu, 04 Sep 2025 18:02:00 +0000

See discussion added at end on 9/5/25 @ 11:30 am.

In United States v. Kearney, ___ F.4th ___ (10th Cir. 9/2/25), CA10 here and GS here [to come], the Court held that the trial court erred in two jury instructions: (i) the trial court instructed the jury on the uncharged offense conspiracy rather than the charged defraud conspiracy; and (ii) the trial court did not include the conspiracy charge in the advice-of-counsel defense instruction. Both errors required a remand for further proceedings.

Both holdings are not particularly exceptional. The first holding does offer an opportunity to remind readers of the difference between the two types of conspiracy criminalized by 18 USC § 371, here, helpfully titled “Conspiracy to commit offense or to defraud United States.” The two types of conspiracy are thus often identified as the offense conspiracy and the defraud conspiracy. The offense conspiracy is a conspiracy to commit a specific offense. The defraud conspiracy is a conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” But defraud, as interpreted, has a special meaning for the defraud conspiracy. The word “fraud” and its counterpart “defraud” normally requires an object to obtain money or property by fraudulent means. Fraud for purposes of the defraud conspiracy includes that object but also includes an object to impair or impede the lawful functioning of a government agency, here the IRS. (When charged with the latter object (impair or impede), the defraud conspiracy is often referred to as a Klein conspiracy, named after United States v. Klein, 247 F.2d 908 (2d Cir. 1957).) I have written on the defraud/Klein Conspiracy and its textual problem. The following is my most recent foray into the subject: Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (Federal Tax Crimes Blog 8/3/24; 8/6/24), here (citing a prior article and blogs).

But, for this blog, accept the defraud conspiracy as it is now; it does not require what we normally think of as fraud with a monetary or property object but can include an object “to interfere with or obstruct one of its lawful governmental functions by deceit, craft[,] or trickery, or at least by means that are dishonest.” Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), quoted in Kearney at Slip Op. 8.

The problem in Kearney was that, at the Government’s invitation at trial, the court instructed the jury based on the 10^th Circuit’s pattern jury instruction describing the offense conspiracy which was not charged. Kearney was charged with and convicted for the defraud conspiracy which, the 10^th Circuit panel holds should have included the limiting language from Hammerschmidt quoted above.

The Government requested the offense conspiracy instruction based on the 10^th Circuit’s Pattern Jury Instructions. The 2025 version of the pattern jury instructions is here (see Instruction 2.19 CONSPIRACY 18 U.S.C. § 371). That pattern instruction is for the offense conspiracy without any discussion of the defraud conspiracy, a discussion which, if included, might have timely alerted the parties and the judge as to the problem with the offense conspiracy instruction. (In fairness, Kearney’s attorney realized the problem and proposed a variation instruction.)

The Court offers this helpful discussion on the limitations of pattern jury instructions (Slip Op. 12-13):

To be sure, the district court used this circuit’s pattern instruction on § 371 conspiracies, which typically “weighs against a finding of plain error.” United States v. Kepler, 74 F.4th 1292, 1315 (10th Cir. 2023). But pattern instructions are merely a guide. See Tenth Cir. Crim. Pattern Jury Instrs. Introductory Note (“The Committee’s approach was to generate generic minimalist instructions that would be tailored to individual cases.”); United States v. Freeman, 70 F.4th 1265, 1280 n.13 (10th Cir. 2023) (noting that “pattern instructions are merely intended to serve as a guide” and suggesting that, where Tenth Circuit has not issued pattern instruction for offense, parties may need “to select alternate formulations” of offense elements). And the pattern instruction in this instance not only fails to account for the two kinds of conspiracies in § 371, it doesn’t describe the charged offense at all. See Tenth Cir. Crim. Pattern Jury Instrs. § 2.19 at 98 (2025). Given the statute’s plain language, the error in using the pattern instruction on conspiracy to violate the law for a charge of conspiracy to defraud was also plain.

I have previously discussed pattern jury instructions and their limitations based on the particular facts and charges in actual cases. E.g., More on Defraud Conspiracy as Requiring Object to Obtain Money or Property (Federal Tax Crimes Blog 5/11/20), here (at JAT Comment #3); and Court of Appeals Rejects Arguments that Instructions on Willfulness and Good Faith Were Reversible Error (Federal Tax Crimes Blog 7/16/14), here (at JAT Comment #2).

