Other 200048003: Criminal Tax Bulletin case summaries for June 2000

Plain-English summary

This IRS Criminal Tax Bulletin summarizes court decisions rather than resolving a taxpayer's request. Its June 2000 issue covers criminal tax charges, tax deficiency questions, procedure, evidence, forfeiture, investigative methods, and sentencing. It discusses, among other cases, whether an alleged ownership interest in an S corporation had to be reported for a criminal false-return charge and whether interest and penalties count as a tax deficiency for tax evasion. The bulletin says it is informational and not a directive.

Ruling snapshot

• Question: What recent court decisions did the Criminal Tax Division summarize?
• Outcome: Other: informational case bulletin, with no taxpayer ruling.
• Key authorities: IRC §§ 7201, 7203, 7206; decisions listed in the bulletin.

Full text (IRS public release)

Number: 200048003
CT-108576-00
Release Date: 12/1/2000
CC:CT
7/3/2000

Criminal Tax Bulletin
Department of Treasury
Office of Chief Counsel
Internal Revenue Service
Criminal Tax Division

June This bulletin is for informational purposes. It is not a directive. 2000 UILN: 9999.00-00
had physical access to his bag, the agent manipulated his bag in a way other passengers would not.
SUPREME COURT CASES
The Court distinguished Ciraolo and Riley because they
Tactile Manipulation Constitutes An
involved only visual and not tactile observation. The Court
noted physically invasive inspection is more intrusive than
Illegal Search Despite Public Exposure
visual inspection. Applying Fourth Amendment analysis,
Of Manipulated Items
the Court found Bond’s conduct exhibited a subjective
expectation of privacy since Bond used an opaque bag and
In Bond v. United States, 120 S. Ct. 1462 (2000), Bond placed his bag in the bin directly above his seat. Also, the attempted to carry a brick of methamphetamine in his carry- Court agreed Bond’s subjective expectation of privacy is on bag on a Greyhound bus trip from California to one society is prepared to recognize as reasonable since Arkansas. While stopped at Sierra Blanca, Texas, border most passengers would not manipulate a bag in the way the patrol agents performed a routine immigration check of all agent had. Since the agent’s manipulation of Bond’s bag passengers. After all passengers’ immigration documents constituted a search under the Fourth Amendment analysis had been checked, the agent proceeded towards the exit and since the search was non-consensual, the Court reversed squeezing all soft carry-on bags as he passed. When he the lower courts’ holdings. detected the brick in Bond’s bag, he requested Bond’s permission to open it. Bond granted the requested permission and upon opening the bag, the agent confirmed TITLE 26 AND TITLE 26 the brick was methamphetamine. Bond was indicted for RELATED CASES conspiring to possess and possession with the intent to distribute methamphetamine in violation of 21 U.S.C.
§ 841. Bond moved to suppress the methamphetamine Failure To Report “Ownership Interest” arguing the agent’s search was illegal. Bond’s motion was In Subchapter S Corporation Not Sufficient denied and he appealed. The district court found him guilty For Criminal Charge on both counts and the Fifth Circuit Court of Appeals
affirmed.
In United States v. Pirro, 212 F.3d 86 (2nd Cir. 2000), Pirro
and his brother were charged in a 67 count indictment with,
On appeal, the government argued by exposing his bag to inter alia, conspiracy to impair the Internal Revenue the public, Bond lost his reasonable expectation that his bag Service, tax evasion, and filing false personal and corporate would not be physically manipulated. The government cited income tax returns, in violation of 18 U.S.C. § 371 and 26 California v. Ciraolo, 476 U.S. 207 (1986) and Florida v. U.S.C. §§ 7201 and 7206(1), respectively. All of the Riley, 488 U.S. 445 (1989), which dealt with aerial charges, except count 67, concerned the defendants’ illegal surveillance, in support of its proposition that matters open deduction of various personal expenses as business to public observation are not protected by the Fourth expenses. The final count charged Pirro with violating Amendment. Bond countered, although other passengers § 7206(1) by failing to report on the 1992 federal tax return

