Matthews' Article on Damage to IRS CI through Budget Cuts (3/28/16)

Mark Matthews, here, a prominent player in the tax crimes area has written this article:  Mark E. Matthews,  IRS Criminal Investigation: A National Asset Being Damaged, 150 Tax Notes 1319 (MAR. 14, 2016), here.  I highly recommend the article by a thoughtful practitioner who has been involved in enforcement and defense.

Mark begins his piece with the critical role that IRS CI plays in the tax system:

CI is the only enforcement agency pursuing investigations of potential criminal violations of the IRC. There are two key aspects of its work from a tax enforcement perspective. First, unlike IRS civil audit activity, CI's cases are public. CI publicizes its cases to send a message far beyond the individual taxpayer being prosecuted -- to more than 300 million taxpayers. The message has two components: (1) the threat to those tempted to cheat that there is a great risk to tax evasion, and (2) the assurance to those paying their fair share that they are not chumps and that those not paying it are not getting a free pass, or are at least risking their liberty. Second, the prospect of incarceration is a principal motivator to those tempted to cheat. If the only sanction for tax violations were civil penalties, many more would play the audit lottery more aggressively, especially as congressional budgets drive the audit rate lower each year. Yet even the slight prospect of a loss of liberty in one of our federal correctional institutions causes many to focus when they sign the perjury jurat on their returns. 

CI is the most dramatic example of the concept of general deterrence. Tax offenses are the one federal felony that every American confronts each year. We are not all tempted to sell drugs; we are not all in the securities industry or in a position to commit an environmental crime. But we all file returns. Therefore, the IRS must maintain a strong compliance message for the country's 300 million taxpayers, and it has -- in recent history, with as few as 1,500 criminal tax prosecutions each year. Even that low number, however, is dropping. That is far below the number of narcotics prosecutions brought by the federal government in attempting to deter a far smaller group of potential violators. Hence, CI needs publicity to achieve even a minimum enforcement presence. 

The CI chief, Richard Weber, recently made the same point in a conversation with the author: "Taxpayers voluntarily comply because they know it is the right thing to do, but they also want those who cheat the government to be held accountable. They want a level playing field. When they see that criminals get away with not paying their fair share, there is a direct impact on the voluntary compliance rate and the confidence in our entire system begins to erode. IRS-CI restores that confidence by ensuring that we all play by the same rules."

Mark then discusses the data on declining enforcement from declining resources.  I will let Mark's discussion speak for itself.  Highly recommended for readers of this blog.

I will close with my own brief thought.  The IRS is a critical agency, no less important to who we imagine ourselves to be as Americans than any other federal agency.  To the extent that there are problems in the IRS (or any other agency), the solution is to fix them which may even require additional budgeting to insure that the agency is functioning fairly and efficiently to meet the needs of the country.  Politicized budget cuts are going to make the IRS serve this country worse.

Guest Blog: IRS FOIA Request Unveils Previously Undisclosed Estate Tax National Policy for Offshore Disclosures (3/28/16)

Pursuant to an IRS Freedom of Information Act (“FOIA”) request, my colleague at Anaford AG, James Gifford, discovered that the IRS for the past several years has had a “national” policy which selectively denies an estate tax deduction for the miscellaneous Title 26 offshore penalty (“MOP”) incurred in Offshore Voluntary Disclosure Program (“OVDP”) cases (see FOIA response from IRS dated March 17, 2016, here).

But first, some background on the issue.

In the OVDP, participants are required to pay in lieu of all other penalties that may apply to the previously undisclosed foreign assets and entities a miscellaneous Title 26 offshore penalty generally equal to 27.5%[1]of the highest aggregate value for those assets during the period covered by the voluntary disclosure.  Inevitably, some OVDP participants include estates.  Ordinarily, administration expenses are deductible from a decedent’s gross estate under I.R.C. § 2053 for purposes of determining the estate tax.  These include administration expenses incurred in the collection of assets, payment of debts, and distribution of property and normally would include the MOP.

However, it appears since at least 2013 and possibly since 2009, the IRS instituted an undisclosed nationwide policy that the MOP is not deductible as an administration expense by an estate except in the limited situation where only the decedent was “cognizant” of the foreign accounts or assets.[2]  According to internal IRS emails obtained under the FOIA request, the IRS national policy states:

If anyone other than the decedent (which would include a surviving spouse, children, siblings, accountant, attorney, or anyone else with a material interest) was cognizant of the existence of the offshore account, and the executor/personal representative failed to disclose the existence of the account (or, did not file a Form 706) by the due date of the return, then we will not allow a reduction to the gross estate for the related OVDI [OVDP] offshore penalty.

Even though the IRS issues voluminous rules and guidance each year, the IRS acknowledged in a Tax Notes article posted on March 28, 2016 (“IRS Inconsistent in Denying Estate Tax Deduction for OVDP Penalty”) that it has not previously published any guidance on this policy.  Thus, it appears the IRS has not followed any public procedures for creating this policy or informed applicants to the OVDP of this policy.  Nor has it issued any notice, bulletin, or any form of rulemaking for communicating and establishing this policy.

The problems with this policy are many, but to summarize, the policy overtaxes and overreaches.

The policy overtaxes by denying a deduction for the MOP, which should be deductible in all circumstances not some limited exception created from whole cloth where only the decedent was cognizant of the foreign assets.  It is unambiguously the prerogative of Congress to decide how we are taxed and on what.  Deductions are “a matter of legislative grace,” not the whims of bureaucrats (New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)). The IRS cannot deny a valid deduction simply because they would like to do so.

Moreover, the IRS policy for denying a deduction here overreaches.  The IRS is denying a deduction, which Congress says should be allowed, simply because a confidante of the deceased, such as an accountant or attorney, knew of the account.  Yet this policy punishes the heirs of the deceased, not the confidante. The executor who fails to report the account on time may or may not be an heir, and an heir may or may not be a confidante of the deceased.   The policy also treats family members in the OVDP disparately simply based on the timing of death.  It is troubling that the IRS has taken upon itself to punish the family members of the deceased in this illogical fashion. 

So, what is to be done for persons affected?  At the time of this writing, the IRS has been recalcitrant about resolving these cases fairly (hence our FOIA request).  Therefore, litigation may be an unfortunate necessity.  Dennis I. Leonard, here, from Ramsbacher Prokey Leonard LLP in San Jose, California, a boutique estate and tax litigation firm, shared with me that he had a docketed U.S. Tax Court case where the IRS ultimately conceded this issue.[3]   Dennis cleverly argued as an alternative to the deduction argument that the MOP reduces the value of the estate, which ended in the same result.  The theory being that the estate value under I.R.C. § 2033 is reduced by a valuation discount dollar-for-dollar for the penalty amount.  In that case, the IRS seemed reluctant to litigate the valuation discount issue and thus conceded the issue.  Hopefully, the IRS will reconsider its position, but until that time there appear to be some sustainable arguments against this policy.

Guest blogger Milan Patel and his colleague James Gifford are U.S. tax attorneys at Anaford AG, which is a law firm based in Zurich, Switzerland.  Milan and James represent clients from around the world in the various IRS offshore voluntary disclosure compliance programs with a particular emphasis on cross-border and international tax issues.  Comments may be made to this blog and, if desired, specific comments may be made directly to Milan via his email milan.patel@anaford.chor James via his email james.gifford@anaford.ch.   Further contact information is available at Anaford’s web site http://www.anaford.ch/meet-the-team/.

---

[1] In limited circumstances this penalty may be reduced to 12.5% or 5%, or actually increased to 50%.  See OVDP FAQs for further clarification.

[2]Presumably this policy does not apply to Streamlined cases due to non-willfulness, although this is by no means certain.

[3] I thank Leonard for sharing his idea and note that he is a former student of Jack Townsend.

TRAC Offerings on IRS and DOJ Criminal Tax Enforcement (3/24/16)

The Transaction Records Access Clearinghouse ("TRAC"), here, has published new statistics on a web page titled "IRS Criminal Enforcement Slides," here.  I discuss some aspects of that data in this blog entry, but I do caveat the saying popularized by Mark Twain (who attributed -- perhaps misattributed -- it to Benjamin Disreali):  "there are lies, damned lies, and statistics."  See Wikipedia, here.

The data reported shows that referrals by the IRS to DOJ Tax peaked in the early 90s at 20 per million of population and are about 9 per million in fy 2015.  (In several years there were slightly lower numbers, but I have not attempted to analyze why that happened.

Of course, as a general proposition, the criminal tax enforcement resources that can be systemically deployed by the various players (IRS, DOJ Tax, Courts, Probation Office, Bureau of Prisons) are small relative to the population and tax revenue overall.  So those limited resources have to be deployed for maximum effect, which is what the players claim.  What that results in is a low number of prosecutions for tax crimes relative to the number of U.S. taxpayers who actually cheat on their taxes.  The message through prosecution and punishment is to show honest taxpayers that something is being done and to discourage the potentially dishonest from misbehaving.

The website links to "TRAC's free IRS criminal enforcement tool," here, which provides more detailed data by judicial district.  I highly recommend TRAC's presentation of data on the data tool page titled "IRS Criminal Enforcement by District."  I have no way of assessing whether the raw data is correct, but I suspect that it is.  The more serious issue, though, is whether the presentation of the data provides a fair picture of what is really happening.  There are a lot of questions that can be asked about the data.  I present here only some of the questions:

1. The Lead Charges for Prosecution are overwhelmingly non Title 26.  That really does not tell us what portion of the charges are tax-related Title 18 charges (such as, most prominently, conspiracy (offense or defraud / Klein conspiracy) related to tax misconduct, but also including §§ 286 and 287, false claims conspiracy and false claims).