I spent some time looking through the trial level docket entries (CL here) for the case to figure out the parties’ respective positions on the jury instructions. The Government proffered jury instructions based on the 10^th Circuit Pattern Instruction for conspiracy, which, as noted above was for the offense conspiracy. Kearney offered a revised version that noted the requirement of an “intent to deceive” the IRS. The trial court gave the pattern jury instruction requested by the Government. After conviction, Kearney’s attorneys filed a motion for new trial. At a hearing on that motion, the Court (Dkt entry 165):

Court ordered Defendant Victor Kearney to submit: (i) the language he would have preferred the Court to have used in its Conspiracy element instruction; and (ii) citations to the docket or trial transcript that show how and where Kearney raised his Klein conspiracy argument before or during trial. The Court also ordered the United States to consult its appellate lawyers and submit a letter to the Court addressing: (i) whether the appellate lawyers are prepared to defend the Court's Conspiracy instruction on appeal; and (ii) whether they would confess error on appeal.

The problem was thus identified and recognized by the trial court, albeit after trial. After receiving submissions by the Government and by Kearney, the trial court then denied Kearney’s Motion for New Trial. The 64 page order is here (recounting the pre-trial submissions on the conspiracy and advice-of-counsel instruction, and other matters).

I don’t know that readers will benefit by going deeper into the trial level proceedings related to the issue. Those interested can further explore at the links provided above.

This is yet another reminder that pattern jury instructions are just a starting point and should be tailored by the trial court, with assistance from the attorneys, to the particular facts and law of the case.

I also remind readers that the DOJ Criminal Tax Manual offers proposed jury instructions here. The proposals in relevant part are: (1) that prosecutors not charge an offense and defraud conspiracy in “in the same count or indictment” because “rarely necessary and tends to unduly complicate the trial, especially with respect to the jury instructions.” (Id at 30 n. 1 and 45 n. 1.) Further, the following is offered for the defraud conspiracy charge in the 9^th Circuit:

n1 Prosecutors charging Klein conspiracies in the Ninth Circuit should be aware of United States v. Caldwell, 989 F.2d 1056 (9th Cir. 1993). The first element of the jury instruction should read:
First, [beginning on or about ____ and ending on or about ____] [starting sometime before ____] there was an agreement between two or more persons to defraud the United States by cheating the government out of money, [such as income tax payments, or property] and also an agreement [JI-22] to defraud the United States that involved the impairing, impeding, obstructing, or defeating of the lawful functions of an agency of the government, such as the IRS, by deceit, craft, trickery, or means that are dishonest. Caldwell, 989 F.2d at 1060.

I would think that is the type of charge that should be recommended in all Circuits, certainly in the 10^th Circuit after Kearney.

Finally, I have to wonder whether the Government's request for the offense conspiracy instruction resulted from the trial proceedings being handled by the USAO rather than DOJ Tax CES. I don't think it is fair to speculate on that. But this type of error might have been avoided by attorneys with more specialized criminal tax experience, particularly since the defraud/Klein conspiracy is charged so often in criminal tax cases and DOJ Tax CES would likely have had more familiarity with the Criminal Tax Manual discussion of the issues (albeit limiting the discussion to the Ninth Circuit). DOJ Tax CES attorneys would have certainly known that the pattern jury instruction for the offense conspiracy was not the proper instruction for the offense conspiracy.

Added 9/5/25 11:30am:

I thought it appropriate to add a comment about the “remand for further proceedings.” (Slip Op. 19.) According to the Judgment entered in the trial court here, the following are the Counts of Conviction:

One Count for Conspiracy to Violate 26 U.S.C. Sec. 7206(2); and
One Count for “Making and Subscribing False Return, Statement, or Other Document,” 26 USC 7206(1).

These Counts of Conviction raise the following issues:

1. It is not clear why the Judgment indicates the conspiracy conviction was for an offense conspiracy. The 10^th Circuit opinion is predicated on the conviction having been for a defraud conspiracy rather than an offense conspiracy. There is nothing otherwise in the Jury Verdict here or the Judgment that addresses the issue. And, of course, the jury instructions addressed in the 10th Circuit opinion relate to an offense conspiracy. At least by the time of the Judgment (after acting on the Motion for New Trial), the sentencing judge should have been fully aware of the important difference between the two and that the indictment charged a defraud conspiracy and hence that the conviction should have been for a defraud conspiracy.

2. The 10^th Circuit opinion says Kearney’s substantive count of conviction was for § 7206(2); the actual judgment (linked above) and the jury verdict (linked above) say the substantive count conviction is for § 7206(1). I have not tried to track down why that discrepancy happened.

