Federal Tax Crimes

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 [to come]. 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.

Court of Appeals Reverses on Statute of Limitations Grounds for Failure Foreign Evidence Tolling Under 18 USC § 3292(a)(1) and For Resentencing (8/13/25)

noreply@blogger.com (Jack Townsend) — Wed, 13 Aug 2025 18:52:00 +0000

In United States v. Gyetvay, 149 F.4th 1213 (11th Cir. 2025), 11th Cir. here amd GS here. the Court

reversed Gyetvay’s convictions in Counts 11 and 12 for Willfully Failing to File Tax Returns for the years 2013 and 2014;
otherwise sustained on the counts of conviction; and
remanded for re-sentencing without the reversed Counts and for restitution.

I provide the following chart to show what the Court of Appeals did and the possibility of retrial on the Counts for which the jury hung. I then provide some commentary below the chart.

Counts	Charge	Sentence Max	Jury Verdict	Court of Appeals	Retrial
1-3	Aiding or Assisting § 7206(2) years 2006, 2007, 2008	9 years (3 years on each count)	Hung		Yes
4-6	Tax Evasion § 7201 Years 2007, 2008, 2009	15 years (5 years each count)	Hung		Yes
7-9	Willfully Failing to File § 7203 Years 2010, 2011, 2012,	3 years (1 year each count)	Hung		No - Foreclosed by reversal of convictions on Counts 10 & 11.
10 & 11	Willfully Failing to File § 7203 Years 2013, 2014	2 years (1 year each count)	Guilty	Reversed – Statute of Limitations was not tolled under 18 USC § 3292(a)(1)	No
12	Willfully Making False Statements on Streamlined Procedures Certification 18 USC § 1001 & 2	5 years	Guilty	Did Not Appeal, but vacates restitution order based on this Count	Re-sentencing
13	Willfully Failing to File FBAR - 31 USC. §§ 5314 & 5322(a); 31 C.F.R. §§ 1010.350, 1010.306(c)-(d) and 1010.840(b) Year 2014	5 years	Guilty	Affirmed	No
14	Wire Fraud Year 2014	20 years	Acquitted	Govt did not appeal	No
15	Wire Fraud No year	20 years	Hung		Yes

JAT Comments:

1. The docket entries and many of the key documents at the trial level are on the CourtListener free access page here. The key documents for purposes of this discussion are:

CourtListener Docket Entries, here.
Jury Verdict (Not available through Courtlistener but available here).
Order (Doc 281, dated 7/2/23 ), here, in relevant part granting extension of time to retry the hung counts after the appeal is concluded.
Government Sentencing Memo (Doc. 290 dated 9/15/23), here.
Gyetvay’s Sentencing Memo (Doc. 293, dated 9/17/23), here.
Judgment (Doc. 300, dated 9/26/23), here.

Note: The transcript where the court discusses his reasons for the sentence imposed is not available on PACER and thus is not available on CourtListener.

2, The most immediate question is whether Gyetvay can get some reduction in originally imposed incarceration of 86 months from re-sentencing upon remand. That may depend upon whether the Government decides to re-try some or all of the hung counts (except the §7203 hung counts (Counts 7-9) which are likely foreclosed by the reversal of the §7203 counts of conviction (Counts 10 & 11)); I discuss retrial on the hung counts in paragraph 3 below. As for resentencing if there is no retrial of the hung counts, basically, as I understand the Court of Appeals opinion (F.4th at 1238-1244), resentencing is not likely to affect the sentencing factors because the district court did not rely for sentencing upon the §7203 hung or convicted counts. I think the district court relied upon the count for conviction for FBAR failure to file plus the “relevant conduct” for uncharged FBAR failures to file. I have not fully chased that down, so I qualify that the conclusion is my best guess without complete information. If that is right, though Gyetvay’s major goal on appeal for incarceration relief may not be realized even if the Government does not retry the hung counts.