of Distinctive Properties of Croton (“DPC”), an “S” and he had served ten and one half years in state prison. corporation controlled by Pirro, the “ownership interest” of The Service denied his application based on information one of the alleged shareholders in DPC. In response to this received when conducting a routine suitability check which count, Pirro filed a pretrial motion, pursuant to FED. R. indicted conduct of a disreputable nature reflected by CRIM. P. 12(b), challenging the legal sufficiency of the Sabat’s arrest record. Sabat appealed the denial of his charge on grounds the government failed to allege in the application to all levels within the Service prior to seeking indictment that the individual omitted from DPC’s tax judicial relief. In all of his appeals, Sabat argued an arrest return was indeed a shareholder in DPC. Pirro argued the record does not establish disreputable conduct and individual was not a shareholder in DPC and, therefore, he challenged the manner in which the procedures for making did not violate a known legal duty, as required by § 7206(1), a suitability determination were applied to him. to report all of DPC’s shareholders. The district court, determining the issue to be a question of law and not fact, In response to Sabat’s judicial complaint, the Service filed granted Pirro’s motion and ordered the language pertaining a motion to dismiss under FED. R. CIV. P. 12(b)(6) arguing to the individual in question and his alleged “ownership Sabat’s prior arrests and convictions reflect on his integrity.
interest” in DPC stricken from count 67.
Further, the Service argued its determination was based on
the fact Sabat’s arrest record is conduct of a disreputable
On appeal, the government argued although the indictment nature and such conduct would reflect adversely on the failed to specifically allege the individual was a shareholder Electronic Filing Program. The court concluded, under the in DPC, it did allege enough facts to demonstrate the circumstances, the Service’s determination was not arbitrary individual possessed an “ownership interest” and, therefore, or capricious and, therefore, did not require Service was a de facto shareholder whose name should have been reconsideration. Consequently, the court granted the included on the return in question. The government Service’s motion to dismiss. conceded there was no statute or regulation that specifically stated “S” corporations were required to report “ownership The Term “Tax Deficiency” Does Not Include interests” on their corporate tax returns. The government, however, urged the court to consider the numerous civil tax
Interest And Penalties For Purposes Of cases which have concluded the beneficial or de facto Section 7201 ownership of shares in a corporation is the controlling
factor for tax purposes.
In United States v. Wright, 211 F.3d 233 (5th Cir. 2000),
Wright had an outstanding tax liability of $419,000, not
In affirming the district court’s dismissal of the allegations including penalties and interest, for tax years 1986-1988. from the indictment, the Second Circuit agreed with the In 1992, he submitted an offer in compromise and began lower court’s finding that the applicable statutes and paying $5,000 a month until December 1994. During the regulations, as well as the forms to be filed thereunder, refer pendency of the offer in compromise, Wright and his only to shareholders and stock. Moreover, the statutes and wife, with the assistance of their attorney and a friend, regulations specifically relating to S corporations refer only purchased a new home in the name of the friend. The to shareholders and to holding stock in “S” corporations. Wrights gave their friend $150,000 in cash for the The court found nothing requiring the “ownership interest” purchase of a house. An amended offer in compromise of an individual in an S corporation to be reported. was filed stating the Wrights sold their home because they Accordingly, Pirro could not have violated a known legal could not afford the payments and were now renting. The duty by failing to report the individual’s alleged ownership new house was not listed in the amended offer and,
interest on DPC’s corporate tax return.
ultimately, the offer was rejected because it failed to
provide required additional information. Through seizures and voluntary payments, Wright paid $490,000 toward his
Twice Convicted Individual Ineligible to
tax liability. The Wrights, their attorney and friend were
Participate in Electronic Filing Program
convicted of conspiracy to defraud the Service pursuant to
18 U.S.C. § 371. Wright was also convicted of violating
In Sabat v. Internal Revenue Service, 99-1715, 2000 U.S. 26 U.S.C. § 7201 and his attorney was convicted of Dist. LEXIS 3974 (W.D. Pa. Mar. 16, 2000), Sabat making false statements in violation of 18 U.S.C. § 1001. appealed the Service’s denial of his application to participate in the Service’s Form 1040 Electronic Filing On appeal, the defendants argued there was no underlying Program for individual income tax returns. Sabat was tax deficiency on which to predicate the conspiracy and arrested numerous times between 1982 and 1993, was evasion convictions. They contended Wright only owed convicted of rape and recklessly endangering another person interest and penalties and had paid off the $419,000 tax