2.  More surprisingly are the number of "declinations."  As presented, the declinations are almost 50% (1,633 prosecuted and 1,461 declined).  There may be some year-to-year problems that a single year's data do not explain.  More importantly, I think, would be to have the data limited to the tax crimes as indicated in paragraph 1 (without the other crimes that are not normally considered tax crimes, such as wire fraud or money laundering).

3.  The IRS's fy 2015 statistics, here, may or may not be consistent with TRAC's presentation since they may not be using the same data sets.  The IRS statistics show 3,289 prosecution recommendations and 3,208 indictments, a much lower apparent declination rate (again with the caveat of year to year issues) than TRAC offers.

Interview of Acting Assistant Attorney General Ciraolo on Tax Enforcement (3/23/16)

The New York Law Journal has published this article of an interview of Acting AAG Caroline Ciraolo.  Jeremy H. Temkin, DOJ Tax Division Today: Interview With Acting Assistant Attorney General, 255 NYLJ No. 55 (3/23/16), here.  The interview is a general overview of the Tax Division's work, with particular focus on offshore accounts that have been perhaps its most visible effort over the past few years.  Of course, there is the expected claims of great success on the offshore efforts starting in 2009, with many prosecutions of individuals and financial institutions and much revenue gathered.

I focus in the balance of this blog only on matters that I found particularly interesting.

1.  Regarding follow-through, Ciarolo says that DOJ  and the IRS are following leads they have obtained in the various efforts and are continuing to obtain from various sources "to identify and investigate U.S. accountholders who willfully concealed their foreign accounts and evaded U.S. tax, as well as those entities and individuals, foreign and domestic, that facilitated this criminal conduct."

2.  Category 3 and 4 information:

Finally, Tax Division attorneys and IRS personnel are reviewing the information received from Swiss banks that fall under Category 3 and Category 4 of the program. Category 3 and 4 banks maintain that they did not commit any violations of U.S. law, and seek a non-target letter after providing information required by the program.

I have written before that I am baffled that any Swiss Financial Institution would have proceeded under Category 3 or 4.  See US DOJ Swiss Bank Program Categories 3 and 4 Comments (Federal Tax Crimes Blog 2/4/16; 2/7/16), here.  Certainly, though, the Financial Institutions that did join under Categories 3 or 4 would have expected to have been closely scrutinized.

3.  Countries Other than Switzerland:

We are looking well beyond Switzerland, into jurisdictions around the world, including those referenced in the statements of facts admitted to by the Category 2 banks in connection with the tax evasion efforts of U.S. taxpayers. These jurisdictions include, but are not limited to, the British Virgin Islands, the Cayman Islands, the Channel Islands, Guernsey, Hong Kong, Israel, Liechtenstein, Luxembourg, Panama and Singapore. 

4.  She did not indicate that a program similar to the Swiss Bank Program would be adopted for these countries, but did state:

Individuals or entities that assisted U.S. accountholders to conceal foreign accounts and evade U.S. tax will not improve their situation by sitting back and delaying disclosure in the hope of an announcement of another program, particularly while we are actively reviewing information received and opening up additional investigations. Timeliness in coming forward and cooperating remains a critical factor in any criminal resolution. 

JAT Speculation:  I wonder whether DOJ is now trying to identify the worst offenders in the countries listed above so that it will have a representative number of Category 1-type financial institutions that it can prosecute and will then announce some type of program for other financial institutions (perhaps patterned on the Swiss Bank Program).  If that were the case, those financial institutions that can self-identify as being at high risk of being Category 1-like would be well-advised to move fast to open the kimono with DOJ Tax and strike a deal quickly that might be better than if they waited.

5.  On the issue of whether, given the mass publicity about foreign bank accounts and the offshore disclosure programs, it was realistic to think that significant additional voluntary disclosures will be made and the impact on DOJ Tax's work.  She answered (bold-face supplied by JAT):

 After seven years of voluntary disclosure programs, nearly 200 criminal prosecutions, and the increased assessment and suits to collect FBAR penalties, a taxpayer’s claims of ignorance or lack of willfulness in failing to comply with disclosure and reporting obligations are not well-received. Similarly, we are very interested in taxpayers who filed tax returns and FBARs pursuant to the Streamlined filing procedures, or the Delinquent International  Information Return or FBAR submission procedures, who falsely claimed either to have engaged in non-willful conduct or to have acted with reasonable cause.

I have bold-faced this because, I suspect, many have not adequately assessed the risk of improper certifications in the Streamlined Programs.

6.  She also addressed the effect of budget cuts on DOJ Tax's mission, saying DOJ Tax is back to full strength and works with IRS and US Attorneys to better focus its resources for maximum effect.

IRS Publicizes Success in Prosecuting Identity Theft Refund Fraud (3/22/16)

The IRS continues to struggle with identify theft, even as it has notable successes in prosecutions.  Yesterday, the IRS published a webpage titled:  "IRS’s Top 10 Identity Theft Prosecutions: Criminal Investigation Continues Efforts to Halt Refund Fraud," here.  By announcements such as this, the IRS wants to discourage other would be identity thieves from attempting identity theft and to give some assurance that the IRS's "cops are on the beat."

The IRS's message from the selected 10 examples is that identify theft is serious and draws serious sentencings, with the principals involved receiving over 70 months (some well in excess of 100 months) incarceration (persons with lesser roles receive lesser, but still significant sentences).

In addition to these examples, the web page concludes with a description of the resources deployed for identify theft:

During FY 2015, Criminal Investigation continued to dedicate significant time and resources to bringing down identity thieves attempting to defraud the federal government. 

The nationwide Law Enforcement Assistance Program provides for the disclosure of federal tax return information associated with the accounts of known and suspected victims of identity theft with the express written consent of those victims. There are now more than 1,100 state/local law enforcement agencies from 48 states participating. For FY 2015, more than 6,700 requests were received from state and local law enforcement agencies. 

The Identity Theft Clearinghouse (ITC) continues to develop and refer identity theft refund fraud schemes to Criminal Investigation Field Offices for investigation. Since its inception in FY 2012, it has received over 10,750 individual identity theft leads. These leads involved approximately 1.72 million returns with over $11.4 billion in refunds claimed. 

CI continues to be the lead agency that investigates identity theft and is actively involved in more than 70 multi-regional task forces or working groups including state/local and federal law enforcement agencies solely focusing on identity theft. CI continues to have one of the highest conviction rates in all of federal law enforcement — at 93.2 percent — and is the only federal law enforcement agency with jurisdiction over federal tax crimes. CI is routinely called upon to be the lead financial investigative agency on a wide variety of financial crimes including international tax evasion, identity theft and transnational organized crime.

Ruminations on Inconsistent Verdicts (3/21/16)

Today, I offer an interesting "order" in a tax conspiracy trial ruminating on the broad issue of inconsistent jury verdicts.  The case is United States v. Soderling, 2016 U.S. Dist. LEXIS 35456 (ND Cal. 2016), here.  Because the order is relatively short, I just cut and paste the contents of the order (caption and signature line omitted):

ORDER RE GOVERNMENT'S REQUEST TO AUTHORIZE THE JURY TO REACH INCONSISTENT VERDICTS 

The government charged Jay and Jessica Soderling, husband and wife, with a conspiracy to defraud the United States by preventing the Internal Revenue Service from collecting taxes. At trial, the government contended only that Jay and Jessica conspired with one another; it did not contend that there were unindicted co-conspirators. Shortly after the jury began deliberating, it asked a good question: "Can we find one defendant guilty of conspiracy and not the other?" The government urged the Court to answer "yes." The defendants urged the Court to answer "no." Although the jury has now reached a verdict, the Court files this order to give lawyers and trial judges food for thought in the event this instructional issue comes up again. 

By urging a "yes" answer, the government was asking the Court to tell the jury it could reach inconsistent verdicts. As set forth in the Ninth Circuit Model Criminal Jury Instruction on conspiracy to defraud the United States, a jury may only convict a defendant if the government proves three elements, the first of which is that there was an agreement between two or more people. In this case, the government contended that Jay and Jessica reached the agreement to defraud the United States; the government did not contend that anyone else was party to the agreement. Therefore, the only way the jury could have convicted Jay was to conclude he reached an agreement with Jessica. And the only way the jury could have convicted Jessica was to conclude she reached an agreement with Jay. A verdict acquitting one defendant would necessarily have been inconsistent with a verdict convicting the other defendant. 