3. An important issue is whether the Government will retry the hung jury counts (other than the §7203 failure to file hung counts). In granting speedy trial extension, the Court quoted the Government likely would not retry if Gyetvay’s “convictions and sentence are undisturbed on appeal,” (See Order Slip Op. 7.) As noted above, the convictions and sentence were “disturbed on appeal,” but likely not in a way that will materially affect Gyetvay’s bottom line sentence of incarceration. So, I have to think that the Government may not retry the hung jury counts unless the restitution that can be imposed is significantly less than originally imposed. Then, of course, the parties could negotiate some restitution that is mutually acceptable to avoid a retrial.

4. Although the Court cites the applicable Guidelines as permitting consideration of acquitted counts (F.4th at 1239), the Guidelines have since been changed to eliminate acquitted counts from the calculations. Sentencing Guidelines Amendment Eliminates Acquitted Conduct from Sentencing Calculations (Federal Tax Procedure Blog 6/6/24; 6/11/24), here.

Free CourtListener Docket Sheet and Documents for Major Tax Crimes Case (Also Major White Collar Crimes Case) (7/3/25)

noreply@blogger.com (Jack Townsend) — Fri, 04 Jul 2025 01:41:00 +0000

I write to inform principally students and young lawyers of a case with documents that can educate in both tax crimes and white collar crimes. The case is United States v. Goldstein (D. Md. No. 8:25-cr-00006), with free access to docket entries on CourtListener, here. CourtListener has the docket entries but offers free access to a document only after the first CourtListener member retrieves the document from PACER, a paid service. For a case of this notoriety, most of the important documents will have been so retrieved and are available free.

Although I have only looked at some of the documents that interest me, I think the quality of lawyering is very good. Furthermore, tax crimes are white-collar crimes in a tax setting. Hence, the documents (which are many) are often hashing out themes that will be of interest to lawyers and students of white -collar crimes.

I recommend that those interested review the CourtListener document entries and review the documents that you find interesting.

You can also do a search of the CourtListener Recap Archive which has docket sheets and documents for all federal cases. The Recap Archive with case search features is here and looks like this:

Finally, CourtListener is a good resource. The home page is here. It is free to join and relies on donations. In my practice and writing, I use CourtListener a lot.

There are other similar free services, but this is the one I use. I'm not saying that it is the best, but it is my go-to source for court documents.

Update on IRS Form 11457 for Voluntary Disclosure in IRS VDP (6/30/25)

noreply@blogger.com (Jack Townsend) — Mon, 30 Jun 2025 14:47:00 +0000

The National Taxpayer Advocate announced that, at her urging, the IRS has agreed:

1. to eliminate the Part II (complete upon acceptance into the VDP) checkbox

2. to establish a “working group to comprehensively review the current VDP, provide recommendations for reforming the program, narrow the definition of illegal source income to encourage greater participation in the VDP, and clarify other terms.”

See Criminal VDP: TAS Reports a Win For Taxpayers – IRS Agrees to Remove Willfulness Checkbox on VDP Application Form (NTA Blog 6/24/25), here.

I revised the working draft of the Federal Tax Procedure 2025 Editions (to be published at least by early August 2025) to include this information. Perhaps the key issues I mention in the working draft are:

• As of the date of this publication, the Form available on the IRS website is dated 11/12/24 and thus does not yet implement that decision. Can a taxpayer in the meantime omit checking the box in the currently available Form?;

• Will the IRS revise or eliminate the other instructions about willfulness in Part I and Part II (see the discussion of the willful requirement in paragraph 1 above)?; JAT editorial comment: I speculate that the IRS will try to limit submissions to those taxpayers with real prosecution risk, so may carefully word the Form to eliminate only the specific admission of willfulness; taxpayers and their counsel should consider carefully how the narrative discussions are presented;

• Relatedly, the IRS also agreed to establish a “working group to comprehensively review the current VDP, provide recommendations for reforming the program, narrow the definition of illegal source income to encourage greater participation in the VDP, and clarify other terms.” It is not clear whether the IRS will delay revising the Form until the working group’s recommendations are available.

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

AG Bondi and President Trump Violate Precepts of Criminal Justice that DOJ Tax Knows and Gets Right (6/8/25)

noreply@blogger.com (Jack Townsend) — Sun, 08 Jun 2025 15:49:00 +0000

I write today on a basic premise of the criminal justice system that Trump and his minions have misrepresented in a malevolent way. I contrast those misrepresentations with the way DOJ Tax Division (and other DOJ components) act more responsibly.