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  liability. The Fifth Circuit agreed § 7201 requires a tax There are two provisions under the EAJA on which to base deficiency and that interest and penalties are excluded such an award -- subsections 2412(b) and 2412(d). from tax liability for purposes of § 7201. While § 7201 Subsection (b) does not contain a filing deadline or other does not define tax deficiency, the court relied on its procedural requirements and subsection (d) contains definition elsewhere in the Code -- as the amount by which numerous procedural requirements, including a requirement the tax exceeds the tax reported on the return plus the that applications be made within 30 days of final judgment. amounts previously assessed. See, 26 U.S.C. § 6211. District courts have reached conflicting decisions as to how The court relied on the Sentencing Guidelines exclusion to give effect to the Hyde Amendment's incorporation of the of interest and penalties in assessing the penalty for tax procedures and limitations of the EAJA. Compare, e.g., evasion to bolster its interpretation that interest and United States v. Gardner, 23 F. Supp. 2d 1283, 1289 (N.D. penalties are not part of a tax deficiency for § 7201 Okla. 1998) and United States v. Holland, 34 F. Supp. 2d purposes. The court, however, concluded Wright failed 346, 358-59 (E.D. Va. 1999). Here, the district court relied to prove he owed no tax. Although his total payments on Holland to make its award of attorney’s fees in this case. exceeded the tax owed, the Service collected a substantial portion of the payments through seizure. The Service On appeal, a majority of the Sixth Circuit held the correct applied the seized amounts according to its normal interpretation of the Hyde Amendment’s incorporation of procedure, which is to first extinguish the taxpayer s total EAJA procedures and limitations requires application of tax, interest and penalties for the earliest years owed. those found in subsection (d). The court criticized the Since the seized amounts were not first applied to his tax Holland court’s interpretation because it did not give effect liability, Wright did have a tax deficiency. Consequently, to the plain meaning of the Hyde Amendment or the policy
  the convictions were affirmed.
  behind it. Since the only procedural requirements in the
  EAJA are found in subsection (d), the court reasoned there
  Case Republished
  is no basis to believe Congress did not intend such
  requirements to apply in criminal cases via the Amendment.
  The opinion previously reported as United States v. Rivera, Applying its interpretation to this case, the majority ruled 196 F.3d 144 (2nd Cir. 1999), which appeared in the March the 30 day filing limitation in subsection (d) barred the 2000, Criminal Tax Bulletin, has been withdrawn from the defendant’s claim for an award. Since the district court Bound Volume and republished at 201 F.3d 99. lacked jurisdiction over the application, the court rGXGTUGF
  the district court s award.

