Tenth Circuit Case on Sentencing Guidelines Tax Loss as Object of the Offense (7/3/16)

In United States v. Sing, 2016 U.S. App. LEXIS 12110 (10th Cir. 2016), unpublished, here, the Tenth Circuit affirmed an appeal questioning the calculation of the tax loss, the principal driver of the Sentencing Guidelines for tax crimes.  SG § 2.1.1(c)(1), here, provides:

(1)       If the offense involved tax evasion or a fraudulent or false return, statement, or other document, the tax loss is the total amount of loss that was the object of the offense (i.e., the loss that would have resulted had the offense been successfully completed).

The Background provides:

Background:  This guideline relies most heavily on the amount of loss that was the object of the offense. Tax offenses, in and of themselves, are serious offenses; however, a greater tax loss is obviously more harmful to the treasury and more serious than a smaller one with otherwise similar characteristics. Furthermore, as the potential benefit from the offense increases, the sanction necessary to deter also increases.

The key concept in the foregoing is the "object of the offense."  The guidelines use the term "object of the offense" in other nontax provisions.  E.g., § 2P1.2 ("If the object of the offense was the distribution of a controlled substance")  Further, the Guidelines use the term object in apparent reference to object of the offense.  E.g., 2S1.1 Commentary ¶ 3(c) ("sole object of that conspiracy).  (It is interesting, in this regard, that the other major financial crime provision, §2B1.1, here, dealing with larceny, embezzlement, other forms of theft, etc., uses the simpler concept of "loss" rather "loss that was the object of the offense.")

In any event, the Tenth Circuit seemed to be troubled enough to comment on its view that the formulation in the tax guideline -- "loss that was the object of the offense" -- did not fit neatly into the Model Penal Code ("MPC") provisions of mens rea.  The Tenth Circuit said:

Ms. Sing and Mr. Timmerman argue that the district court's tax loss estimate is fatally flawed and that this error infected the whole of the sentencing process. It's not entirely clear from the text of § 2T1.1(c)(1) what mens rea the government must prove with respect to a tax loss. Rather than employing [4]  the standard and rigorous mens rea categories discussed in the Model Penal Code or much of contemporary criminal law, the guidelines say the government must show the loss amount was the "object of the [defendants'] offense (i.e., the loss that would have resulted had the offense been successfully completed)." And you might well wonder whether, translated into the more helpful heuristics of the Model Penal Code, this means the government must show the defendant intended, knew of, or perhaps was recklessly indifferent to or negligent about the amount of loss the government would have suffered "had the offense been successfully completed." But, as the defendants concede, they, the government, and the district court in this case have all proceeded on the assumption that to qualify as the "object of the offense" the loss in question must have been intended. See United States v. Manatau, 647 F.3d 1048, 1048 (10th Cir. 2011). And that much, they say, the government failed to prove in this case.

So, the Tenth Circuit raised the concern but did not develop the issue or resolve it.  Although the comment is somewhat cryptic, I have tried to develop it as best I could.  Bottom-line, thought, I agree that the intended loss is the concept.

The Court does not cite the provision in the MPC to which it refers.  I will provide here some background  to the MPC and the apparent provision to which the Tenth Circuit referred.

The MPC is a model code developed by the American Law Institute "to stimulate and assist legislatures in making an effort to update and standardize the penal law of the United States of America."  See Wikipedia entry on Model Penal Code, here.  The MPC offers some fundamental concepts, including, in § 2.02, the General Requirements of Culpability.  See the reprinting by Professor Vernelia R. Randall, here.  In relevant part, the "Minimum Requirements of Culpability" for a criminal offense is that the person "acted purposely, knowingly, recklessly or negligently, as the law may require, with respect to each material element of the offense."  MPC § 2.02(1).  Each of the types of culpability are further defined in MPC § 202(1).  The Sentencing Guidelines term "object of the offense" seems to be an intent concept, as the parties agreed in Sing and thus fit within the concepts of "purposely" and "knowingly" in the MPC.  Hence, the sentencing court and the parties agreement that intent was required for the tax loss in the object of the conspiracy resolved any issue as to the concept in the Sentencing Guidelines.

In this regard, since the reference is to the object of the offense, like the offense conspiracy, it probably imports the mens rea element of the offense (including relevant conduct).  Tax crimes are specific intent crimes.  See Cheek v. United States, 498 U.S. 192 (1991) (the statutory element of willfulness in most Title 26 tax crimes requires specific intent to violate a known legal duty).  Hence, the mens rea element seems to be the same as the underlying offense -- the Cheek willfulness.