3. For the substantive count of conviction (whether § 7206(1) or § 7206(2)), the maximum sentence is 3 years (i.e., 36 months). Kearney was sentenced to 27 months incarceration on the two counts of conviction, to run concurrently. (See Judgment linked above.) That means that, even though the conspiracy conviction is reversed for further proceedings, the substantive count conviction may be all that is needed to continue the sentence as originally imposed. So, further proceedings, other than to vacate the conspiracy count of conviction may not be necessary. And, if there is a reconsideration of the sentence, the court could consider the conduct underlying the defraud conspiracy count as relevant conduct in further justifying the 27 month sentence for the remaining single count of conviction. In this regard, readers should recall that acquitted conduct can no longer be considered as relevant conduct in sentencing, but the conspiracy count remand is not an acqittal. See Sentencing Guidelines Amendment Eliminates Acquitted Conduct from Sentencing Calculations (Federal Tax Crimes Blog 6/6/24; 6/11/24), here.

4. The foregoing suggests that, since Kearney did not contest his substantive count of conviction under § 7206(1), it is not at all clear what exactly he hoped to gain by appealing only the conspiracy issue and the advice of counsel defense related to the conspiracy issue.

Added 9/7/25 2:45 pm.

I just picked up this discussion of the Kearney 10^th Circuit opinion: Klein Conspiracies Require “Deceitful or Dishonest Means” and Advice-of-Counsel Must Be Instructed Across Counts: United States v. Kearney (10th Cir. 2025), Casemine 9/4/25, here. It is detailed and somewhat repetitive. (I speculate that it may have been generated by AI.) Still, for those new to the area, it covers some of the key themes of the case.

Third Circuit Holds Tax Taxpayer Fraud is not Required for 6501(c)(1) Unlimited Statute of Limitations, Creating Conflict (8/18/25; 10/22/25)

noreply@blogger.com (Jack Townsend) — Mon, 18 Aug 2025 22:43:00 +0000

Added 10/22/25 @ 3:40pm: On October 17, 2025, the Third Circuit denied rehearing and rehearing en banc and issued a revised opinion in Murrin v. Commissioner, ___ F.4th ___ (3rd Cir. 10/17/25), CA3 here and GS here. The revised opinion reaches the same result as the earlier opinion--fraud on the return permits the unlimited statute of limitations regardless of whether or not it is the taxpayer's fraud. I have not analyzed the opinion to see where precisely the changes were. The opinion is a straight-foward textualist reading of the Code provision. It is apparent that, as with the original opinion, the author is not that familiar with tax procedure. (See e.g., p. 4 n. 1, basically same as original opinion.)

In Murrin v. Commissioner, ___ F.4th ___ (3rd Cir. 8/18/25), CA3 here and TN here, the Court held that the §6501(c)(1), here, unlimited statute of limitations applying "In the case of a false or fraudulent return with the intent to evade tax" applies even without the taxpayer's personal fraud. The opinion is a straightforward textualist interpretation of the governing statute. Since the opinion is relatively short, I am not sure my nitpicking (aka pontificating) over the reasoning and specific text would be helpful to readers of this Blog, most of whom are already familiar with the issue.

In the event my thoughts may be helpful, I link here first my prior blogs generated by the search terms "allen fraud limitations" which picks up the blogs that discussed the issue. (If you click that link, the returns are first in some relevance scoring of the content order for the terms but there is a link to put them in reverse date order.) The more recent blog discussions that I think may be most helpful to readers wanting more than offered in Murrin are:

On the Tax Court decision in Murrin: Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations (Federal Tax Procedure Blog 1/25/24; 2/5/24), here (where I discuss and link Professor Bryan Camp's discussion of the Tax Court opinion in Murrin) (those reading the Third Circuit opinion in Murrin will see that Professor Camp filed an amicus in favor of the taxpayer's position).
On BASR P’ship v. United States, 795 F.3d 1338 (Fed. Cir. 2015), which Murrin conflicts (Murrin substantially adopts the dissenting opinion in BASR), I did not write a separate blog on the BASR opinion, but I wrote one on the court awarding attorneys fees under § 7430: Major Attorneys Fee Award for BASR Partnership Prevailing on the Allen Issue in Federal Circuit (Federal Tax Procedure Blog 2/11/17), here. This conflict certainly insures a petition for cert by Murrin. I suspect that there may be a flurry of amicus briefs on the petition and, if cert is granted, on the merits briefing because a lot of wealthy taxpayers investing in fraudulent taxpayers have a dog in the hunt, so to speak.
On City Wide Transit, Inc. v. Commissioner, 709 F.3d 102 (2d Cir. 2013) discussed in Murrin: Second Circuit Holds That Fraud on the Return -- Even If Not the Taxpayer's -- Causes an Unlimited Civil Assessment Statute of Limitations to Apply (Federal Tax Procedure Blog 2/4/13), here.
My early venture into the subject discussing an important extension of a holding that the taxpayer's fraud is not required if the return is fraudulent: Civil Tax Statute of Limitations for Fraudulent Tax Shelters (Federal Tax Procedure Blog 12/19/09), here.

This blog entry is cross-posted on the Federal Tax Procedure Blog, here.