PROCEDURE
Hyde Amendment
Thirty Day Filing Limitation
In United States v. Truesdale, 211 F.3d 898 (5th Cir. 2000),
Under The Hyde Amendment
the Fifth Circuit held the standard of proof under the Hyde
Amendment, which authorizes an award of attorneys’ fees
In United States v. Ranger Electronic Communications, and costs to a successful criminal defendant where the court Inc., 210 F.3d 627 (6th Cir. 2000), Ranger was a foreign finds the government’s position was “vexatious, frivolous, manufacturer of radio equipment indicted for importing or in bad faith,” is tougher than the standard adopted for fee banned radio equipment. The case was dismissed with awards in civil cases under the Equal Access to Justice Act prejudice after trial had begun. Four months after the (EAJA). A movant under the Hyde Amendment must prove dismissal, Ranger moved for attorney’s fees under the Hyde more than the government’s position was not substantially Amendment -- allowing courts to award attorney’s fees to justified. In the instant case, Truesdale and his prevailing criminal defendants where the government’s accomplice’s federal gambling convictions were overturned litigating position is found to be vexatious, frivolous or in in an earlier appeal on the basis the proof presented at trial bad faith. The motion contended the government acted in did not support the specific charges alleged in the bad faith by concealing Brady material, but that discovery indictment. The defendants then moved for an award under of the government’s failure to disclose this information did the Hyde Amendment. This appeal stems from the district not occur until after the case was dismissed. The district court’s denial of their claim. court ultimately granted an award of $40,106.74. See,
Criminal Tax Bulletin, December 1998.
As a preliminary issue, the court also had to decide whether
the defendants had timely filed their notice of appeal. The
Under the Hyde Amendment, requests for attorney’s fees question which arose was whether appeals from Hyde are subject to the procedures and limitations used by civil Amendment rulings were governed by the 30 day deadline litigants under the Equal Access to Justice Act (EAJA). that applies in a civil case under FED. R. APP. P. 4(a) or

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  instead, by the 10 day deadline which applies in a criminal Bruton v. United States, 391 U.S. 123 (1968) against case under FED. R. APP. P. 4(b). The Fifth Circuit admission of confessions of a codefendant which implicate concluded a motion for attorneys’ fees does not implicate the defendant where the defendant can not confront the the liberty interest of the accused. Instead, the interest it codefendant about his confession, the court allowed implicates is identical to those implicated by a motion for admission of the detective’s testimony. The court allowed attorneys’ fees under the EAJA. In each case, the movant admission because the detective had redacted the is seeking an award of attorneys’ fees based upon a codefendant’s confession by testifying the codefendant had litigating strategy that conflicts with notions of fair play. It, confessed to planning and committing the robbery with therefore, makes little sense that the time period for filing a “another individual.” Despite the court’s admission of the notice of appeal should differ depending upon whether the detective’s testimony, the court instructed the jury not to use cases was civil or criminal. Accordingly, the court held the confession as evidence of Logan’s involvement in the Rule 4(a)’s 30 day deadline was applicable to motions crime. Logan was convicted and appealed his conviction on
  brought under the Hyde Amendment.
  the ground the confession should not have been admitted
  since the jury instruction was insufficient to protect his
  The Fifth Circuit then turned to the burden of proof and Sixth Amendment right of confrontation. standard of proof which it again analyzed by reference to the EAJA. Under the EAJA, the burden of proof is on the On appeal, Logan argued because he had testified he was government to prove its position was “substantially present at the robbery but his actions were coerced, the justified.” In Pierce v. Underwood, 487 U.S. 552 (1988), confession took on added evidentiary significance branding the Supreme Court defined a “substantially justified” him a voluntary participant despite the redaction of his litigation position as one which is “justified to a degree that name. In support of his argument, Logan cited Gray v. could satisfy a reasonable person,” or one which has a Maryland, 523 U.S. 185 (1998) which reversed a conviction “reasonable basis in law and fact.” The Fifth Circuit based on the admission of a nontestifying codefendant’s concluded the Hyde Amendment intended to change not redacted confession which was admitted in written and oral only the identity of the party who bears the burden of proof, form. The court distinguished Gray noting the confession but also the standard of proof. The court pointed out the in Gray had obviously been redacted by substituting a blank Hyde Amendment, as originally introduced in Congress, or the word “deleted” for the defendant’s name in four contained the EAJA’s substantially justified language but, separate places. The confession in the instant case was less Congress’ eventual change of the language to “vexatious, obviously redacted since the detective’s substitution of frivolous or in bad faith” signaled its desire to limit the “another individual” for Logan’s name could have appeared scope of the Hyde Amendment. Although the district court to the jury to be the codefendant’s own words. erroneously applied the substantially justified standard, the defendants were still unable to satisfy this lower standard Also, the court, citing Richardson v. Marsh, 481 U.S. 200 and the Fifth Circuit affirmed the district court’s holding. (1987), refused to determine the admissibility of the
  codefendant’s confession by assessing it in light of the
  Finally, the court rejected the defendants’ claim that a evidence introduced at trial. Rather, confessions must be district court must grant an evidentiary hearing and assessed in isolation from other evidence admitted at trial. discovery on every action under the Hyde Amendment, as In the instant case, viewing the codefendant’s confession in
  a matter of right.
  isolation from Logan’s testimony to being present during
  the crime, the court found it had no unease about the
  EVIDENCE
  efficacy of a jury instruction to protect Logan’s Sixth
  Amendment rights since the confession neither facially implicated Logan, nor was obviously redacted.
  Admissibility Of Codefendant’s Confession
  Determined Without Regard To Other
  Evidence Introduced At Trial
  FORFEITURE