Another concept defined in the MPC for some types of culpability is "recklessly."  See MPC § 2.02(c).  A question presented by the Cheek willfulness element is whether willful blindness (or a related concept of reckless conduct) is a nonstatutory expansion of the specific intent concept in the "willfully" element for tax crimes or, instead, merely permits a jury to infer the specific intent from finding conduct that might be characterized as reckless.  I will just link below some of the blogs in which I discuss the issue.

• Willful Blindness / Conscious Avoidance and Crimes Requiring Intent to Violate a Known Legal Duty (Federal Tax Crimes Blog 7/21/14), here, discussing the concepts in the criminal context.
• More on Recklessness as Cheek Willfulness (Including for FBAR Civil Penalty) or Willful Blindness (Federal Tax Crimes Blog 7/22/14), here, discussing the concepts in the civil willfulness context.

IRM Guidance on Processing SDOP - On Flagging Returns for Scrutiny and IRM Redactions (7/2/16)

In a prior posting in 2014, I discussed some internal guidance on the IRS web site for processing Streamlined Submissions.  New IRS Internal Guidance on Processing Streamlined Submissions (8/29/14; 8/30/14), here.  A reader of the Blog, Andrew Jones, here, advised me that the IRS has taken down the link to the guidance and incorporated some of the guidance, with some modifications, in IRM 21.8.1.27.2.1  (05-01-2015), Adjusting Streamlined Filing Compliance Domestic Accounts - (Streamlined Domestic Offshore - SDO), here.  I have revised that prior blog entry to so indicate.

Andrew also noted that a key part of the guidance as I had posted it in 2014 related to flagging the presence of "5 or more information returns" in SDOP submissions appears to have been redacted in IRM 21.8.1.27.2.1 (linked above). but Andrew recounts his sleuthing on this issue and significance of the redaction as follows:

I was spending some time working up some advice for a client re: the "5 or more information returns" metric imposed on Streamlined Domestic filings (maybe SFOP too).  I was stumped for some time because I couldn't find that language that you cited at http://federaltaxcrimes.blogspot.com/2014/08/new-irs-internal-guidance-on-processing.html.   

When I visited the IRS' posting of the IRM (https://www.irs.gov/irm/part21/irm_21-008-001r-cont03.html), that phrase was nowhere to be found.

I was finally able to discover that the IRS has redacted this detail (you'll find the === notations obscuring the original text, right below the line, "Allow the adjustment notices to generate and serve as the closing correspondence."  That position in the IRM is exactly where your blog post cited, and the May 1, 2015 date of the section posting to the IRM is also after the posting date of your blog entry which mentioned that language. 

I'd tend to think that anything which the IRS decides - after the fact - to redact, is probably of some significance.  In that case, you seemed to feel (and I definitely agreed) that this was an important insight into how/why Streamlined filings are or are not accepted as filed.  In the context of what is otherwise a largely 'black box' process, the IRS' efforts to hide their rules-of-thumb is particularly valuable.

Thanks to Andrew for calling it to my attention so that I can pass it on to readers of this blog.

On Foreign Enabler Indictments, Sealed Indictments and INTERPOL Red Alerts (6/29/16)

I am told that a number of Swiss bankers and other enablers during the heyday of their U.S. tax games (up to the UBS resolution in 2009 and even beyond that who tried to continue the scam) now fear to leave Switzerland.  Those that have already been indicted will be concerned because of what happened to Raoul Weil, the indicted Swiss banker who ventured out of Switzerland after indictment and was arrested in Italy on an Interpol red notice and was detained and extradited to the U.S. for trial.  (Weil was tried and acquitted.)  So, certainly, those whose indictments have been publicly announced have a choice of trying to resolve their indictment or taking risk should they leave Switzerland.

But,  those who have not been publicly indicted should also be concerned.  The U.S. can have sealed indictments -- and my speculation is that there are some sealed indictments out there for Swiss enablers (bankers and otherwise).  The U.S. can have INTERPOL issue a Red Notice (an INTERPOL device  "identifying and locating these persons with a view to their arrest and extradition or similar lawful action").  With sealed indictments, the enablers may not have a reason to suspect that the U.S. has requested a Red Notice.  See e.g., USAO MD FL press release of 8/31/15, here, stating that there was a sealed indictment and arrest based upon an INTERPOL Red Notice); Jeremy Evans & Andrewas Stargard, Executives Beware: The Long-Arm of the U.S. Government Strikes Again (Paul Hastings Client Alert April 2014) (reporting an extradition in antitrust case, noting that the procedure "likely followed" was the one in an earlier case "using Pisciotti’s sealed indictment to obtain an Interpol red notice, effectively an international arrest warrant" and further noting that "a sealed indictment may leave the [foreign] executive ignorant of any potential risk [of travel]."); and Steven F. Cherry, Leon B. Greenfield, Kurt G. Kastorf, Department of Justice’s First Antitrust Extradition Highlights the Danger of Foreign Travel for Executives Under Investigation (ABA Business Law Today April 2014) (reporting on the same incident).