Attorney General Pam Bond is quoted in several news articles, including ABC News quoted here, except that I bold-face for emphasis):

"The grand jury found that over the past nine years, Abrego Garcia has played a significant role in an alien smuggling ring," Bondi said. "They found this was his full time job, not a contractor. He was a smuggler of humans and children and women. He made over 100 trips, the grand jury found, smuggling people throughout our country."

Abrego Garcia's indictment was the pretext for obtaining his return from El Salvador that the courts have ordered for some time now.

As all readers of this blog know (I hope), an indictment is not a finding of guilt nor is it a finding of any fact such as proclaimed publicly by AG Bondi. Grand juries only determine probable cause to indict–a significantly lesser standard than beyond a reasonable doubt (the standard for finding guilt of a crime)--and indictments do not require unanimity as required in criminal trials.

When done right, as DOJ Tax routinely does, the announcement of any indictment always includes:

An indictment is merely an allegation. All defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

See, e.g., here.

Further, as to the role of grand juries in the system, AG Bondi should acquaint herself with the relevant provisions of the DOJ's Justice Manual that all DOJ attorneys, including the AG, must know and follow (except in her case she may not know or follow):

Title 9: Criminal, 9-11.000 - Grand Jury, here

AG Bondi might also acquaint herself with AG Robert Jackson's (later Supreme Court Justice) famous statement on "The Federal Prosecutor," posted on DOJ's website here.

In contrast to AG Bondi, the senior federal prosecutor in the district where the indictment was obtained reportedly resigned because the indictment was seen as a political action rather than a justice action. E.g., Chief Prosecutor Resigned Over Kilmar Abrego Garcia Indictment, Feared Case Pursued for 'Political Reasons': Report (Mediaite 6/7/25) here.

I repeat another truism, although perhaps somewhat hyperbolical, that a prosecutor can influence a grand jury to indict a ham sandwich. See, e.g., Wiktionary (here). Google's AI tool Gemini says:

AI Overview
The phrase "indict a ham sandwich" is a legal idiom, not a literal description of a food crime. It's a humorous way to describe the ease with which prosecutors can secure indictments from a grand jury, even when the evidence is weak or flimsy. It highlights the low bar for probable cause required to obtain an indictment.
Explanation:
Grand Jury:
In many legal systems, a grand jury is a group of citizens who decide whether there is enough evidence to formally charge someone with a crime.
Indictment:
An indictment is a formal charge brought by a grand jury against someone, indicating that there is enough evidence to proceed with a trial.
Probable Cause:
The standard for obtaining an indictment is "probable cause," meaning that there is a reasonable belief that a crime has been committed.
The Saying's Meaning:
The phrase "indict a ham sandwich" suggests that a prosecutor can persuade a grand jury to issue an indictment even on the slightest of evidence or with no real evidence at all.
Sol Wachtler:
The phrase is famously attributed to former New York state chief judge Sol Wachtler, who said that a good prosecutor could "indict a ham sandwich," highlighting his view on the ease with which grand juries were influenced by prosecutors.

Finally, President Trump has improperly proclaimed the guilt of Abrego Garcia publicly. E.g., Zach LaChance, Trump confident about 'very easy' case against Abrego Garcia (Washington Examiner 6/7/25), here. Again, I turn to Google's AI Gemini, asking the question whether the President should be commenting on criminal cases:

AI Overview
No, the President should not comment on the guilt of a defendant before a trial. Doing so can undermine the fairness of the trial by potentially influencing the jury or judge, as well as violating the principle of presumption of innocence.
Here's why:
Presumption of Innocence:
Everyone is presumed innocent until proven guilty in a court of law. The President's comments could sway public opinion and undermine this presumption, even before the trial begins.
Potential for Bias:
The President's comments, especially if they are strong opinions, could create a biased environment for the jury or judge. This could make it difficult for them to remain impartial and reach a fair verdict based solely on the evidence presented in court.
Impact on Jury Selection:
If the President's comments are widely publicized, it could make it difficult to find a fair and unbiased jury. Potential jurors might have already formed an opinion based on the President's statements.
Conflict with the Judicial Process:
The judicial system is designed to ensure a fair and impartial trial. The President's comments could interfere with this process and undermine the integrity of the courts.
In essence, the President's role is not to be a judge or jury. Their comments could prejudice the trial and potentially lead to an unfair outcome. The judicial process should be allowed to run its course without undue outside influence.