In United States v. Logan, 210 F.3d 820 (8th Cir. 2000), Innocent Owner Defense Logan and a codefendant were tried for a number of charges including armed robbery, in violation of 18 U.S.C. § 1951, In United States v. Wetterer, 210 F.3d 96 (2nd Cir. 2000), and using a firearm in a crime of violence in violation of the Second Circuit reversed and remanded the district 18 U.S.C. § 924. At trial, a detective testified for the court’s order of forfeiture of three bank accounts belonging government regarding a confession made by Logan’s to a not for profit Association in which Wetterer was the codefendant who did not testify. Despite the prohibition in former president. Wetterer was indicted for mail fraud on

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  the theory he engaged in a pattern of abuse of boys bankruptcy fraud in violation of 18 U.S.C. § 152 and money entrusted to his care by the Association and that the laundering, in violation of 18 U.S.C. §1957. Association’s fund raising campaign concealed that material facts from donors. The government’s theory of forfeiture On appeal, Butler argued these transactions failed to support was that the funds mailed to Wetterer as contributions were a money laundering conviction since the underlying the proceeds of the mail fraud and upon being deposited “specified unlawful activity,” bankruptcy fraud, had not into the various accounts, resulted in an act of money been completed when the transactions occurred. The Fourth
  laundering.
  Circuit found the intent of Congress in enacting the money
  laundering statute was to target transactions involving the
  The Association filed a claim for the funds as an innocent proceeds of a completed crime but rejected Butler’s owner under the forfeiture statutes. The district court argument that his bankruptcy fraud was not completed when rejected this claim finding the association was Wetterer’s the transactions occurred. The court found Butler had alter ego and, therefore, could not assert the innocent owner engaged in concealment of the $150,000 check from the defense. On appeal, the Association argued the district bankruptcy trustee almost as soon as he obtained it and, at court erred when it applied New York corporate law to find the latest, Butler engaged in concealment when he gave the the association had not observed proper corporate check to the priest to hold. Thus, by September 1992, when formalities and was Wetterer’s alter ego. Butler began directing the priest to purchase the cashier’s
  checks, the underlying specified unlawful activity,
  The Second Circuit agreed the district court erred when it bankruptcy fraud, was already complete. And because applied New York law rather than the law of the place of Butler was engaging in a transaction with the proceeds of a incorporation, Guatemala, in determining the alter ego issue. completed crime when he directed the purchase of the Applying Guatemala law, the court concluded the cashier’s checks, the evidence supported a money Association’s board was independent of its president and laundering conviction. not it’s alter ego. Upon finding the Association was not Wetterer’s alter ego, it then considered whether the INVESTIGATIVE TECHNIQUES Association’s innocent owner claim was meritorious. The court noted the Association followed corporate formalities and took appropriate action to investigate the allegations Oral Communication Intercepted against Wetterer to determine whether action to remove In Police Car Wetterer as president was required. The court found an investigation conducted in Guatemala exonerated Wetterer In United States v. Turner, 209 F.3d 1198 (10th Cir. 2000), of the allegations and, thus, the fact the Association took no the Tenth Circuit held the interception of Turner’s action to remove Wetterer as president was appropriate. conversation by a concealed tape recorder in a police cruiser The court, therefore, held the Association was the innocent did not violate Title III of the Omnibus Crime Control and owner of the three accounts and forfeiture of those accounts Streets Acts of 1968, 18 U.S.C. §§ 2510-2522. A police
  was inappropriate.
  officer obtained Turner’s consent to search his (Turner’s)
  car after a routine traffic stop. After expressing concerns about Turner’s safety, the officer asked Turner and his
  MONEY LAUNDERING
  passenger to sit in the back of his patrol car. Unbeknownst
  to Turner, the officer had activated a tape recorder in his
  Bankruptcy Fraud Is Complete At Point Of
  patrol car. After the officer’s search of the vehicle, he
  Concealment, Not Point Of Use Of Funds
  replayed the tape of Turner’s conversation which revealed
  the presence of firearms which Turner, as a parolee, was
  In United States v. Butler, 211 F.3d 826 (4th Cir. 2000), prohibited from possessing. A later search of Turner’s car Butler received two checks totaling $350,000 and did not revealed four firearms and a small quantity of marijuana. report his receipt of these funds to the bankruptcy trustee or to his creditors. He used the first $100,000 check for Turner appealed the district court’s denial of his motion to personal expenses and gave the second $150,000 check to suppress his recorded conversation on grounds the a friend of his, a priest, to hold. The priest held these funds recording was made in violation of Title III. Title III for over a year until September 1992, when Butler directed protects oral communications uttered by a person exhibiting the priest to use the funds to purchase four cashier’s checks an expectation that such communications are not subject to payable to an associate of Butler. Butler was convicted of interception under circumstances justifying such
  expectation. The legislative history of Title III shows Congress intended this definition to parallel the “reasonable