And, this is not just a Swiss enabler concern.  DOJ has noised for a long time that it is looking beyond Switzerland.

Readers might be interested in the U.S. Attorney Manual provision on Interpol Red Notices, here.  The provsion is short so I quote it in full:

611. Interpol Red Notices 

An Interpol Red Notice is the closest instrument to an international arrest warrant in use today. Interpol (the International Criminal Police Organization) circulates notices to member countries listing persons who are wanted for extradition. The names of persons listed in the notices are placed on lookout lists (e.g., NCIC or its foreign counterpart). When a person whose name is listed comes to the attention of the police abroad, the country that sought the listing is notified through Interpol and can request either his provisional arrest (if there is urgency) or can file a formal request for extradition. 

Please be aware that if a Red Notice is issued, the prosecutor's office is obligated to do whatever work is required to produce the necessary extradition documents within the time limits prescribed by the controlling extradition treaty whenever and wherever the fugitive is arrested. Further, the prosecutor's office is obliged to pay the expenses pursuant to the controlling treaty. Those expenses, which can be quite high, will typically include the costs of translating the extradition documents and may include the costs of hiring local counsel to represent the United States. Further, these obligations, which remain until the fugitive is arrested or the Red Notice is withdrawn, may result in prosecutors who have succeeded the Assistant United States Attorney who originally requested the Red Notice having to prepare the documents and arrange for payment of hefty fees years after the fugitive originally fled from the United States. Therefore, it is important for prosecutors to make certain that the case is significant enough to warrant placing their offices under such a burden in deciding whether or not to request issuance of a Red Notice.

For more on INTERPOL Red Alerts, see:

• INTERPOL Web Site on "Notice," here.
• Wikipedia on Interpol Notice, here.

For More on Sealed Indictments

• Sealed Indictments - A Primer (Federal Tax Crimes Blog 7/11/12; revised 6/19/16), here.
• Sealing an Indictment Pending Arrest in Tax Cases (Federal Tax Crimes Blog 7/3/14), here.

Credit Suisse Banker, Fugitive from Indictment, Pleads Guilty for Offshore Enabler Misbehavior (6/29/16)

I am late in reporting this guilty plea by a previous indicted Swiss banker who was a fugitive until his guilty plea.  The DOJ Press Release is here.

Michele Bergantino, 48, a citizen of Italy and a resident of Switzerland, pleaded guilty before U.S. District Judge Gerald Bruce Lee to conspiring to defraud the United States by assisting U.S. taxpayers to conceal foreign accounts and evade U.S. tax during his employment as a banker working for Credit Suisse AG on its North American desk. 

“Mr. Bergantino is now the third fugitive to come to the United States and plead guilty to charges in this case,” said Acting Assistant Attorney General Ciraolo. “To those who have actively assisted U.S. taxpayers in using offshore accounts to evade taxes, the message is clear:  staying outside the United States will provide little comfort.  We will investigate and charge you, and will work relentlessly to hold you to account for your actions.” 

“Hiding assets and creating secret accounts in an attempt to evade income taxes is a losing game,” said U.S. Attorney Boente. “Today’s plea shows that we will continue to prosecute bankers and U.S. citizens who engage in this criminal activity. I want to thank our law enforcement partners and prosecutors for their work on this important case.” 

Bergantino admitted that from 2002 to 2009, while working as a relationship manager for Credit Suisse in Switzerland, he participated in a wide-ranging conspiracy to aid and assist U.S. taxpayers in evading their income taxes by concealing assets and income in secret Swiss bank accounts.  Bergantino oversaw a portfolio of accounts, largely owned by U.S. taxpayers residing on the West Coast, which grew to approximately $700 million of assets under management.  Bergantino admitted that the tax loss associated with his criminal conduct was more than $1.5 million but less than or equal to $3.5 million.   