To summarize, DOJ Tax knows how to do it right; Trump and his minions either don't know or don't care.

Conflicting Statutes of Limitations for Regular Tax Assessments and Restitution-Based Assessments (4/27/25)

noreply@blogger.com (Jack Townsend) — Sun, 27 Apr 2025 20:46:00 +0000

In United States v. Brown (W.D. WA Case No. 24-cv-05021 Dkt. No. 38 Order dated 4/21/25), GS here and CL here, the Court upheld the validity of a restitution-based assessment (“RBA”) against Brown that was for the same tax that had been previously assessed against Brown. (For prior Blogs on RBAs on the Federal Tax Crimes Blog, see here, and on the Federal Tax Procedure Blog, here.) For clarity, I will differentiate the two assessments by calling the first-in-time assessment, the regular assessment and the second-in-time assessment the RBA. The reason that was even an issue was because Brown never fully paid the regular assessment and the 10-year statute of limitations to collect any balance on the regular assessment (by reducing to judgment) had expired. Brown claimed that, since the statute of limitations on the regular assessment had expired, thus preventing the IRS from claiming on that regular assessment, the IRS could not end-run the regular assessment statute of limitations based on the RBA assessment. At least that is how I understand Brown’s claim that the court rejected, thus permitting the government to reduce the RBA to judgment and use the RBA extended statute of limitations to collect (including further extending the statute of limitations).

I think the court properly gives a good textual reading of the applicable statutory provisions. I am concerned that the decision may not be consistent with the purpose or intent of the statute. (For a textualist, purpose or intent may not matter.) Although I have not filtered back through the legislative history, my understanding of the purpose of the RBA was to avoid requiring the IRS to jump through assessment hoops for tax ordered as restitution. In other words, it was to permit the IRS to make an immediate assessment where it had not assessed before. (Stated otherwise, it was not to give the IRS two independent assessments to collect. The Code provisions do not say that, but that is my understanding of the need for an RBA. If the tax later subject to restitution had already been assessed, there would be no need for an RBA. And the IRS could deal with an expiring statute of limitations on the regular assessment by simply reducing the regular assessment to judgment, thereby refreshing the statute of limitations.

It is true that § 6501 says that § 6501(c)(1) says: “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.” But, at a minimum, that would only apply where there was no regular assessment and presumably no RBA. Where there is a regular assessment, one might argue through inference that the regular assessment statute and its limitation period should apply.

I do not think that the IRS could invoke § 6501(c)(1) to make a new, second regular assessment of the tax barred by the regular collections statute of limitations. Keep in mind that, although the IRS has an unlimited statute to make the regular assessment where there is fraud, but is irrelevant where there has previously made a regular assessment of the tax.

I would appreciate hearing from others on this, either by comment below or by email to jack@tjtaxlaw.com. I prefer that readers use the comment feature below because that will permit others to see the comment and engage in a discussion of the issues.

I am cross-posting this blog on the Federal Tax Procedure Blog here.

Can Misleading but True Statements Be Prosecuted as Criminally False Statements Under 18 USC 1001(a)(2)? (3/27/25; 3/29/25)

noreply@blogger.com (Jack Townsend) — Thu, 27 Mar 2025 21:09:00 +0000

In Thompson v. United States, ___ U.S. ___, ___ S.Ct. ___ (3/21/25), SC here and GS here, the Court held that the criminal conduct described in 18 U. S. C. §1014 relating to credit applications (“knowingly mak[ing] any false statement”) does not include misleading, but not false, statements. The opinion is relatively short, so because it is not encountered often in a tax context, I will just focus on the bottom-line holding in the prior sentence and ask that readers consider the related statute, 18 U. S. C. § 1001(a)(2), often appearing in tax prosecutions, that criminalizes “materially false, fictitious, or fraudulent statement[s].”