In support of its request for an instruction authorizing the jury to reach inconsistent verdicts, the government cited United States v. Powell, 469 U.S. 57 (1984). In Powell, the jury convicted the defendant of several compound felonies, while acquitting her of the predicate felonies.n1 Ms. Powell argued that because these verdicts were necessarily inconsistent, her convictions had to be reversed. The Supreme Court rejected that argument, holding that the inconsistency among the verdicts was not a reason to overturn the convictions. As the Court explained, inconsistent verdicts can be the result of jury nullification — a decision by the jury to show mercy with respect to a particular charge by acquitting the defendant notwithstanding her guilt (and notwithstanding the trial court's instructions). There was no reason, in the Supreme Court's view, to give the defendant an additional benefit from that possible exercise of mercy by reversing her convictions for the other counts charged. Powell, 469 U.S. at 68-69. So long as there was enough evidence to support the charges the jury convicted the defendant of, it did not matter that the jury acquitted her on the other charges. Id. at 67-68. Since Powell, several Ninth Circuit decisions have applied this rationale to cases where a jury acquits all but one alleged conspirator. See, e.g., United States v. Ching Tang Lo, 447 F.3d 1212, 1226 (9th Cir. 2006); United States v. Hughes Aircraft Co., 20 F.3d 974, 977-78 (9th Cir. 1994); United States v. Valles-Valencia, 823 F.2d 381, 381-82 (9th Cir. 1987) modifying 811 F.2d 1232 (9th Cir. 1987) ("As the Supreme Court noted in United States v. Powell, however, inconsistent verdicts can just as easily be the result of jury lenity as a determination of the facts. Thus, the acquittal of all conspirators but one does not necessarily indicate that the jury found no agreement to act." (citations omitted)).
   n1  Specifically, the Powell jury convicted the defendant of using the telephone to facilitate conspiracy to possess with the intent to distribute cocaine, and using the telephone to facilitate possession with the intent to distribute cocaine. But the jury acquitted the same defendant of conspiracy to possess with intent to distribute cocaine, and of possession with intent to distribute cocaine. Powell, 469 U.S. at 59-60. 

It's one thing to say a conviction won't be overturned on appeal merely because it is inconsistent with a co-defendant's acquittal. It's quite another thing to instruct a jury, during trial or during deliberations, that it is authorized to reach inconsistent verdicts in the first place. Inconsistent verdicts are something we tolerate, but that doesn't change the fact that they are legally erroneous. And trial courts are supposed to instruct juries to follow the law; they are not supposed to give juries the green light to disregard the law and reach legally erroneous verdicts. United States v. Christensen, 801 F.3d 970, 1011-12 (9th Cir. 2015) (noting, in the course of affirming a court's dismissal of a juror for cause during deliberations, that "trial courts have the duty to forestall or prevent" jury nullification, id. at 1011 (quoting Merced v. McGrath, 426 F.3d 1079, 1080 (9th Cir. 2005)); accord United States v. Sepulveda, 15 F.3d 1161, 1189-90 (1st Cir. 1993) (approving trial court's statement to the jury, in response to a question about nullification, that it should follow the instructions the court had previously given and should convict if it finds the elements beyond a reasonable doubt). Indeed, the very first of the Ninth Circuit Model Criminal Jury Instructions states: "To the facts as you find them, you will apply the law as I give it to you, whether you agree with the law or not."

And in this case, the law is that a conspiracy cannot exist unless it involves an agreement between two or more people. It would have been error for the jury to convict one defendant while acquitting the only potential co-conspirator. Therefore, it would have been error for the Court to authorize the jury, through the Court's response to the jury's question, to convict one defendant of conspiracy despite concluding that the government had not proven the only other possible co-conspirator's participation beyond a reasonable doubt.n2
   n2 Ninth Circuit Model Criminal Jury Instruction 1.13, the generic instruction for cases involving multiple defendants, provides in part: "The fact that you may find one of the defendants guilty or not guilty should not control your verdict as to any other defendant." This is no doubt true in most multi-defendant cases, but it is somewhat misleading in a case where there are only two alleged co-conspirators and no evidence of unindicted co-conspirators. 

And an error like this could, depending on the facts of the case, have grave consequences. Suppose, in a case where two defendants are charged with conspiracy and there are no other co-conspirators, the jury believes there is not enough evidence to conclude beyond a reasonable doubt that the defendants formed an agreement. This means both defendants are "not guilty" as a legal matter. But suppose the jury really wants to convict one of the defendants anyway. If a trial court suggests to a jury that it can do so, and the jury then does so, that would be a miscarriage of justice. Appellate courts might tolerate this possibility when reviewing inconsistent verdicts because they don't know (and won't inquire into) what the jury was thinking. But that doesn't mean trial courts can (or should) sanction the possibility when instructing the jury in the first place. 

Perhaps if the Court had given the government's proposed instruction and the jury had followed it, the error invited by the government would have gone uncorrected on appeal, in light of Powell. More likely, however, Powell would not have applied in this situation, because Powell was not a case in which the trial court invited the jury to err. Cf. Kleve v. Hill, 202 F.3d 1155, 1158 (9th Cir. 2000) (Kozinski, J., dissenting from denial of rehearing en banc) ("Powell holds that where the jury is properly instructed and nevertheless returns inconsistent verdicts, we will not question the validity of the guilty verdicts on some counts just because they are logically inconsistent with not guilty verdicts on other counts . . . . For Powell to apply, the jury must have been given a correct, consistent set of instructions."). 

In light of the foregoing, the Court declined the government's request to answer "yes" to the question whether the jury could "find one defendant guilty of conspiracy and not the other." Instead, the Court instructed the jury as follows: 

For a conspiracy to exist, two or more people must be members of the conspiracy. I refer you to Instruction 18, which discusses the three elements of conspiracy. The first element explains that to convict a defendant of Count 1, you must conclude beyond a reasonable doubt that the defendant formed an agreement with at least one other person to defraud the United States. If you find this element beyond a reasonable doubt, you should turn to the next two elements. 

In this case, the government has only contended that Mr. and Mrs. Soderling formed an agreement to defraud the United States. It has not contended that any other person agreed with one of the defendants to defraud the United States. 

Perhaps the government was worried that if the Court did not authorize the jury to reach inconsistent verdicts, both defendants would be acquitted of the conspiracy charge. As it turns out, the jury convicted both defendants. But had the Court accepted the government's invitation to instruct the jury that it could reach inconsistent verdicts, the government might not have gotten either of its convictions. The result may well have been one acquittal through jury nullification and one reversal on appeal.

Apart from the law, the strategy in each side's proposed response to the jury's question is interesting.  The Government obviously wanted at least one guilty verdict which is what the jury's question implied it might get.  On the other hand, by asking the judge to answer the question no, the defendants must have thought there was some reasonable prospect that the jury would resolve to a not guilty verdict for both.

The issue of inconsistent verdicts is a big issue.  I have not done the work or given sufficient thought to offer anything here that might be considered "state of the law" on the issue.  United States v. Powell, 469 U.S. 57 (1984), here, is essential reading.  I do offer certain excepts from two law review articles and then from a dissenting opinion in an en banc case from the Sixth Circuit.

Eric L. Muller, The Hobgoblin of Little Minds? Our Foolish Law of Inconsistent Verdicts, 111 Harv. L. Rev. 771 (1998) (footnotes omitted [SSRN version here]:

What should a court do when a single criminal jury reaches logically irreconcilable verdicts - for example, acquitting a defendant of possessing drugs with an intent to distribute, but convicting her of using a phone to commit that offense? The Supreme Court has unanimously decreed that a court should leave the verdicts undisturbed. To reverse the inconsistent conviction would not only require guesswork about what produced the inconsistency, but would also be unfair to the government, which cannot appeal the inconsistent acquittal. In this Article, Professor Muller demonstrates that this do-nothing approach to inconsistent verdicts masks a deep pro-government bias. He argues that the Court has both underestimated the risks that inconsistent verdicts pose to criminal defendants and overstated the impact of such verdicts on the government. He also observes that the Court has imagined only all-or-nothing solutions to the problem of inconsistent verdicts: either reverse all inconsistent convictions, or affirm them all. Professor Muller suggests three intermediate solutions that would allow courts to distinguish among inconsistent verdicts and disturb only those that are likely to have resulted from pro-government jury error. 

* * * * 

1. Multiple-Count Inconsistencies. - Juries sometimes return inconsistent verdicts on multiple counts against a single defendant. Claire's case, the third of the hypotheticals with which this Article began, is an example of multiple-count inconsistency - an example that closely tracks the facts of United States v. Powell, 23Link to the text of the note the leading Supreme Court case on the topic. Powell involved a compound federal crime, the crime of using a telephone to commit a federal drug felony. 24Link to the text of the note The crime is "compound" because it is a crime piggybacking on top of another crime: to be guilty of the telephone facilitation charge, the defendant must also be guilty of committing the underlying predicate drug felony. In Powell, the inconsistency arose because the jury acquitted the defendant of the underlying felony (conspiring to possess cocaine with the intent to distribute it), but convicted her of using a telephone to commit that very felony. 25Link to the text of the note The jury is instructed, in a case like Powell, that the underlying felony is an element of the telephone facilitation crime that must be proven beyond a reasonable doubt. 26Link to the text of the note When the jury in Powell delivered its inconsistent verdicts, it declared the underlying felony simultaneously proven and not proven, suggesting that the jury must have disregarded the court's instructions. 

Multiple-count inconsistencies are possible whenever the government tries a compound crime and its predicate offense together.  Compound offenses have proliferated in recent decades; Congress has created compound offenses in the areas of racketeering, 28Link to the text of the note money laundering, and narcotics trafficking. 30Link to the text of the note As the number of compound crimes has increased, the chances for multiple-count inconsistencies have increased as well. 

2. Multiple-Defendant Inconsistencies. - The second common type of inconsistent verdict is a single jury's acquittal of all but one of multiple defendants charged with jointly committing a crime that requires at least two participants. The common-law crime of riot is a good, if ancient, example. Under English law, that crime required three participants. It was legally impossible for fewer than three people to riot. Thus, if three defendants stood trial together for riot, and the jury convicted only one of them, this was a fatally inconsistent verdict, and the conviction could not stand. Other crimes that have been understood to require more than one participant are adultery, incest, fornication, bigamy, miscegenation, and dueling.  

