Supreme Court sets out requirements for criminal obstruction of tax administration
Supreme Court sets out requirements for criminal obstruction of tax administration
The Supreme Court, reversing the Court of Appeals for the Second Circuit, has held in a 7-2 opinion that, in order to obtain a conviction for violating Code Sec. 7212(a)’s Omnibus Clause, the Government must show that the taxpayer was aware of a pending tax-related proceeding, such as a particular investigation or audit, or could reasonably foresee that such a proceeding would commence.
Background. Under Code Sec. 7212(a), anyone who corruptly endeavors to intimidate or impede any officer or employee of the U.S. acting in an official capacity under the Code—or who in any other way corruptly obstructs, impedes, or endeavors to obstruct or impede the administration of the Code—is guilty of a crime. The above “who in any way…” language is known as the “Omnibus Clause.”
Specifically, Code Sec. 7212(a) provides:
“Whoever corruptly or by force or threats of force (including any threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force (including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both, except that if the offense is committed only by threats of force, the person convicted thereof shall be fined not more than $3,000, or imprisoned not more than 1 year, or both. The term “threats of force”, as used in this subsection, means threats of bodily harm to the officer or employee of the United States or to a member of his family.”
The courts have generally held that knowledge of a pending investigation or proceeding isn’t a requirement for imposition of the Code Sec. 7212(a) criminal penalty for corrupt interference with tax administration (U.S. v. Wood, (2010, CA10) 105 AFTR 2d 2010-3014; U.S. v. Massey, (2005, CA9) 96 AFTR 2d 2005-5305; U.S. v. Bowman, (1999, CA6) 83 AFTR 2d 99-2219; U.S. v. Westbrooks, (2017, CA5) 2017 WL 2269512)
In so holding in Bowman, the Sixth Circuit disagreed with its own earlier decision in U.S. v. Kassouf, (1998, CA6) 81 AFTR 2d 98-2066, which had held that Code Sec. 7212(a) didn’t apply unless there was a pending IRS action of which the taxpayer was aware. In the later decided Bowman, the Sixth Circuit concluded that despite a lack of proof of such knowledge, the taxpayer’s deliberate filing of false forms in order to get IRS to initiate action against his creditors was covered by Code Sec. 7212(a).
In Kassouf, the Court had analyzed the statutory phrase “the due administration of this title” and analogized the interpretation to that in 18 U.S.C. § 1503 (dealing with influencing or injuring an officer or juror generally). The Sixth Circuit looked to the Supreme Court’s decision in U. S. v. Aguilar, 515 U.S. 593 (1995), a decision which addressed the scope of conduct covered by 18 U.S.C. § 1503(a)’s broad prohibition on corrupt efforts to influence, obstruct, or impede the due administration of justice, and which limited this provision and required that the “action taken by the accused must be with an intent to influence judicial or grand jury proceedings.” In order to be convicted of corruptly interfering with the due administration of justice under 18 U.S.C. § 1503(a), a defendant must be aware that his conduct was “likely to affect the judicial proceeding.”
Facts. Between 2004 and 2009, IRS intermittently investigated the tax activities of Carlo J. Marinello, II (the taxpayer). In 2012, the Government indicted Marinello for violating, among other criminal tax statutes, Code Sec. 7212(a).
District court decision. The judge instructed the jury that, to convict Marinello of an Omnibus Clause violation, it must find that he “corruptly” engaged in at least one of eight specified activities, but the jury was not told that it needed to find that Marinello knew he was under investigation and intended corruptly to interfere with that investigation.
Appellate decision. The Second Circuit affirmed, rejecting Marinello’s claim that an Omnibus Clause violation requires the Government to show the taxpayer tried to interfere with a pending IRS proceeding, such as a particular investigation. The Court rejected the reasoning of the Sixth Circuit in Kassouf, finding that its analogy with the interpretation of 18 U.S.C. § 1503 was inapposite. The Court found that under Code Sec. 7212(a), “the due administration of this title” was not limited to a pending IRS investigation or proceeding of which the individual had knowledge. (U.S. v. Marinello, II, (CA 2 10/14/2016) 118 AFTR 2d 2016-6127)
Supreme Court decision. The Supreme Court 7-2 majority opinion concluded that the Government must prove the taxpayer was aware of a pending tax-related proceeding, such as a particular investigation or audit, or could reasonably foresee that such a proceeding would commence, in order to convict a taxpayer under the Omnibus Clause. The Court’s opinion was delivered by Justice Breyer, with Justices Roberts, Kennedy, Ginsburg, Sotomayor, Kagan, and Gorsuch joining in the opinion.