Does Thompson’s analysis mean that misleading statements cannot be prosecuted under § 1001(a)(2), often called the false statements crime?

The specific issue is not addressed directly in the DOJ Criminal Tax Manual Section 24.00, titled False Statements (18 U.S.C. § 1001), here. I direct readers’ attention to the discussion in Section 24.04, titled False Statements or Representations, starting on p. 4 and specifically to the discussion on p. 5 of Bronston v. United States, 409 U.S. 352 (1973), a perjury case holding that literally true but misleading statements under oath could not be prosecuted under the perjury statute. So, the question is whether literally true but misleading statements not under oath can be prosecuted under the false statements statute? As the CTM notes (p. 5), Bronston acknowledged a possible exception for a “criminally fraudulent statement” at p. 358 n. 4 as follows:

n4 Petitioner's answer is not to be measured by the same standards applicable to criminally fraudulent or extortionate statements. In that context, the law goes "rather far in punishing intentional creation of false impressions by a selection of literally true representations, because the actor himself generally selects and arranges the representations." In contrast, "under our system of adversary questioning and cross-examination the scope of disclosure is largely in the hands of counsel and presiding officer." A. L. I. Model Penal Code § 208.20, Comment (Tent. Draft No. 6, 1957, p. 124).

In effect, vis-a-vis criminalization of misleading statements, the contexts differ where (i) the speaker is being questioned in an adversarial context where questions should be focused and misleading statements can and should be probed and (ii) the speaker is not acting in that adversarial context under oath but perhaps having more ability to control and responsibility for the narrative and its direction. Does that suggest that Bronston’s literal truth defense applicable to sworn testimony may not apply to false statements? As the CTM notes, however, the courts generally apply Bronston’s literal truth defense but construe the defense narrowly, noting e.g., that the defense “applies only where a defendant’s allegedly false statements ‘were undisputedly literally true,’” citing United States v. Sarwari, 669 F.3d 401, 406 (4^th Cir. 2012 (which quoted United States v. Thomas, 612 F.3d 1107, 1115 (9th Cir. 2010)) (collecting cases). (Caveat, the CTM misstates the defendant’s name in Sarwari as Sarawi.)

My bottom line of all this is that, I suspect the reasoning in Thompson may make the literal truth defense at least marginally more palatable in false statement cases.

ADDED 3/29/25 2:00 PM:

In my Federal Tax Procedure Book (2024 Practitioner Edition p. 317 and 2024 Student Edition p. 221), I state:

[W]hereas literal truth under oath is a defense to perjury even if the testimony is highly misleading, literally true but misleading statements may violate § 1001.

For that proposition, I cite in fn 1380 in the Practitioner Edition Peterson v. United States, 344 F.2d 419 (5th Cir. 1965). That aspect of Peterson was constrained in United States v. Moses, 94 F.3d 182, 188-89 (5th Cir. 1996) (“We cannot uphold a conviction . . . where the alleged statement forming the basis of a violation of section 1001 is true on its face.”). Accordingly, per the CTM cited above, the Bronston literal truth defense applies to § 1001(a)(2) prosecutions. I have corrected this error in the working draft to the 2025 editions due to be published on SSRN in early August 2025.

My Federal Tax Procedure Book editions may be accessed here for download.

Sixth Circuit Holds that Forfeited Deferred Compensation Account is Not Taxable to Defendant (3/27/25)

noreply@blogger.com (Jack Townsend) — Thu, 27 Mar 2025 16:14:00 +0000

In Hubbard v. Commissioner, ___ F.4th ___ (6th Cir. 3/19/25), CA6 here and GS here, the Court held that the Government’s judicial forfeiture in a criminal case of a deferred compensation account—here a “simplified employee pension”—followed by distribution to the Government from the account did not give rise to taxable income to the defendant. The law is settled that the distribution from such an account to the employee or to another (including the IRS) to meet an obligation of the employee generates taxable income to the employee. The Court avoided that rule because the form of the forfeiture was that the account was forfeited to the Government rather than the proceeds of the account.