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  expectation test” articulated by the Supreme Court in Katz statute. The statute prohibits “whoever” from giving v. United States, 389 U.S. 347 (1967). For Title III to “anything of value to any person, for or because of the apply, the court must conclude: (1) the defendant had an testimony under oath . . . by such person as a witness upon actual, subjective expectation of privacy; and (2) the a trial . . . .” The Third Circuit previously held in United defendant’s expectation was one society would view as States v. Hunte, 193 F.3d 173 (3rd Cir. 1999), promises of objectively reasonable under the circumstances. leniency do not violate the anti-gratuity statute. Accordingly, Turner asserted he had a reasonable Accordingly, the sentence reductions the first two expectation of privacy in the patrol car. informants received were not prohibited by the statute.
  Similarly, the decision not to prosecute the third witness is
  Because the government stipulated Turner had a subjective by implication another type of leniency not prohibited by expectation of privacy, the court only had to consider the statute. The central question raised in this appeal was whether society would consider Turner’s expectation of whether the government violated the statute when it paid the privacy “reasonable.” The Tenth Circuit concluded, on informants before trial to collect information while these facts, society is not prepared to recognize an expecting the informant to later testify at trial. expectation that communications in a patrol car are not subject to interception. The court disregarded Turner’s The Third Circuit agreed with decisions of the Fourth, Fifth contention that his expectation of privacy was reasonable and Eighth Circuits which held the use of a paid informant’s since he was not in custody or being threatened with arrest. testimony does not violate the anti-gratuity statute. In The Tenth Circuit agreed with the Eleventh Circuit in reaching this conclusion, the court stressed a defendant’s United States v. McKinnon, 985 F.2d 525 (11th Cir. 1993), right to be appraised of the government’s compensation whether an individual is in custody does not materially arrangement and to inquire about it on cross examination affect an expectation of privacy in a police car. must be protected. The method of payment is a matter for Furthermore, the practical realities of the situation should the jury to consider in weighing the credibility of the have been apparent to the occupants. Patrol cars are informant. The court cited its conclusion in Hunte that equipped with electronics, including microphones to the “whoever” in the statute does not include the government dispatcher, possible video recording with audio pickup, and and referred to the Fourth Circuit’s decision in United
  other electronic and recording devices.
  States v. Anty, 203 F.3d 305 (4th Cir. 2000), that many
  statutes allow payments to government witnesses. The court
  Anti-Gratuity Statute
  believed Congress which authorized the payment of rewards
  for information, assistance, and services in the enforcement
  In United States v. Harris, 209 F.3d 165 (3rd Cir. 2000), the of criminal statutes surely must have contemplated Third Circuit held the government does not violate payments to informants for assisting both in investigations 18 U.S.C. § 201(c)(2), the federal anti-gratuity statute by and by testifying. The court reserved the issue whether the paying confidential informants who testify at trial. The anti-gratuity statute allows the government to pay a witness significance of the paid informant’s testimony was to solely or essentially for favorable testimony, as distinct identify whether Harris, who admitted having once been a from paying a witness for collecting evidence and testifying drug dealer, had withdrawn from his illegal activities by the about what was found. first date the government could use under the statute of limitations. The first of the government’s informants who SENTENCING placed Harris in drug dealing activity received payments of
  $250, $350, and $1,500 from the government and received Court Must Resolve Disputed Fact an eight year reduction in his own sentence. The government’s second informant received $20 a month for In United States v. Standard, 207 F.3d 1136 (9th Cir. 2000), several months and received a ten year reduction in his Standard was convicted of bankruptcy fraud and of sentence. Harris argued a third witness was never indicted subscribing to a false return in violation of 26 U.S.C. despite some apparent involvement with illegal drugs. After § 7206(1). In the 1988 tax year, Standard made referral hearing the informants’ testimony and having full payments for solicited as well as unsolicited referrals which knowledge of the money and other benefits they received, he deducted on his income tax return. In 1988, in the jury convicted Harris.
  California, payments for unsolicited referrals were not illegal, therefore, those payments could have been properly deducted as business expenses. At sentencing, Standard On appeal, Harris contended when the government paid challenged the district court’s computation of the base several confidential informants to gather information and offense level for his tax conviction, arguing the presentence later testify at trial, the government violated the anti-gratuity report, on which the district court relied, improperly