During his time as a relationship manager, Bergantino assisted many U.S. clients in utilizing their Credit Suisse accounts to evade their U.S. income taxes and to facilitate concealment of the U.S clients’ undeclared financial accounts from the U.S. Treasury Department and the Internal Revenue Service (IRS).  Among the steps taken by Bergantino to assist clients in hiding their Swiss accounts were the following:  assuring them that Swiss bank secrecy laws would prevent Credit Suisse from disclosing their undeclared accounts to U.S. law enforcement; discussing business with clients only when they traveled to Zurich to meet him; structuring withdrawals from their undeclared accounts by sending multiple checks, each in amounts below $10,000, to clients in the United States; facilitating the withdrawal of large sums of cash by U.S. customers from their Credit Suisse accounts at Credit Suisse offices in the Bahamas, in Switzerland, particularly the Credit Suisse branch at the Zurich airport and at a financial institution in the United Kingdom; holding clients’ mail from delivery to the United States; issuing withdrawal checks from Credit Suisse’s correspondent bank in the United States; and taking actions to remove evidence of a U.S. client’s control over an account because the U.S. client intended to file a false and fraudulent income tax return.  Moreover, Bergantino understood that a number of his U.S. clients concealed their ownership and control of foreign financial accounts by holding those accounts in the names of nominee tax haven entities, or structures, which were frequently created in the form of foreign partnerships, trusts, corporations or foundations. 

A good article is David Voreacos, Ex-Credit Suisse Banker Pleads Guilty in Tax Evasion Case (Bloonberg 6/22/16), here.

Bergantino did not have to subject himself to U.S. criminal jurisdiction.  He was a resident of Switzerland which does not extradited for tax crimes.  He could have remained in Switzerland; Switzerland is a good place to live but it can be confining for people used to traveling in Europe and beyond.  (As I have noted, it can operate sort of as a "Club Fed."  See Switzerland as Club Fed for Swiss Enablers of U.S. Tax Crimes (Federal Tax Crimes Blog 10/24/13), here; for other Federal Tax Crimes Blogs mentioning or discussing "Club Fed", see here).  I infer that, in his assessment of whether to subject himself  to U.S. criminal jurisdiction and plead, Bergantino must have determined that the benefits outweighed the costs and risks.  The major risk for him is that the Court would impose material incarceration period.  But, I suspect that his very able lawyer mitigated the risk of that in the plea agreement, so that he will obtain either no incarceration period or a very short period, and that mitigation was key to Bergantino's cost/risk assessment.

One of the risks if he did not subject himself to U.S. jurisdiction voluntarily is that, should he leave Switzerland, he  might be subjected involuntarily through the INTERPOL Red Notice.  I discuss the INTERPOL Red Notice in a blog immediately following this blog entry.

Fifth Circuit Opinion Reversing Tax Evasion Conviction Because Evasive Acts Did Not Have Tax Evasion as Goal And Affirming on Wire Fraud (6/26/16)

In United States v. Biyiklioglu, 2016 U.S. App. LEXIS 10847, at *5 (5th Cir. June 15, 2016), unpublished, per curiam, here, Biyiklioglu appealed "his conviction and sentence for wire fraud, aggravated identity theft, tax evasion, and money laundering."  In the underlying scheme, Biyiklioglu "transferred money online among his bank accounts and numerous fraudulent PayPal accounts and then disputed certain transactions so as to cause double payments to his bank accounts and corresponding losses to PayPal."  The scheme is more complex, but that is a good summary for purposes of this blog entry.  On appeal, he raised several arguments.  I address only some of the arguments and the Court's resolution.

TAX EVASION - AFFIRMATIVE ACT OF EVASION

Although the gravamen of the scheme was transactions designed to defraud Pay Pal, two charges involved tax evasion which often accompanies schemes to defraud.  In furtherance of the scheme to defraud, the taxpayer undertook some evasive acts to avoid detection of the fraud.  An element of tax evasion is an affirmative act of evasion which, according to the Court, the Government attempted to prove via evasive acts to avoid detection of the fraud.  The Court held that such a showing of evasive acts to avoid detection of the fraud was not sufficient to show an affirmative act of tax evasion.  The Court's analysis was (Slip Op. 15-16):

Biyiklioglu also argues that the government did not prove the second element required for a conviction under § 7201, an affirmative act constituting an evasion or attempted evasion of tax. The indictment identifies his "affirmative acts of evasion" as "concealing and attempting to conceal from all proper officers of the United States [*23]  of America his true and correct income, opening multiple bank accounts, opening and using PayPal accounts in other people's names, and forming Big Stake Investments LLC and opening bank accounts in its name." Biyiklioglu argues that: (1) he did not file any tax returns or make false reports of any kind so as to affirmatively conceal his income; (2) the bank accounts were opened using his name and social security number, and the fact that there were multiple accounts did not result in greater secrecy; (3) opening and using PayPal accounts in other people's names did not conceal income because all of the transfers occurred between PayPal and Biyiklioglu's bank accounts and could be easily traced by reviewing his bank statements; and (4) Big Stake Investments and all of the bank accounts opened for it were opened with Biyiklioglu's name and social security number, so there was no increase in secrecy. 