Some of these are no longer crimes in this country; others are rarely, if ever, prosecuted. But conspiracy is still quite commonly prosecuted, and it requires at least two participants. The essence of conspiracy is an agreement between two or more people to commit some unlawful act. Thus, in order to sustain a defendant's conviction for conspiracy, the government must prove beyond a reasonable doubt that the defendant agreed with someone that an unlawful act would be committed.  

Conspiracy cases obviously present a significant risk of inconsistent verdicts when all of the alleged co-conspirators are tried together. In fact, the risk was great enough, and the occurrence of such verdicts frequent enough, that courts developed a rule for resolving challenges to inconsistent conspiracy convictions. That rule - now followed in only a few jurisdictions - is known as the "rule of consistency." Based on the idea that "it is impossible in the nature of things for a man to conspire with himself," the rule sees the failure of a conspiracy charge against one of two alleged co-conspirators as a failure against both. It therefore "requires the reversal of a defendant's conspiracy conviction if all his coconspirators are acquitted of the same conspiracy charges" in a single trial.  

To date, almost every federal court of appeals has either abandoned or severely criticized the rule. Unfortunately, they have not replaced it with any rational alternative. Before examining the courts' current response to inconsistent verdicts in greater detail, I must first explain what prompts juries to reach inconsistent verdicts.

* * * * 

VI. Conclusion 

The Supreme Court's response to the problem of inconsistent criminal jury verdicts is distressing. The Court correctly concedes that inconsistent verdicts reveal jury error, but sees only all-or-nothing remedies for that error: either reverse all inconsistent convictions or affirm them all. The Court has rightly seen the former remedy as unfair to the government, because it would strip the government of even those convictions in which it, rather than the defendant, was the victim of the jury's error. And so the Court has turned to the remedy of doing nothing - automatically affirming all inconsistent convictions.
Doing nothing will not do. The error that inconsistent verdicts reveal may harm the government; it may result from a genuine desire on the part of the jury to show leniency. Or it may not, and if it does not, the error may compromise the reasonable doubt standard, a fundamental protection of the criminal defendant, or it may reveal hostility, bias, or some other improper animus on the jury's part. At the very least, an inconsistent verdict is a warning signal that something may have gone awry in the jury room, to the defendant's detriment. We do not generally ignore warning signals: the flashing red light on the dashboard means that it is time to open the hood and check the engine. If we take warning signals seriously in life, we should also do so in the law. The reform proposals in this Article have the virtue of taking the jury's warning signal seriously. 

Of course, when it comes to jury verdicts, we cannot do the equivalent of throwing open the hood and looking at the engine, because we are deeply committed to the secrecy of jury deliberations. We believe that juries will deliberate better when they deliberate in confidence, so we blind ourselves to post-verdict evidence of jury error. That is probably a wise judgment, and in any event, it is an ancient one we are unlikely to revisit. But there is one narrow window into the jury's deliberations that we allow ourselves to peer through. That window is the jury's verdict. When we also blind ourselves to the error that appears through that one window, we achieve a very foolish consistency.

Irinia Kotchach Bleustein, Anna E. Bodi and Anna Majestro, Federal Criminal Conspiracy, 52 Am. Crim. L. Rev. 1089, 1113-1114 (2015) [no link; some footnotes omitted].

B. Joinder and Severance 

The prosecutor must decide whether to try co-conspirators jointly or separately. n146 Although joint trials create the danger that the fact-finder will not be able to distinguish the more guilty parties from other less culpable co-conspirators, n147 conspiracy charges usually provide a proper basis for joinder. n147 Severance will be granted only if a defendant can make "a strong showing of prejudice." n149
   n146 Traditionally, under the "rule of consistency," if conspirators were tried together, one conspirator could not be convicted under § 371 if the other conspirators were acquitted. See United States v. Velasquez, 885 F.2d 1076, 1090-91 (3d Cir. 1989) (holding when evidence was insufficient to convict co-conspirator of conspiracy, the evidence was also insufficient to convict defendant). See generally Eric L. Muller, The Hobgoblin of Little Minds? Our Foolish Law of Inconsistent Verdicts, 111 HARV. L. REV. 771, 781-82 (1998) (describing traditional rule). Today, this rule--which never required the acquittal of the last-tried defendant if the defendants were tried separately, has been rejected by all but the Seventh Circuit. See, e.g., Robertson v. Klem, 580 F.3d 159, 161 n.1 (3d Cir. 2009) ("[T]he fact that all alleged coconspirators are acquitted does not undermine a defendant's otherwise valid conviction for a conspiracy offense."); United States v. Nichols, 374 F.3d 959, 971 n.9 (10th Cir. 2004) (recognizing for the first time that the rule of consistency, as applied to co-conspirators, is no longer good law), vacated on other grounds, 543 U.S. 1113 (2005); United States v. Crayton, 357 F.3d 560, 564-65 (6th Cir. 2004) (noting that the "rule of consistency" is no longer considered good law). But see United States v. Mancari, 875 F.2d 103, 104 (7th Cir. 1989) (acquitting defendant of conspiracy due to the government's concessions regarding the "rule of consistency" and a lack of evidence that defendant had other co-conspirators during the time frame alleged in the indictment).
   n147 See Kotteakos v. United States, 328 U.S. 750, 774 (1946) (explaining danger of transference of guilt is "so great that no one really can say prejudice to substantial right has not taken place"); United States v. McVeigh, 169 F.R.D. 362, 370-71 (D. Colo. 1996) (recognizing joint trial of defendants presented unacceptable risk of prejudice to both and granting defendants' motions for severance).
   n148 [footnote omitted]
   n149 [footnote omitted]

Majority and Dissenting opinions in Getsy v. Mitchell, 495 F.3d 295, 319-322 (6th Cir. 2007) (en banc), here.  Getsy involved the issue of whether two different sentences -- one a death sentence and one a life sentence -- imposed in two separate trials were unconstitutionally disproportionate.  I quote first from the majority opinion, focusing only on the inconsistent verdict portion of the opinion (pp. 304-309):

The primary issue raised by Getsy, and the only issue certified for appeal by the district court, is whether Getsy's sentence was unconstitutionally arbitrary or disproportionate in relation to that received by Santine. Getsy's argument ultimately rests on the fact that Santine, the mastermind who directed codefendants Getsy, Hudach, and McNulty to kill Charles Serafino, did not receive the death penalty. Santine's indictment mirrored Getsy's. In a separate trial that took place after Getsy's, Santine was convicted of aggravated murder and aggravated burglary, but was acquitted of all the capital specifications charged and thus ineligible for the death penalty. Getsy claims that this disparity renders his death sentence arbitrary and disproportionate.

* * * *

Moreover, we have long held that the common-law rule of consistency has no application to conflicting verdicts returned by different juries in separate trials. See United States v. Newton, 389 F.3d 631, 636 (6th Cir. 2004) (noting that the rule of consistency "was not applied if co-conspirators were separately tried"), vacated in part on other grounds, 546 U.S. 803, 126 S. Ct. 280, 163 L. Ed. 2d 35 (2005); United States v. Sachs, 801 F.2d 839, 845 (6th Cir. 1986) ("[I]f coconspirators are tried separately, the acquittal of all other coconspirators does not mandate acquittal as to the remaining conspirator. . . . In other words, it is not necessarily inconsistent for two juries to reach differing results."); see also Cortis v. Kenney, 995 F.2d 838, 840 (8th Cir. 1993) (same); United States v. Lewis, 230 U.S. App. D.C. 212, 716 F.2d 16, 22 (D.C. Cir. 1983) (same); United States v. Sangmeister, 685 F.2d 1124, 1126-27 (9th Cir. 1982) (same); United States v. Espinosa-Cerpa, 630 F.2d 328, 333 (5th Cir. 1980) (same). This well-established precedent squarely precludes the old common-law rule from applying under the circumstances of this case. 

Getsy simply had no constitutional guarantee that his jury would reach the same results as prior or future juries dealing with similar facts, irrespective of the offense with which he was charged. Criminal defendants are instead protected from irrational convictions by the due process requirement that a conviction must be supported by sufficient evidence. Powell, 469 U.S. at 67 ("[A] criminal defendant already is afforded protection against jury irrationality or error by the independent review of the sufficiency of the evidence undertaken by the trial and appellate courts. We do not believe that further safeguards against jury irrationality are necessary."); see also Espinosa-Cerpa, 630 F.2d at 332 n.5 (explaining the ancient origin of the English common-law rule of consistency and "its inappropriateness to a modern American criminal system in which all verdicts obviously are, and always have been, subject to independent review for evidentiary support"). Thus, the constitutionality of Getsy's murder-for-hire conviction turns not on any fortuity regarding when he was tried or with whom, nor on the caprice permissible in another jury's decision to acquit on similar facts, but rather on the sufficiency of the evidence presented at his own trial. 

Only where a court declares that the evidence is legally insufficient to support the conspiracy conviction of one defendant must the conviction of the sole coconspirator also be voided. Morrison v. California, 291 U.S. 82, 93, 54 S. Ct. 281, 78 L. Ed. 664 (1934) (reversing two defendants' joint conspiracy convictions where due process precluded the state's reliance on a legal presumption to establish an element of the conspiracy). We pause to emphasize that, contrary to the view of the dissent, "[a] court's determination that there is insufficient evidence to convict cannot be equated with a jury's determination that a defendant, for whatever reason, should be acquitted." Crayton, 357 F.3d at 566. Apparently recognizing this fundamental distinction, Getsy himself has never argued that Morrison applies to his case, even in the wake of the original-panel majority's unwarranted reliance on that decision. Nevertheless, the dissent presses on with this argument, overlooking the critical distinction between a determination made by a court as a matter of law -- with which Morrison dealt -- and a jury verdict. (All discussion in this opinion of the dissent or the dissenting opinion refers to the lead dissent authored by Judge Merritt.) 