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  included the total amount of referral fees as non-deductible was otherwise extensive.” Maloof argued the conspiracy to illegal referral fees which were not deductible. Standard restrain trade did not involve “five or more participants” and was sentenced without the court resolving this disputed he was not an organizer or leader. issue of fact.
  The Fifth Circuit agreed with Maloof determining the
  The court found the district court had not resolved this district court erred in concluding the involvement of three controverted matter in accordance with FED. R. CRIM. P. Bay employees and two executives from other insulation 32(c)(1). In addition, U.S.S.G. § 6A1.3(b) specifically companies satisfied the five person requirement of the requires the court to resolve disputed sentencing factors at guidelines. Although the Bay employees may have the sentencing hearing in accordance with Rule 32(c)(1). followed Maloof’s instructions in perpetrating the fraud, the The court noted when a defendant specifically objects to an district court made no finding as to whether they were item during sentencing, the district court is required to criminally responsible for commission of an offense. specifically address the item. Merely accepting the “Willful participation is an essential element of the crime of probation officer’s calculations to be valid and correct and conspiracy; mere knowledge of a conspiracy does not itself agreeing with the findings of facts and conclusions of law make a person a conspirator.” United States v. Mann, 161 proposed by the government does not satisfy the F.3d 840, 867 (5th Cir. 1998). Accordingly, Maloof’s requirements of Rule 32(c)(1). The court could find no sentence was vacated and the case remanded for re- statement within their prior opinions which specifically sentencing. dealt with the tax loss argument. Consequently, the Ninth Circuit remanded the case so the district court could Downward Departure Based On specifically address Standard’s tax loss argument. Due Process Claim
  Criminal Responsibility Of Employees
  In United States v. Tenzer, No. 99-1123, 2000 U.S. App.
  Must Be Found For Enhancement
  LEXIS 8078 (2nd Cir. Apr. 26, 2000), Tenzer pleaded guilty
  Under § 3B1.1(a)
  to four counts of wilful failure to file income tax returns in
  violation of 26 U.S.C. § 7203. Tenzer’s plea followed the
  In United States v. Maloof, 205 F.3d 819 (5th Cir. 2000), Second Circuit’s remand of the case based on its decision in Maloof was convicted of conspiracy to restrain trade in United States v. Tenzer, 127 F.3d 222 (2nd Cir. 1997) violation of the Sherman Act, 15 U.S.C. § 1, and conspiracy ("Tenzer I") that Tenzer’s prosecution was not barred to commit wire fraud, violation of 18 U.S.C. § 371. Maloof because he failed to bring himself within the Service’s was the southern regional sales manager for Bay Industries, voluntary disclosure policy and could not claim the benefits Inc., a manufacturer of metal building insulation. One of of any protection it might afford. On remand, the district the major components of metal building insulation is court sentenced him to a year and a day incarceration which fiberglass. In 1993, fiberglass manufactures announced a was at the lower end of the applicable guidelines range of price increase and reduction in supply of fiberglass 12 to 18 months, but declined to depart downward. Tenzer insulation. As a result, Bay