"The mere failure to pay a tax voluntarily when due, even if willful, does not establish a criminal attempt to evade." United States v. Nolen, 472 F.3d 362, 379 (5th Cir. 2006). "Affirmative acts that satisfy the second element [of § 7201] may include keeping double sets of books, concealment of assets, or 'any conduct, the likely effect of which would be to mislead or to conceal.'" Miller, 588 F.3d at 907 (quoting Spies v. United States, 317 U.S. 492, 499, 63 S. Ct. 364, 87 L. Ed. 418, 1943 C.B. 1038 (1943)). "If the tax-evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime." Spies, 317 U.S. at 499. 

The evidence at trial proved that Biyiklioglu created numerous bank accounts and structured elaborate transactions to defraud PayPal and to conceal his fraud from PayPal and the banks. The government, relying on this evidence, conclusorily argues that "[t]he evidence sufficiently established the affirmative acts supporting [Biyiklioglu's] conviction" for tax evasion. However, the government has not identified any evidence suggesting that a motive to evade taxes contributed to this deception, nor does the court's own review of the trial record reveal any such motive. Indeed, the government fails even to argue that Biyiklioglu was motivated by a desire to evade taxes. In United States v. Jones, we held that a defendant's "placing money on circuitous paths of cashier's checks and funneling it into a house purchased through a convoluted scheme designed to put it out of reach" was sufficient to support his conviction for tax evasion. 459 F. App'x 379, 384 (5th Cir. 2012). Jones, however, took these actions "while his tax file was in active collection," and the evidence supported the government's contention that the only conceivable reason for his conversion of fees into cashier's checks—which Jones failed to report in his financial statement to the IRS—was to evade taxes. Id. Here, in contrast, the obvious explanation for Biyiklioglu's complex and circuitous transactions was the perpetuation of his fraud, and there is no evidence that he took any action for the purpose of evading tax liability. Accordingly, we reverse Biyiklioglu's conviction for tax evasion as to counts 21 and 22.

JAT Comments on Tax Evasion.  Often the taxpayer's defense to evasion is that he did not willfully evade his tax liability.  This is because the Government would not make the charge if it could not show the more objective elements of tax due and affirmative act of evasion..  But all acts of evasion may not be acts of tax evasion.  Here, the evasion was of detection of the underlying fraud.  Hence, the Court reversed.

WIRE FRAUD INSTRUCTIONS - WHAT DOES DEFRAUD MEAN?


I quote the Court's entire discussion of this issue and then discuss that discussion (footnote omitted):

Biyiklioglu first argues that the district court erred when it instructed the jury that "[a] specific intent to defraud means a conscious, knowing intent to deceive or cheat someone" because the word "deceive" did not require the jury to find that Biyiklioglu acted for the purpose of obtaining financial gain. The district court's instruction defining "specific intent to defraud" followed the Fifth Circuit pattern jury instruction verbatim. See Pattern Crim. Jury Instr. 5th Cir. 2.57. Moreover, the instruction is consistent with our precedent. See United States v. Rivera, 295 F.3d 461, 466 (5th Cir. 2002) ("A conviction for wire fraud requires proof of the specific intent to defraud or deceive."). Accordingly, the district court did not err in its definition of "specific intent to defraud" when instructing the jury on the elements of wire fraud.

JAT Comments:

1.  I think that the Court gave too short shrift to the argument.  Tax crimes enthusiasts will recall United States v. Coplan, et al., 703 F.3d 46 (2d Cir. 11/29/12), here, where the Court discussed the meaning of the word "defraud" in the conspiracy statute.  I will just state in summary the issue, although I have more detailed discussion in  the Federal Tax Crimes Blog Entries and articles linked below.

2. The short version is that the word defraud used in the wire fraud statute and the same word in the defraud conspiracy statute have two different meanings via the history of their interpretations. It might help to quote each in relevant part.