Santine's case was allowed to go to a jury, and that jury ultimately acquitted him of the murder-for-hire specification. But the very fact that the issue was submitted to a jury indicates that the evidence against him was not so deficient that the trial court could decide the question as a matter of law. Furthermore, jury verdicts differ intrinsically from decisions made by a court. See Crayton, 357 F.3d at 566; see also Powell, 469 U.S. at 66 (noting, in the context of inconsistent verdicts in a single trial, that "[t]he fact that the inconsistency may be the result of lenity, coupled with the Government's inability to invoke review, suggests that inconsistent verdicts should not be reviewable"). Although the dissent points out that the Supreme Court has "never retracted or narrowed" the holding in Morrison, neither has the Court ever expanded it to require the reversal of one conspirator's conviction or sentence in light of a coconspirator's acquittal by a separate jury. Certainly Enmund v. Florida, 458 U.S. 782, 102 S. Ct. 3368, 73 L. Ed. 2d 1140 (1982), in which the Supreme Court reversed the death sentence of a defendant on the ground that he did not personally kill or intend to kill anyone, was not such a case.

* * * *

The dissent's references to Aristotle, Sir Francis Bacon, Sir Edward Coke, and English cases beginning in the year 1599 strike us as quite scholarly, even if only marginally relevant. Obviously the controlling law is that of the United States Supreme Court, not the King's Bench. What the dissent's historical exposition fails to cite is even a single instance in which the Supreme Court or any federal court has ever reversed one defendant's sentence or conviction based on another defendant's later acquittal by a separate jury. The dissent does not, because it cannot, explain how such a supposedly well-established rule has remained hidden within this country's federal jurisprudence for so long a time.

Now, for Judge Merritt's lead dissenting opinion (pp. 319-322):

I. The Invalidity of Inconsistent Verdicts in Prosecutions Based on A Criminal Agreement 

Since 1599 during the reign of Queen Elizabeth I, when Sir Edward Coke was Attorney General and the young philosopher-scientist, Sir Francis Bacon, was Queen's Counsel, the rule of Anglo-American law has been that "one cannot conspire alone," or alone commit a contract crime like murder for hire. This exact language was first enunciated in Marsh v. Vaughn, 78 Eng. Rep. 937 (Q.B. 1599). The opinion of the Queen's Bench states as follows: 

The defendants pleaded not guilty, and the one was found guilty and the other not. And it was hereupon moved, that the bill should abate; for it ought to be against two, and the one cannot conspire alone; and the one being acquitted, the other sole cannot be attainted. 

Id. (Emphasis added.) This is no judicial aberration. This is the way English law has dealt with such disproportionate punishment. This rule has been consistently followed in English law from that day to this. See, e.g., Harison v. Errington, 79 Eng. Rep. 1292 (K.B. 1627) (riot); Rex v. Grimes, 87 Eng. Rep. 142 (K.B. 1688) (two were charged with " confederationem" and "though one was acquitted, yet the jury had found the other guilty" requiring the court to quash the guilty verdict); Rex v. Kinnersley, 93 Eng. Rep. 467 (K.B. 1719) (same); Queen v. Thompson, 117 Eng. Rep. 1100 (Q.B. 1851) (same); Rex v. Plummer, 2 K.B. 339, 345 (1902) (court invalidated a conspiracy conviction after a guilty plea when the defendant's two alleged co-conspirators were acquitted). See also IV Blackstone's Commentaries on the Laws of England, ch. 10, P 15, p. 136 (1765) (Legal Classics Library 1983) (requiring conviction of two to constitute a criminal agreement "for there must be at least two to form a conspiracy"). This ancient rule of consistency and proportionality in punishment was legislatively enacted by Parliament in 1977, Criminal Law Act, 1977, ch. 45 § 5(8), which provides that when other persons charged with a criminal agreement "have been acquitted of conspiracy by reference to that agreement (whether after being tried with the person convicted or separately) the conviction shall be quashed if under all the circumstances of the case his conviction is inconsistent with the acquittal of the other." For more than four centuries, from 1599 until the present day, that has been the law. Since the time of Lord Coke, the English courts under this doctrine would never have let Getsy's conviction of murder for hire stand. 

In a supreme instance of legal legerdemain, the majority opinion in this case tries to spin the opinion of the Supreme Court in United States v. Powell, 469 U.S. 57, 105 S. Ct. 471, 83 L. Ed. 2d 461 (1984), into a rejection of this ancient rule and the rule's insistence on a measure of rationality, consistency and proportionality in punishment. That reliance is completely specious because Powell is not a multi-defendant case in which a defendant's conviction of a criminal agreement with another stands as the jury acquits his only alleged co-conspirator. Powell was simply a single defendant situation in which the jury convictions on separate counts were inconsistent under one reading of the charges made in the separate counts. There the Supreme Court, relying on language from an earlier opinion by Justice Holmes, held that the separate counts provided rough equity or fairness in holding that the Powell defendant must take the bad count with the good counts. See 469 U.S. at 62 (quoting and agreeing with Justice Holmes in Dunn v. United States, 284 U.S. 390, 393, 52 S. Ct. 189, 76 L. Ed. 356 (1932), in which Holmes relied on an English case from the Queen's Bench, Latham v. The Queen, 122 Eng. Rep. 968 (Q.B. 1864), for the proposition that "each Count in an indictment is regarded as if it was a separate indictment"). 

It is impossible to legitimately rely on Powell and Dunn here because two terms later in Morrison v. California, 291 U.S. 82, 54 S. Ct. 281, 78 L. Ed. 664 (1934), the Supreme Court in a unanimous opinion by Justice Cardozo, followed the ancient English rule that an inconsistent verdict of conviction in a multiple defendant case based on a criminal agreement must be quashed as a matter of due process. In that case the Court found in a state criminal case that the California Supreme Court erred in violation of the Due Process Clause in upholding a conspiracy verdict against one party to an illegal contract for the sale of land when the other party lacked the requisite element of intent and was, therefore, acquitted. Justice Cardozo explained: 

It is impossible in the nature of things for man to conspire with himself. Turinetti v. United States, 2 F. (2d) 15, 17. In California as elsewhere conspiracy imports a corrupt agreement between not less than two with guilty knowledge on the part of each. People v. Richards, 67 Cal. 412, 7 P. 828; People v. Kizer, 22 Cal. App. 10, 14, 133 P. 516; 134 id. 346; People v. Entriken, 106 Cal. App. 29, 288 Pac. 788; DSands v. Commonwealth, 62 Va. 871,21 Gratt. (Va.) 871, 899; Pettibone v. United States, 148 U.S. 197, 203, 205, 13 S. Ct. 542, 37 L. Ed. 419. . . . In such circumstances the conviction of Morrison because he failed to assume the burden of disproving a conspiracy was a denial of due process that vitiates the judgment as to him. Nor is that the only consequence. . . . . The conviction failing as to the one defendant must fail as to the other. Turinetti v. United States, supra; Williams v. United States, 282 Fed. 481, 484; Gebardi v. United States, supra. 

291 U.S. at 92-93 (emphasis added). Under the Due Process Clause of the Fourteenth Amendment, the Supreme Court reversed the conspiracy conviction and followed the English rule in existence when our Constitution was framed. The Court has never questioned the validity of its unanimous due process holding in Morrison . It has never retracted or narrowed the constitutional holding quoted above derived directly from the ancient English rule. See, e.g., Hartzel v. United States, 322 U.S. 680, 682 n. 3, 64 S. Ct. 1233, 88 L. Ed. 1534 (1944) (the Court described two other defendants as "the only co-conspirators of petitioner named in the indictment and the setting aside of their convictions makes it impossible to sustain petitioner's conviction upon the basis of count 7 of the conspiracy count"). In Powell, relied on in error by the majority, the Supreme Court does not even mention Morrison or the traditional rule -- obviously considering it unrelated to Powell's single-defendant, separate count inconsistency, just as the English courts considered the two rules completely unrelated, as Justice Holmes recognized in his opinion in Dunn. Powell is, therefore, entirely irrelevant to the problem before us and cannot be legitimately spun as a justification by the majority in favor of upholding Getsy's execution. 

It is equally misguided for the majority to say that a clear, unanimous constitutional holding in 1934 in Morrison, never overruled or questioned since, does not meet the standard of "clearly established law" found in AEDPA. If a clear rule of law four centuries old, adopted as a matter of Due Process 70 years ago by the Supreme Court, will not meet the AEDPA test, nothing will. 

In response to this dissenting opinion, the majority has attempted to distinguish the Morrison case. It says that Morrison does not apply because (a) one of the two alleged co-conspirators, Santine, was acquitted by a jury rather than by a court, and because (b) the inconsistent punishment in this case was imposed "by different juries in separate trials" instead of in a joint trial. The majority would create a brand new "ancient" rule that is incompatible with the original common law rule and with the Morrison case. They gut the ancient rule of consistent and proportional punishment adopted in Morrison by limiting it to situations where only a judge rather than a jury has acquitted one of the two alleged co-conspirators, and then only after a joint trial. These two exceptions were explicitly rejected by the English common law and by Parliament, as the cases and parliamentary action discussed above clearly demonstrate. The majority refuses to acknowledge that the English common law rule adopted in Morrison applies to jury acquittals in separate trials. 