JAT Comments:

1. I think the Court focuses on formalities rather than substance. I suspect that the IRS applied the distribution proceeds in payment of the employee’s tax liability, thus giving the employee the benefit of the distribution, despite the fact that the distribution was formally to the Government rather than the employee. I assume that the IRS assessed the tax liability on the distribution as a restitution-based assessment and applied the payment to Hubbard’s account accordingly.

2. It may be in a defendant’s best interest to have a deferred compensation account treated as the income of the employee. That is because the distribution, if taxed to the defendant, will still result in an amount exceeding the tax liability on the amount(s) distributed that can then be applied to tax liability on other income. (I am not sure that, if the excess amount could have otherwise generated a refund (a phenomenon where restitution exceeds the defendant’s tax liability), the IRS could refund since it is part of the restitution.)

3. In any event, on the possibility that Hubbard may be correct (at least it is in the Sixth Circuit now until overturned), practitioners with defendant clients having deferred compensation accounts should consider Hubbard in their tax planning with respect to restitution.

4. According to the opinion, Hubbard represented himself pro se on appeal. Pro se taxpayers often are not able to mount persuasive arguments, but Hubbard apparently did in this case, at least well enough to encourage the Court to not accept the Government’s argument as presented.

9th Circuit Holds that Law Firm Asserting a Fisher Privilege for Client Documents it Possesses that Are Potentially Subject to Fifth Amendment Privilege in Client's Hands Need Not Produce a Privilege Log (2/1/25; 3/31/25)

noreply@blogger.com (Jack Townsend) — Sat, 01 Feb 2025 19:26:00 +0000

In In re Grand Jury Investigation, dated July 21, 2023, 127 F.4th 139 (9th Cir. 1/28/25), CA9 here and GS here, the grand jury subpoenaed a target of a grand jury investigation who invoked his Fifth Amendment privilege. The grand jury then subpoenaed a Law Firm for the target (“Client”) to produce records Client had delivered to the Law Firm in the context of receiving legal advice. Law Firm declined to produce asserting privilege. The Government moved to require Law Firm to provide a privilege log (sometimes called a Vaughn index) to help the government determine if the privilege was properly invoked. The district court required that the Law Firm give the privilege log. The client then immediately appealed under the Perlman doctrine permitting an immediate appeal rather than awaiting a contempt holding. See Perlman v. United States, 247 U.S. 7 (1918).The Ninth Circuit panel held (per the summary (similar to a Supreme Court Syllabus), Slip Op. 2-3)

In Fisher [Fisher v. United States, 425 U.S. 391 (1976)], the Supreme Court held that when the Fifth Amendment protects an individual from the compelled production of documents and the individual shares those documents with his attorney to obtain legal advice, the attorney-client privilege shields the attorney from compelled production of those documents to the government. But if the government can already independently determine the existence, authenticity, and client’s custody of those documents such that the act of producing them would reveal no additional incriminating information, the Fifth Amendment does not protect the individual against the documents’ production, and the Fisher privilege accordingly does not apply.

The panel held that an attorney cannot be ordered to provide the government with a privilege log of documents to which the Fisher privilege applies, and that to determine whether the requirements for Fisher protection are in fact satisfied, a district court will generally need to conduct an in camera review. Because the district court here ordered a privilege log to be provided to the Government without any such prior process, the panel reversed and remanded.

1. The panel held that in camera inspection was more appropriate than a privilege log which “would reveal the existence, authenticity, and Client’s custody of those documents” which could meet the requirement that, upon the issuance of a new subpoena to Client, the government meet the “foregone conclusion” burden to get past the Client’s Fifth Amendment privilege. “Put simply, were Law Firm to provide the Government with a privilege log detailing documents to which the Fisher privilege applies, Client would lose any Fifth Amendment right to decline to produce the documents identified therein.” (Slip Op. 9.)

2. The panel rejected a Government attempt to exploit by waiver a claim that the Client, the real party on the appeal, had mis-sourced the Fisher privilege. (Slip Op. 7 n. 3.) The Court held that Client had not waived the sourcing issue.