18 U.S. Code § 1343 - Fraud by wire, radio, or television
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.  

18 U.S. Code § 371 - Conspiracy to commit offense or to defraud United States
If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

The same word "defraud" is used in both statutes.  Yet, as the Second Circuit in Coplan correctly observed, the word defraud in the two statutes came to be interpreted differently in respects here critical.  As respects the wire fraud statute involved in Biyiklioglu, the Second Circuit in Coplan said:

Enacted in 1867, the original federal conspiracy statute was appended to "An Act to amend existing Laws relating to Internal Revenue and for other Purposes." (quoting Act of March 2, 1867, ch. 169, § 30, 14 Stat. 484). In the 1875 codification, the statute was moved from its place among the internal revenue measures and included among the general penal provisions. Id. at 418 n.36. In United States v. Hirsch, 100 U.S. 33 (1879), the Supreme Court held that the conspiracy provision was generally applicable to the whole body of federal law. In so holding, the Court described the prohibited fraud as "any fraud against [the United States]. It may be against the coin, or consist in cheating the government of its land or other property." Id. at 35. 

"It is a well-established rule of construction that where Congress uses terms that have accumulated settled meaning under . . . the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms." Neder v. United States, 527 U.S. 1, 21 (1999) (internal quotation marks and alterations omitted) (omission in the original). At common law, the words "to defraud" meant to deprive another of property rights by dishonest means.17 See Hammerschmidt v. United States, 265 U.S. 182, 188 (1924); Porcelli v. United States, 303 F.3d 452, 457 n.1 (2d Cir. 2002) (noting that the "familiar common law meaning" of the term '"fraud"' involved "using falsity to do the victim out of money or property interests"). Other federal criminal statutes are generally in accord. See, e.g., United States v. Pierce, 224 F.3d 158, 165 (2d Cir. 2000)  ("In the context of mail fraud and wire fraud, the words 'to defraud' commonly refer 'to wronging one in his property rights by dishonest methods or schemes' . . . ." (quotation marks omitted)).
   n17 In the authoritative dictionary of the day, "defraud" was defined as "[t]o deprive of right by fraud, deception or artifice." The American Dictionary of the English Language 347 (1864). "Fraud" was defined as "[d]eception deliberately practiced with a view to gaining an unlawful or unfair advantage; artifice by which the right or interest of another is injured; injurious stratagem; deceit; trick." Id. at 541. The American Dictionary of the English Language, published by Noah Webster in 1864, is, of course, not to be confused with the American Heritage Dictionary of the English Language, published by Houghton Mifflin in 1969, or any modern dictionary bearing the surname of the great American lexicographer. 

Nonetheless, the word "defraud" in § 371 has been interpreted much more broadly. [Balance of Coplan discussion of § 371 omitted.]

Now, going back to the instruction quoted in Biyiklioglu:   "[a] specific intent to defraud means a conscious, knowing intent to deceive or cheat someone" (emphasis supplied by JAT).  As Biyiklioglu argued, mere deception alone is not sufficient; it has to be deception with an intent to defraud -- to cheat someone.  And, I would have thought, a defendant is entitled to that instruction.  It is true that the Fifth Circuit cites its pattern jury instructions as being consistent, but I think that mere deception absent an intent to defraud is not an intent to defraud.  If the pattern jury instructions are wrong, they are just wrong.  As to the Fifth Circuit precedent, I don't doubt that the specific words were used, but not in the context of definitively resolving the issue Biyiklioglu raised.

For more reading on this defraud issue (albeit in the context of discussing the defraud conspiracy), see.

Coplan #1 - Panel Questions Validity of Klein Conspiracy (Federal Tax Crimes Blog 12/1/12), here.

Further on the Second Circuit Detour on the Interpretation of the Defraud / Klein Conspiracy (Federal Tax Crimes Blog 12/18/12), here.

John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough, 9 Hous. Bus. & Tax. L.J. 255 (2009), here.  (Although I note  that the best article is Abraham S. Goldstein, Conspiracy to Defraud the United States, 68 Yale L.J. 405 (1959)).

Another Crack in Foreign Account Secrecy - UBS Delivers Singapore Affiliate Records Pursuant to IRS Summons (6/22/16; 6/23/16)

Correction:  The blog has been corrected as a result of new information:  UBS has indicated that the client consented to the disclosure of Singapore account information, thus mooting the summons enforcement issue.  Corrections are made in this blog entry where appropriate, and are specifically noted.

I previously reported that the IRS has summonsed UBS for records from a Singapore affiliate and had sought judicial enforcement of the summons. U.S. Summonses Singapore Bank Records from UBS (3/4/16 & 3/5/16), here.  DOJ Tax has announced in a press release, here, that UBS "has now produced all Singapore-based records responsive to the request and the IRS determined that UBS complied with the summons, the Justice Department has voluntarily dismissed its summons enforcement action against the bank." The press release explained, somewhat cryptically:

The IRS served an administrative summons on UBS for records pertaining to accounts held by Ching-Ye “Henry” Hsiaw.  According to the petition, the IRS needed the records in order to determine Hsiaw’s federal income tax liabilities for the years 2006 through 2011.  Hsiaw transferred funds from a Switzerland-based account with UBS to the UBS Singapore branch in 2002, according to the declaration of a revenue agent filed at the same time as the petition.  UBS refused to produce the records, and the United States filed its petition to enforce the summons.