Justice Cardozo's unanimous opinion in Morrison states the rule it adopts using the same language as the English courts: "It is impossible in the nature of things for a man to conspire with himself . . . . The conviction failing as to one defendant must fail as to the other." 291 U.S. at 93. This language states a general rule and leaves no room for the majority's two exceptions. The Morrison rule does not turn on fortuitous circumstances like whether the trial judge granted a severance and tried the defendant separately, or granted a motion for acquittal rather than letting the case go to the jury. In the present case, Getsy and Santine were indicted jointly but severed for trial. The majority makes the question of life or death in this case turn on the granting of a severance. My colleagues in the majority refuse to carry out the basic purpose of the rule: the elimination of inconsistent and disproportionate punishment among alleged co-conspirators. 

In addition, and equally important, the effect of the majority's exception for separate trials is to make Morrison and the ancient rule completely inapplicable to all modern death penalty cases. The states that continue to use the death penalty bifurcate such trials by conducting a guilt phase trial and then a second trial for imposing the punishment. E.g., Ohio Rev. Code § 2929.03 (describing trial jury's role in determining the sentence for a capital defendant). As a result, trial judges in capital cases now grant a severance and try defendants separately rather than jointly. The bifurcation of all capital trials, together with extensive voir dire of jurors and the present requirements for jury findings of individual aggravating circumstances, makes the conduct of multi-defendant capital trials too complex. Therefore, the current practice in capital cases is to grant a severance and try defendants separately, as in the case of Getsy and Santine. The majority's exceptions mean that the ancient rule of consistency and proportionality of punishment no longer applies in death penalty cases because such trials are not conducted as joint trials. 

The ancient rule was adopted and applied when there were almost 200 crimes in addition to murder carrying the death penalty -- robbery, larceny, burglary, rape, assault, treason, sedition, blasphemy, sodomy, and many others. The ancient rule was designed to eliminate some of the harshness and arbitrariness of the death penalty by introducing a common sense rule of consistency and proportionality among the participants in the same criminal episode. It is ironic, indeed, that the majority has now eliminated the rule in capital cases. What was true for four centuries in such cases -- "it is impossible in the nature of things for a man to conspire with himself" -- is no longer true. The majority is willing to destroy the ancient rule, but the judges are unable to cite a single capital case supporting their position from the entire history of Anglo-American law. No such case has ever suggested, much less applied, the majority's exceptions. The Morrison rule has existed for four centuries only to be effectively overruled today in capital cases by the majority of this Court.

Eighth Circuit Affirms Adult Entertainer's Conviction for Tax Perjury and Sentencing for Unreported Income for Sexual Services (3/20/16)

In United States v. Fairchild, ___ F.3d ___, 2016 U.S. App. LEXIS 4858 (8th Cir. 2016), here, the Court opens the drama:

A jury found Veronica J. Fairchild guilty on four counts of making and subscribing a false tax return, in violation of 26 U.S.C. § 7206(1). The district court n1 sentenced Fairchild to 33 months' imprisonment. On appeal, Fairchild argues that (1) insufficient evidence supports the jury's finding that Fairchild knowingly and willfully underreported her income; (2) the district court abused its discretion in failing to instruct the jury that it was required to unanimously agree on which source of income that Fairchild failed to report on her income tax return; and (3) the district court improperly calculated Fairchild's Guidelines range and imposed a substantively unreasonable sentence. We affirm.

Highly summarized, the facts are:  Fairchild was a female adult entertainer who received large sums of money (over $1,000,000) from one of her customers and smaller significant sums from another.  She failed to file timely income tax returns during the years in which she received the income but subsequently filed delinquent tax returns for the years "apparently unaware of the ongoing IRS investigation."  (The delinquent returns were apparently needed in order to obtain financing for a real estate purchase.)  In those delinquent returns, she reported about 1/2 the amount that the two customers had given her and probably most of that was from sources other than the two customers.  Fairchild claimed that the transfers from her two customers to her were gifts rather than compensation for services.

She claimed that when she met with her accountant in 2010 to prepare her tax returns, she decided to claim some of the gifts from Karlen as income to benefit him, so that he did not have to pay the taxes on all of it. To determine her income over the four years, she "decided that any time [she] spent with David [Karlen], anything that could be construed as income or considered a gray area at a thousand dollars an hour." She testified that she spent an average of two times per month with Karlen over the 48-month period, and she estimated that she spent approximately four or five hours with Karlen during each "session." She stated that she also included going out to eat with Karlen as part of the billable time. Fairchild calculated that she had earned "about $120,000 a year" for each of the four years for services that she provided to Karlen. She testified that, at the time that she filed the tax returns, she believed that the money in excess of what she reported as income was "[g]ifts." But Fairchild admitted that "Karlen never used the word 'gift' with [her]."

I am leaving out some of the details from the opinion.  I think most readers can project the general nature of the details or can read the opinion to get them from the court.

1. Sufficiency of the Evidence.

Fairchild and her customers testified differently at trial as to what the payments were for.  There was sufficient evidence that the jury could determine that she underreported her income on the delinquent returns.  The Court then rejected Fairchild's claim that the nature of the payments was sufficiently unclear that she was not willful in underreporting the income.  Arguing lack of proof of willfulness beyond a reasonable doubt is often the only ultimate defense in criminal tax cases.  Here is what the Court says:

Fairchild argues that even if her statement of income was inaccurate, the evidence was insufficient to show that she knew and believed that she had underreported her income. According to Fairchild, the nature of the money that she received from Karlen and Pietz was "unclear." She notes that she, Karlen, and Pietz all gave different accounts of the nature of the money over time and that her accountant did not know how to categorize the money for tax purposes. She asserts that she "liberally" estimated the money received from Karlen and Pietz as payment for private parties. She cites her testimony at trial that she "truly believed that she accurately declared income from these private clients and that the remainder of the money was gifted to her." She concludes that because of the "widespread confusion over the nature of the money, no rational juror could have found that [she] believed that the declaration of her income was false." Fairchild also argues that the evidence was insufficient to show that she willfully made and subscribed false tax returns. She asserts that she sincerely held this belief and that she did not willfully violate the tax laws because she had a good-faith belief that the money that she received from Karlen and Pietz above and beyond the amount that she declared as income was a gift. 

"Filing false tax returns is a specific intent crime requiring a showing of willfulness, which 'simply means a voluntary, intentional violation of a known legal duty.'" United States v. Mathews, 761 F.3d 891, 893 (8th Cir. 2014) (quoting Cheek v. United States, 498 U.S. 192, 201 (1991)). "Intent may be inferred from conduct, and [w]illfulness in a criminal tax case may be established by a consistent pattern of not reporting income or inconsistently reporting income." Id. at 893 (alteration in original) (quotations and citations omitted). Furthermore, the factfinder may infer from the facts of the case whether an act was committed willfully. Id. at 894. 

Fairchild contends that the government failed to prove that her conduct was willful because there was evidence of her good-faith belief that she was not violating the tax laws. "'The issue is whether, based on all the evidence, the [g]overnment has proved that [Fairchild] was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable.'" United States v. Morse, 613 F.3d 787, 794 (8th Cir. 2010) (first alteration in original) (quoting Cheek, 498 U.S. at 202). The government frequently must prove intent "by circumstantial evidence; the determination often depends on the credibility of witnesses, as assessed by the factfinder." United States v. Morris, 723 F.3d 934, 939 (8th Cir. 2013) (quotation and citation omitted). "The jury may infer intent from the Appellants' conduct, such as inconsistencies between Appellants' representations to government agencies and other entities." Id. (citation omitted). Because "knowledge . . . turns in large part on the credibility of the witnesses," it "is peculiarly within the province of the factfinder." Id. (quotation and citation omitted). For that reason, a jury is "free to disregard [a defendant's] statements as not credible" in evaluating whether the defendant had a "'good[-]faith belief' that he was properly preparing his tax returns." Mathews, 761 F.3d at 894. 

We hold that sufficient evidence exists to support the jury's finding that Fairchild knew and believed that she had underreported her income and that she willfully did so. At trial, Fairchild testified that she truly believed that she accurately declared income from Karlen and Pietz and that the remainder of the money was a gift to her. But, "the jury was free to disregard [Fairchild's] statements as not credible." See Mathews, 761 F.3d at 894.

2. Jury Instructions.

The indictment charged that the false statements on the return were the amount of income reported and the amount of tax reported (too low as a result of the amount of income reported).  In this regard, tax perjury does not require a tax due and owing as does tax evasion, but understating the the amount of tax due can be a false statement for the tax perjury conviction.  As to those false statements the instruction in question said:

The Indictment charges that both the income and tax liability owed were false as stated by Fairchild in the tax returns in question. It is not necessary for the government to prove both. It would be sufficient if the government proves beyond a reasonable doubt that Fairchild made and signed an individual income tax return that was false as to either the income or the tax liability owed. To find the government has met its burden on this element, however, you must unanimously agree on whether the false matter was regarding Fairchild's income, tax liability owed, or both. If you are unable to unanimously agree, you cannot find Fairchild guilty.