3. The panel’s short discussion of the Perlman doctrine is correct but is not robust and doesn’t need to be for the opinion. For those wanting more on the Perlman doctrine, see Third Circuit on Crime-Fraud Exception to Attorney-Client and Work-Product Privileges (Federal Tax Procedure Blog 12/12/12), here.

ADDED 3/31/25 @ 2:30PM; 4. The In Re Grand Jury case discussed here is discussed in more detail in This case is discussed in Jeremy H. Temkin, The Act of Production, Foregone Conclusions, and Privilege Logs (N.Y.L.J. March 20, 2025).

Schwarzbaum Redux – 11th Circuit Issues New Opinion to Correct Statement of FBAR Willfulness Civil Penalty Standard (1/23/25)

noreply@blogger.com (Jack Townsend) — Fri, 24 Jan 2025 19:23:00 +0000

In United States v. Schwarzbaum, ___ F.4th ___ (11th Cir. 1/23/25), CA11 here and GS here [to come], the 11^th Circuit revisited the long-running Schwarzbaum FBAR civil penalty litigation. I discussed the immediately preceding visitation/opinion in 11th Circuit on Third Consideration Seals FBAR Willful Penalty Except for Relatively Small Amount Held Excessive Fine under 8th Amendment (Federal Tax Crimes Blog 9/4/24) here. In this new opinion, issued yesterday, the Court starts:

Appellee’s [United States’] petition for panel rehearing is GRANTED. We VACATE our prior opinion in this case and substitute the following in its place:

The Slip Opinion for the prior opinion was 53 pages; the Slip Opinion for this new opinion is 55 pages. For purposes of Federal Tax Crimes and Federal Tax Procedure Blogs, the material changes * only correct misstatements in the original opinion that the FBAR willfulness civil penalty standard is the same as the FBAR willfulness criminal penalty standard (the Cheek/Ratzlaf standard). (See new footnotes on p. 40 n. 7 and p. 46 n. 10.) As all readers of this blog surely know, the civil penalty standard includes recklessness but the criminal penalty standard requires the stricter specific intent requirement in Cheek and Ratzlaf. I don’t think that those corrections affect the bottom-line holdings, so I just copy and paste the succinct summary I provided in the original blog entry.

(1) (a) held the FBAR civil willful penalties are “fines” within the meaning of the Eighth Amendment; (b) held the minimum $100,000 penalties applying to Schwarzbaum’s accounts with small amounts (those $16,000 or less) are disproportional and excessive; (c) held the penalties on the accounts with significantly larger amounts are not disproportional and thus not excessive; and (d) remanded to the district court to determine the effect of the $300,000 reduction required by the (1)(b) holding.

(2) (a) rejected Schwarzbaum’s attack that, in a prior appeal, the court held the assessment was “arbitrary and capricious” and thus rendered the assessments invalid from inception; instead holding that the prior holding was that the assessment was “not in accordance with law,” a different standard under APA § 706(2)(A), requiring a remand to the IRS to fix the calculation mistake rather than wipe out the assessments; (b) rejected a related statute of limitations argument that the remand required a new out of time assessment, holding the issue had been decided against Schwarzbaum in an earlier appeal; (c) sustained a lower assessment rather than the correct assessment which would have been higher; and (d) held the district court properly remanded the case to the IRS and retained jurisdiction of the case to consider after the IRS recalculated the penalties.

My original comments under JAT Comments remain correct. I guess that I just either did not catch or did not appreciate the misstatement in the original on the FBAR civil penalty willfulness standard.

The opinion is a pretty good discussion of the FBAR requirements.

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

I did not use AI in the preparation of this blog.

* I used MS Word’s compare documents feature to identify the changes. I first converted the Slip Ops into MS Word and then used the compare documents tool.

Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (1/22/25)

noreply@blogger.com (Jack Townsend) — Wed, 22 Jan 2025 17:26:00 +0000

I erroneously posted on the Federal Tax Crimes Blog a post that I should have posted on the Federal Tax Procedure Blog. I have deleted the content of the Federal Tax Crimes Blog post. To read the blog on the Federal Tax Procedure Blog, see Use of AI, Including Large Language Models (LLMs), in Tax Court Brief Writing (And Really Other Legal Analysis) (1/22/25), here.