JAT Comments: 

1.  According to the U.S.'s Motion for Voluntary Dismissal,(Dkit. 16), there was no formal show cause hearing or order to enforce.  Rather,

Shortly after the petition was filed, the parties engaged in discussions to determine if they could resolve the matter amicably and without the necessity of any further court involvement. Upon completion of those discussions, UBS AG advised the United States that it would comply with the IRS summons and produce all Singapore-based bank records responsive to the IRS  summons. On May 31, 2016, UBS AG served its initial document production and, thereafter, supplemented its production on June 10, 2016. On June 17, 2016, after reviewing the bank’s document production, the IRS determined that UBS AG has complied with the IRS summons. In view of the above, the United States voluntarily dismisses its petition with prejudice. 

2. [Corrected 6/23/16] UBS has indicated that "complied with the summons based on client consent in accordance with Singapore law."  David Voreacos, UBS Gives IRS Records on U.S. Citizen’s Account in Singapore (Bloomberg 6/22/16), here..  In an earlier posting of this blog I stated that it was not clear on the documents I reviewed why UBS provided the documents required by the summons.  [End of Correction]  Readers will likely recall the earlier UBS proceeding involving a John Doe Summons to UBS that was the starting point for the IRS and DOJ's offshore account initiative starting around 2008.  The summons in this case was a regular summons, although since it was for financial account records, it might have been a third party recordkeeper summons.  The summons is here.  The key difference would be that, in a criminal investigation,  regular summonses require no notice to the taxpayer but third party recordkeeper summonses do. § 7609(c)(2)(E). [Addition 6/24/16]  Asher Rubinstein noted in the comment below that the summons was a Bank of Nova Scotia Summons, which, I understand is just a regular summons to an affiliated entity of a foreign bank for records of the affiliated foreign bank.  I discussed this issue when originally reporting on the case.  U.S. Summonses Singapore Bank Records from UBS (Federal Tax Crimes Blog 3/4/16 & 3/5/16), here, see particularly paragraph 1 under JAT Comments.  [End of Addition]

3.  Normally, in high stakes summonses, if the summonsed third party has an interest in not producing the documents (and certainly, given UBS's role as a player in the offshore account market, it has that interest), it might await a formal order from the Court.  This would then give the summonsed party some cover with the client and perhaps, in this case, with the regulatory authorities in the foreign jurisdiction whose bank secrecy laws may be implicated. [Clarification 6/23/16]  In this case, however, since the client apparently consented to the disclosure, UBS did not need such cover. [End of Clarification]

4.  [Correction 6/212/16] As note noted in the corrections above, UBS did not cave and therefore this brouhaha is mooted in terms of its future effects, but I have to think that, if the IRS did it once, it will do it again in either a regular summons (perhaps of the thirdparty recordkeeper genre) or a John Doe Summons. [End of Correction]

5.  Singapore does not have a tax treaty or mutual legal assistance with the U.S., for exchange of such tax information, so there is no formal mechanism for exchange of information that might permit a specific request to a named taxpayer or what has become known as a group request for unidentified U.S. taxpayers meeting certain characteristics.  (I call such group requests under a treaty request a John Doe Treaty Request.)

6.  It is interesting that the press release specifically mentions that Hsiaw apparently moved his account from UBS Switzerland to the UBS affiliate in Singapore in 2002.  The IRS has been obtaining so-called leaver lists from Swiss Banks, but I was not aware that they would go all the way back to 2002.  Of course, UBS is a special situation so that the IRS may have obtained such a leaver list or even the UBS bank records on U.S. clients from 2002.

TIGTA Report on Improvement in Some Features of OVDP (6/21/16)

The Treasury Inspector General for Tax Administration has released a report titled Improvements Are Needed in Offshore Voluntary Disclosure Compliance and Processing Efforts (June 2, 2016 Reference Number: 2016-30-030), here.  The key highlights presented are:

WHAT TIGTA FOUND 

The IRS needs to improve its efforts to address the noncompliance of taxpayers who are denied access to or withdraw from the OVDP. TIGTA reviewed a stratified random sample of 100 taxpayers from a population of 3,182 OVDP requests that were either denied or withdrawn from the OVDP. Although 29 of these 100 taxpayers should have been potentially subject to FBAR penalties, the IRS did not initiate any compliance actions. Projecting the sample results to the population of denied or withdrawn requests, the IRS did not assess approximately $21.6 million in delinquent FBAR penalties. 