Fairchild's counsel objected to this instruction and proposed an alternative instruction that focused on underreporting the income, with the underreported tax resulting from the income underreported, with the addition that, if the jury found that she did not underreport her income then she did not understate her tax liability.  That seems basically fair.  But, the requested instruction also stated the jury must

find the government has met its burden on this element in Count 4, you must unanimously agree on whether Fairchild understated her taxable income from David Karlen, her taxable income from Paul Pietz, or both. If you are unable to unanimously agree, you cannot find Fairchild guilty on Count 4. 

As reported by the Court of Appeals, Fairchild's counsel concern was:

Counsel's concern was that the jury could convict Fairchild "without all 12 of them agreeing on what the actus reus is in this case, what wrong thing she did is in Count 4" because Count 4 involved "evidence about false reporting David Karlen and false reporting Paul Pietz." According to counsel, a "real chance" existed that six jury members could believe that Fairchild lied about Karlen but not Pietz, while the other six members could believe that Fairchild lied about Pietz but not Karlen. Counsel asserted that the jury "would recognize that that means acquittal on Counts 1 through 3 where Karlen is the only issue." But he contended that unless the jurors were "specifically instructed about their duty to unanimously agree to a particular set of facts [on Count 4], they could . . . say, well, on Count 4 six of us agree she lied about Karlen. Six of us agree she lied about Pietz. Six plus six is 12, guilty."  The trial court refused the requested instruction as unnecessary. 

On appeal, Fairchild argues that because the government presented evidence of multiple sources of allegedly unreported income, the indictment was duplicitous, and the district court's jury instructions failed to ensure that the jury reached a unanimous verdict for each count. Fairchild concedes that her "duplicity argument does not rest on the language of the indictment." But she asserts that "this is not damning to [her] argument" because "the potential for a nonunanimous verdict arose out of the evidence of multiple sources of unreported income for each tax year," meaning that "the jury should have been instructed to agree on the willful falsity of 'one factually distinct false statement.'" (Quoting United States v. Duncan, 850 F.2d 1104, 1113 (6th Cir. 1988), overruled on other grounds by Schad v. Arizona, 501 U.S. 624 (1991).) She asserts that her proposed jury instruction "would have cured [the indictment's] duplicity" and ensured jury unanimity. 

As Fairchild admits in her brief, she is not attacking the language of the indictment; that is, she does not argue that "the indictment is . . . duplicitous on its face. Instead, [she argues that] the indictment was rendered duplicitous by the evidence presented at trial." United States v. Pietrantonio, 637 F.3d 865, 871 (8th Cir. 2011) (citing United States v. D'Amico, 496 F.3d 95, 100 (1st Cir. 2007) ("[T]he fact that an indictment is not duplicitous on its face of course does not guarantee that a jury verdict will be unanimous, based on the evidence actually presented.")). Fairchild maintains that the government created a duplicitous indictment by presenting three sources of "underreported" income at trial: (1) unreported checks from Karlen and unreported tips for dancing in clubs in 2005; (2) unreported checks from Karlen and unreported income for dancing in clubs in 2006 and 2007; and (3) unreported checks from Karlen, unreported checks from Pietz, and unreported tips for dancing in clubs in 2008. Fairchild asserts that to reach a unanimous verdict, the jury needed to agree on which income that Fairchild failed to report for each tax year. 

The present case is analogous to United States v. Adler, 623 F.2d 1287 (8th Cir. 1980). In that case, the defendant was charged with Medicare fraud for submitting false invoices to Medicare for reimbursement. Id. at 1288. Each count of the indictment concerned a different invoice (comparable to each count of Fairchild's indictment concerning a different tax year). Id. at 1289. Additionally, each invoice had multiple fraudulent line items on it (comparable to evidence of multiple sources of Fairchild's unreported income for each year). Id. at 1290. The defendant challenged the indictment as duplicitous because some of the counts involved invoices with more than one fraudulent line item on them. Id. We rejected the defendant's argument, explaining that "the government charged only one crime in each count of the indictment. There may be more than one piece of evidence to support each count, but that certainly does not make the counts duplicitous." Id. (citations omitted). "In other words, each invoice was a single execution, and the line items on each invoice were merely additional means of pursuing the single execution." United States v. Palazzo, 372 F. App'x 445, 452 (5th Cir. 2010) (per curiam) (citing Adler, 623 F.2d at 1290). Similar to Adler, each one of Fairchild's tax returns was "a single execution," and the multiple sources of unreported income contained in each tax return constituted "multiple means of accomplishing" Fairchild's making of a false statement as to her income and tax liability for a particular tax year. See id. 

As the government points out, requiring the jury to decide unanimously whether the unreported income came from Karlen, Pietz, or another source was unnecessary because it was not an essential element of the crime; each source provided alternative pieces of evidence to support each count of the indictment. 

Fairchild relies primarily on Duncan in arguing that because each juror could have found a different source of unreported income for each of her tax returns, there was a significant risk of a nonunanimous verdict on each count. See Duncan, 850 F.2d at 1111 (concluding that an indictment alleging separate false statements for one count of violating 26 U.S.C. § 7206 was duplicitous after finding that the "essence of the statute lies in the willful falsity of a statement"). Duncan, however, provides no support. Duncan involved an extremely complex count with what that court considered "a tangible risk of jury confusion." Id. at 1114. The instant case was neither extremely complex nor posed a tangible risk of confusion for the jury.  

* * * * 

Even assuming duplicity in the indictment, the district court's instruction cured any potential prejudice created thereby. "Courts have held that the risk of a nonunanimous verdict inherent in a duplicitous count may be cured when the jury is given a limiting instruction that requires it to unanimously find the defendant guilty with respect to at least one distinct act." United States v. Karam, 37 F.3d 1280, 1286 (8th Cir. 1994) (citations omitted). In the present case, the district court gave such a limiting instruction by requiring the jury to "unanimously agree on whether the false matter was regarding Fairchild's income, tax liability owed, or both." 

Accordingly, we hold that the district court did not abuse its discretion in instructing the jury.

3.  The Sentence.

As readers of this blog know, the sentencing court must compute the sentencing guidelines which produce a sentencing range driven primarily by the tax loss involved (both for counts of conviction and unconvicted relevant conduct) but then have wide discretion under Booker to fashion an appropriate sentence outside the guidelines range.  The first step is computing the guidelines range.  The Court held that the sentencing court had properly computed the range, including the component parts to get to the range.  Specifically, the Court sustained the tax loss calculation and the two-level enhancement for failing to report income in excess of $10,000 from "criminal activity."  The sexual services, the Court said, was illegal under state and federal law.

Fairchild also argued for a Booker downward variance.  The sentencing court denied that request, so on appeal Fairchild argued that the sentencing court was substantively unreasonable in denying a Booker downward variance "for failing to take into account her personal history and family situation and for being greater than necessary under the circumstances."  Among her arguments for downward variance were "failing to account for the effects of past sexual abuse and her status as the sole parent to three young children.."  Generally, a sentence within the guidelines ranges are presumed reasonable.  In rejecting Fairchild's arguments for downward variance, the sentencing considered other context.  As recounted by the Court of Appeals:

The court explicitly stated, "In deciding your sentence, I look at a variety of things. You had a really hard life as a child. As an adult, you've been a great mom to your kids, and have even taken in a neighbor's child and ended up being the guardian for that child." But the court ultimately gave more weight to other 18 U.S.C. § 3553(a) factors, such as the nature and circumstances of the offense. The court noted that Fairchild has "been a wreck" "on the financial side of things" as evidenced by her continued misrepresentations to banks to obtain loans. Additionally, the court stated that one of its considerations "in deciding a sentence is what responsibility have people taken for their actions to start putting things in order" and found that Fairchild had not yet done so. Specifically, she had failed to file her tax return for the current year, did not file the return the prior year, and had not "paid any Federal income tax over a nine-year time period." The court found this "an indicator of whether [Fairchild has] accepted responsibility and whether [Fairchild is] trying to put things into order and make amends for what's happened, and [the court] d[idn]'t see that." The court noted that Fairchild's crime was a "serious" one and that it had "considered all the factors in 3553(a)(1) through (7), and [it] d[id] not believe there are grounds for a downward variance."

The Court of Appeals held that the sentencing court had not abused its discretion.

Eleventh Circuit Discusses the Plausible Inference of Impropriety In Order to Avoid Summary Enforcement of an IRS Summons (3/20/16)

The IRS summons power is the IRS's principal compulsory investigative tool.  In United States v. Clarke, 573 U.S. ___, ___, 134 S. Ct. 2361 (2014), here, the Supreme Court confirmed that the summons enforcement proceeding brought by the U.S. in a district court case against the noncomplying witness (usually the taxpayer or a party related to the taxpayer) is a summary proceeding where the IRS's prima facie showing is minimal.  In the original Clarke case, the compelled parties alleged improper purposes under Powell in order to obtain an evidentiary hearing in which it could examine IRS witnesses to establish the improper purpose.  At that time, most district courts summarily enforced the summonses with minimal, if any, evidentiary proceedings to explore the compelled parties' bare allegations of impropriety.  The Eleventh Circuit earlier bucked that trend and held that an evidentiary proceeding was required.  The Government obtained certiorari, and the Supreme Court remanded the case for further consideration under the standards it set forth in the opinion (set forth below).  Upon remand, the district court summarily enforced the summonses involved.  The case then went back to the Eleventh Circuit which, on March 15, sustained the district court's summary enforcement of the summons.  United States v. Clarke, ___ F.3d ___, 2016 U.S. App. LEXIS 4728 (11th Cir. 2016), here.  I will cut and paste and comment, as appropriate, on key parts of the Eleventh Circuit's opinion

First, the Court makes the introduction with a succinct summary of the applicable law.