The Court reasoned that in Aguilar, it had interpreted a similarly worded criminal statute, 18 U. S. C. §1503(a), which made it a felony “corruptly or by threats or force… [to] influenc[e], obstruc[t], or imped[e], or endeavo[r] to influence, obstruct, or impede, the due administration of justice,” as requiring the Government to show there was a “nexus” between the individual’s obstructive conduct and a particular judicial proceeding. There, the Supreme Court said that the individual’s “act must have a relationship in time, causation, or logic with the judicial proceedings.”
In reaching its conclusion in Aguilar, the Court emphasized that it had “traditionally exercised restraint in assessing the reach of a federal criminal statute, both out of deference to the prerogatives of Congress and out of concern that ‘a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed.’ ” The Court found that this reasoning applied here with similar strength.
Analyzing Code Sec. 7212(a), the Supreme Court determined that the verbs “obstruct” and “impede” require an object. The taxpayer must hinder a particular person or thing. The object in Code Sec. 7212(a) is the “due administration of [the Code].” That phrase is best viewed, like the “due administration of justice” in Aguilar, as referring to discrete targeted administrative acts rather than every conceivable task involved in the Code’s administration. Statutory context confirms this reading.
The Omnibus Clause appears in the middle of a sentence that refers to efforts to “intimidate or impede any officer or employee of the United States acting in an official capacity.” (Code Sec. 7212(a)) The first part of the sentence also refers to “force or threats of force,” which the statute elsewhere defines as “threats of bodily harm to the officer or employee of the United States or to a member of his family.” And Code Sec. 7212(b) refers to the “forcibl[e] rescu[e]” of “any property after it shall have been seized under” the Code. Subsections (a) and (b) thus refer to corrupt or forceful actions taken against individual identifiable persons or property.
In context, the Omnibus Clause logically serves as a “catchall” for the obstructive conduct the subsection sets forth, not for every violation that interferes with routine administrative procedures such as the processing of tax returns, receipt of tax payments, or issuance of tax refunds. The statute’s legislative history does not suggest otherwise.
The broader context of the full Code also counsels against a broad reading. The majority opined that interpreting the Omnibus Clause to apply to all Code administration could transform the Code’s numerous misdemeanor provisions into felonies, making them redundant or perhaps the subject matter of plea bargaining. It could also result in a similar lack of fair warning and related kinds of unfairness that led this Court to “exercise” interpretive “restraint” in Aguilar.
The Government claimed that the “corrupt state of mind” requirement in Code Sec. 7212 (“whether corruptly or by force…”) would cure any overbreadth problem, but the Court stated that it is difficult to imagine a scenario when that requirement would make a practical difference in the context of federal tax prosecutions. And the Court stated that to rely on prosecutorial discretion to narrow the otherwise wide-ranging scope of a criminal statute’s general language places too much power in the prosecutor’s hands.
The Supreme Court held that, following the same approach taken in similar cases, the Government here must show that there is a “nexus” between the taxpayer’s conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action. The term “particular administrative proceeding” does not mean every act carried out by IRS employees in the course of their administration of the Code. Just because a taxpayer knows that IRS will review her tax return annually does not transform every Code violation into an obstruction charge. In addition to satisfying the nexus requirement, the Government must show that the proceeding was pending at the time the taxpayer engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant.
Dissenting opinion. A dissent by Justice Thomas, with Justice Alito joining, concluded that the Omnibus Clause does what it says: forbids corrupt efforts to impede the IRS from performing any of these activities. However, according to the dissent, the majority opinion reads the language “this title” to mean “a particular [IRS] proceeding,” and further provides that proceeding must be either “pending” or “in the offing.” The dissent commented that the Court’s majority may well prefer a statute written this way, but that was not what Congress enacted.
References: For the criminal penalty for corrupt interference with the tax administration, see FTC 2d/FIN ¶V-3204 et seq.; United States Tax Reporter ¶72,124.
Marinello v. U.S., (S Ct 3/21/2018) 121 AFTR 2d ¶2018-544
Marinello v. U.S., (S Ct, 3/21/2018) No. 16-1144
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