TIGTA also identified internal control weaknesses that led to delayed or incorrect processing of OVDP requests through poor communication among IRS functions involved in the OVDP. These weaknesses include the use of separate inventory controls and two separate IRS addresses for taxpayers to send correspondence, which contributed to incorrect processing of some taxpayer disclosure requests. In addition, the IRS does not have a process to determine the appropriate skill level needed for revenue agents to work OVDP request certifications. OVDP cases are not equivalent to audits of taxpayers’ returns and generally do not require as much technical analysis as traditional tax audits. 

WHAT TIGTA RECOMMENDED 

TIGTA recommended that the IRS: 1) review all denied or withdrawn offshore voluntary disclosure requests identified in this report for potential FBAR penalty assessments and criminal investigation; 2) develop procedures for reviewing denied and withdrawn cases for further compliance actions; 3) centrally track and control OVDP requests; 4) establish one mailing address for taxpayer correspondence; 5) ensure that employees adhere to timeliness guidelines throughout the entire OVDP process; and 6) classify OVDP certifications so that some can be worked by lower-graded revenue agents.  

IRS management agreed with all six recommendations and has taken or plans to take corrective action on five of them. Although the IRS agreed with the potential value of establishing one mailing address for taxpayer correspondence, this recommendation has been put on hold until a decision is made about the future status of the OVDP.

The report has a summary of the development of the various programs over the years since 2009 and the processing system.  The report focuses on taxpayers who were denied access to OVDP or who, having entered, withdrew or opted out.  Those persons were subject at a minimum to civil audit and some were potentially subject to criminal investigation and prosecution.  The report concludes that the IRS should have better following-through mechanisms.  Based on what it believes was an appropriate representative sample, the report suggests that there is some revenue from auditing and/or investigating those individuals.  I have not analyzed the report otherwise, but do find the following interesting.

1. Withdrawn OVDP Requests.  The sample selected included 50 taxpayers out of a total population of 781 withdrawn OVDP requests.  Only 20% of those in the sample had some form of compliance action or were included in the Streamlined Procedure.  "Of the Streamlined Procedure cases that have closed, 10 taxpayers were assessed $142,711 in penalties."  (JAT Note:  It is not clear to me what the group that withdrew and then were accepted in Streamlined Procedure is comprised of; my understanding was that those who were in OVDP up to the point of the intake letter could not withdraw and must either seek Streamlined Transition within OVDP or must opt out (different than witndrawing); I suppose it could include the class of people who had passed preclearance but not yet submitted the intake letter.)

2. Denied OVDP Request.  TIGTA reviewed 50 of 2,401 taxpayers who were denied entry to OVDP.  Only 12 of the 50 "were denied participation in the OVDP were either subjected to further criminal investigation or examination efforts, or were deceased."  Then, these is some detail behind the 34 (68 percent) of taxpayers in the sample.  (JAT Comment:  I have to say that I have had only taxpayer who failed preclearance because he had been scheduled for NRP audit; he ultimately got the OVDP result without formally being in the program.)

3. Recommendation to Review Denied or Withdrawn Requests. TIGTA recommended that the LB&I Division review all denied or withdrawn requests for FBAR penalty assessments and possible referral to CI.  In the Management's Response the IRS agreed and had technical specialists review all withdrawn and denied requests, with follow up indicated for 17.  The IRS disagreed with the revenue potential from such follow-throughs.

4. Recommendation for Immediate Review of Denied or Withdrawn Requests  TIGTA recommended (Recommendation 2) that "The Commissioner, LB&I Division, and the Chief, CI, should develop procedures to require the immediate review of any future denied or withdrawn offshore voluntary disclosure requests for further compliance actions."  IRS agreed.

5.  Other Administrative Recommendations. The balance of the recommendation dealt with processing and administration procedures.  However, I did find that, in response to a recommendation (Recommendation 4) that the IRS have one mailing address for submitting offshore voluntary disclosure requests and related documentation:

The IRS agreed with this recommendation, but is putting the recommendation on hold until a decision is made about the future status of the OVDP. While the IRS agreed with the potential value in this recommendation, at this time and in light of the nonpermanent status of the OVDP, it cannot commit the resources needed for making this change.

I infer from this that there is some current consideration being given about "the future status of the OVDP."  The IRS has always said that it could modify or withdraw the terms of OVDP at any time (although it would be expected to be prospective only and may even have a delayed effective date).