The IRS's authority to investigate is extensive. See United States v. Arthur Young & Co., 465 U.S. 805, 816, 104 S. Ct. 1495, 1502 (1984). Under 26 U.S.C. § 7602(a), the IRS may issue a summons for the purpose of "ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax . . ., or collecting any such liability." See also United States v. Morse, 532 F.3d 1130, 1132 (11th Cir. 2008). 

The summons authority is subject to limitations. Under Powell, the IRS must make a four-part prima facie showing to obtain enforcement of a summons from the district court: that (1) "the investigation will be conducted pursuant to a legitimate purpose," (2) "the inquiry may be relevant to the purpose," (3) "the information sought is not already within the Commissioner's possession," and (4) "the administrative steps required by the Code have been followed." United States v. Powell, 379 U.S. 48, 57-58, 85 S. Ct. 248, 255 (1964). Afterward, "the burden shifts to the party contesting the summons to disprove one of the four elements of the government's prima facie showing or convince the court that enforcement of the summons would constitute an abuse of the court's process." United States v. La Mura, 765 F.2d 974, 979-80 (11th Cir. 1985). However, a court reviewing an enforcement petition "may ask only whether the IRS issued a summons in good faith, and must eschew any broader role of 'oversee[ing] the [IRS's] determinations to investigate.'" Clarke, 573 U.S. at ___, 134 S. Ct. at 2367 (alterations in original) (quoting Powell, 379 U.S. at 56, 85 S. Ct. at 254). 

Under Clarke, a taxpayer is entitled to examine an IRS agent concerning the issuance of a summons only when he can "make a showing of facts that give rise to a plausible inference of improper motive." Id. at ___, 134 S. Ct. at 2368. Examples of an improper purpose to issue a summons include harassment of the taxpayer or "any other purpose reflecting on the good faith of the particular investigation." Powell, 379 U.S. at 58, 85 S. Ct. at 255.

Second, the key question, of course, is what is the quality of "showing of facts that give rise to a plausible inference of improper motive."  The summonsed parties in Clarke alleged certain possibilities from which an inference might be made that the IRS might be improperly using the summons power.  Among the compelled witnesses' allegations was that the IRS summons was retaliation for refusing to extend the statute of limitations and  circumvention of the Tax Court discovery rules.  The district court enforced the summons stating that those allegations were insufficient as a matter of law.  The Court of Appeals disagreed.  The Eleventh Circuit held that the allegations were not insufficient as a matter of law if the compelled parties made a sufficient showing to raise the plausible inference of improper motive, but held that the compelled parties here had not made the showing. The Eleventh Circuit said (except for headings, bold face supplied by JAT):

1. Retaliation 

The district court dismissed Appellants' retaliation arguments chiefly because "[i]f information remains to be gathered and the statute of limitation has expired, the IRS has no alternative but to institute a formal summons process." Clarke III, 2015 WL 1324372, at *2. While this conclusion may be germane to the case at hand, it fails to meaningfully address the legal issue of whether issuing a summons only to retaliate against a taxpayer would be improper as a matter of law. We believe that it would. Using the summons power to retaliate against a taxpayer is akin to improper harassment of the taxpayer. The Supreme Court did not disturb our conclusion in Clarke I that "[i]f the IRS issued the summonses only to retaliate against [DHLP], that purpose 'reflect[s] on the good faith of the particular investigation,' and would be improper." 517 F. App'x at 691 (third alteration in original) (quoting Powell, 379 U.S. at 58, 85 S. Ct. at 255). The factual difficulty in differentiating between a retaliatory summons and a summons issued after a taxpayer's refusal to extend the limitations period has no bearing on this legal question. We conclude that issuing a summons for the sole purpose of retaliation against a taxpayer would be improper as a matter of law. 

2. Circumventing Tax Court Discovery 

Appellants argue that issuing an IRS summons in order to circumvent tax court discovery would be improper as a matter of law. There is ample case law in which taxpayers allege circumvention of tax discovery as an improper purpose to issue a summons. See, e.g., Ash v. Comm'r, 96 T.C. 459 (1991). However, because it is well-established that the validity of a summons is tested at the date of issuance and "[p]roceedings in the tax court do not extinguish the Commissioner's summons power," this claim is rarely tenable. United States v. Roundtree, 420 F.2d 845, 848 n.3 (5th Cir. 1969); United States v. Centennial Builders, Inc., 747 F.2d 678, 681 n.1 (11th Cir. 1984) (validity of a summons tested at date of issuance). This case is no different -- Agent Fierfelder's summonses were issued pursuant to a valid investigation of Appellants, within the limitations period, n6 and before the tax proceedings commenced. That the summoned information may assist the IRS in preparing for its case in the tax court is of no consequence -- the taxpayer became obligated to provide that information well before the tax case commenced.
   n6 The statute of limitation to assess a partnership return is suspended during the period in which the taxpayer may challenge the FPAA in court, or, until the court's decision becomes final, and then for one year after. 26 U.S.C. § 6229(d) (2012). The effect of this section in the instant case is that because the IRS issued the FPAA before the limitations period expired, its ability to assess and collect from DHLP is extended to one year following the tax court's final decision. Accordingly, despite Appellants' apparent arguments to the contrary, the limitations period to assess DHLP remains open. 

Notwithstanding the facts of the instant case, it would clearly be an improper purpose for the IRS to issue a summons in bad faith outside a legitimate investigation, with the sole motive of circumventing tax court discovery. See United States v. PAA Mgmt., Ltd., 962 F.2d 212, 219 (2d Cir. 1992) (distinguishing a summons issued after the initiation of tax court proceedings). We stress that given our deference to the IRS's broad authority to investigate, the circumstances under which a taxpayer could successfully allege improper circumvention of tax discovery are exceptionally narrow. However, we will not limit courts from examining distinct scenarios that may plausibly support such allegations. Accordingly, we conclude that issuing summons in bad faith for the sole purpose of circumventing tax court discovery would be an improper purpose as a matter of law. 

* * * * 

So, having held that impropriety by retaliation and avoidance of the Tax Court discovery rules could meet the improper purpose requirement of Powell, the Court then examined showing made and the inferences from that showing and found them not plausible.

C. Appellants' Submissions Under Clarke 

Although the district court erred in finding that the allegations set forth by Appellants could not constitute an improper purpose as a matter of law, the district court correctly found that Appellants failed to meet their burden under Clarke. Clarke permits a taxpayer challenging the enforcement of a summons "to examine an IRS agent when he can point to specific facts or circumstances plausibly raising an inference of bad faith." Clarke, 573 U.S. at ___, 134 S. Ct. at 2367. Although circumstantial evidence may support a plausible inference, mere conjecture or bare assertion of an improper purpose is not sufficient. Id. at ___, 134 S. Ct at 2367-68. 

Appellants' submissions raise many allegations, but no plausible inference of improper motive. First, the submission that the timeline of the issuance of the summonses supports an inference of retaliation by the IRS requires substantial conjecture that is both implausible and unsupported by the record. Further, none of Appellants' submissions suggest that the summonses were issued in bad faith anticipation of tax court proceedings rather than in furtherance of Agent Fierfelder's investigation. As conjecture and bare allegations of improper purpose are insufficient as a matter of law, we conclude that Appellants failed to meet their burden under Clarke and the district court did not abuse its discretion denying Appellants' request for an evidentiary hearing. 

D. Enforcement of the Summonses 

The validity of a summons is tested at the date of issuance. Centennial Builders, Inc., 747 F.2d at 681 n.1. Despite this, Appellants argue that the December 2010 issuance of the FPAA foreclosed the IRS's legitimate need for the summoned information. Appellants urge that the only conceivable use for the summoned information would be to improperly circumvent the tax court's discovery rules, and the enforcement of these summonses was an abuse of the district court's process that should be reversed. 

We conclude that Appellants' argument is unpersuasive as it ignores Appellants' statutory duty to comply with the summonses and overstates the impact of an FPAA on the IRS's investigatory authority. See 26 U.S.C. § 6230(h) (2012) ("Nothing in this subchapter [i.e., TEFRA] shall be construed as limiting the authority granted to the [IRS] under section 7602 [the summons provision]."); United States v. Couch, 409 U.S. 322, 329 n.9, 93 S. Ct. 611, 616 n.9 (1973) ("The rights and obligations of the parties [become] fixed when the summons [is] served."); PAA Mgmt., 962 F.2d at 217 (issuance of an FPAA does not render a later summons illegitimate); Sugarloaf Funding, LLC v. Dep't of Treasury, 584 F.3d 340, 349 (1st Cir. 2009). Because neither the issuance of the FPAA nor the initiation of a challenge in the tax court affects the IRS's investigatory authority under § 7602, Appellants failed to rebut the IRS's prima facie showing under Powell to bar enforcement of the summonses. That the IRS could conceivably attempt to introduce evidence from these summonses in the pending tax litigation does not rise to the level of an abuse of process contemplated by Powell. Further, it is the domain of the tax court to control discovery in the pending tax litigation. Ash, 96 T.C. at 470-71. Our concern is whether the summonses were validly issued, and -- as the district court correctly found -- they were. Accordingly, the district court did not err in enforcing the summonses.

JAT Comment:  The bottom line is that the opinion reinforces that avoiding summary enforcement once the IRS makes the Powell prima facie showing will be possible but extremely rare.  Necessarily, each case will be decided on its unique facts, but merely raising possible improper purposes is not the same as showing plausible inferences of improper purposes.