prepared a new price sheet had moved for a downward departure on various grounds outlining its pricing scheme for its sales representatives. which he argued took this case outside the heartland of the Early in 1994, Maloof began to contact the sales mangers of sentencing guidelines – the most notable of which was his Bay’s competitors in an attempt to create a uniform set of claim that his prosecution was unfair and in violation of his prices for metal building insulation. Maloof was successful due process rights. over the course of the next two years in causing several companies to fix their prices in accordance with Bay’s, At sentencing, the district judge stated, “the entire thereby stifling competition in the industry. Finally, a Bay prosecution here is essentially unfair and contrary to employee reported Maloof’s activities to the FBI. Maloof policies adopted and publicized by the IRS,” but ruled such refused a government offer of immunity and was issues did not provide a reasonable basis for a downward subsequently indicted, convicted and sentenced to 30 departure. The judge further stated, “[w]hile courts have
  months imprisonment.
  considerable power in connection with the fashioning of a
  sentence, a court must honor the mandates and decisions of
  On appeal, Maloof challenged, inter alia, the trial court’s the Court of Appeals, even when they're totally wrong." four level sentence enhancement under U.S.S.G. § 3B1.1(a), The judge concluded a sentencing court should not "engage which provides a defendant’s offense level shall be in nullification by departure" merely because of its view increased by four levels if he was “an organizer or leader of "the Court of Appeals panel opinion in this case was unfair a criminal activity that involved five or more participants or or wrong" or because "generalized fairness" requires a
  departure to rectify an unfair appellate decision.

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  On appeal, Tenzer argued the district court did not fully mandate of Tenzer I. Based on this perceived understand its authority to downwardly depart in the case. misapprehension, the court remanded the case for A majority of the Second Circuit agreed, concluding the reconsideration of the sentence. The court was careful to district court mistakenly believed it lacked the authority to explain its ruling did not decide whether any of the factors grant a departure. The majority found the statements of the cited by Tenzer in support of his claim for departure, taken district judge at sentencing and in his prior opinions in the individually or together, constitute an appropriate basis for case clearly indicated his belief that certain elements present departure; rather, it was simply holding consideration of in Tenzer’s case were unusual but he was precluded from these factors had not been ruled out by the mandate in considering them as a basis for departure based on the Tenzer I.

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   CRIMINAL TAX BULLETIN

JUNE 2000

TABLE OF CASES

SUPREME COURT CASES
Bond v. United States, 120 S. Ct. 1462 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

TITLE 26 AND TITLE 26 RELATED CASES

United States v. Pirro, 212 F.3d 86 (2nd Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Sabat v. I.R.S., 99-1715, 2000 U.S. Dist. LEXIS 3974 (W.D. Pa Mar. 16, 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

United States v. Wright, 211 F.3d 898 (5th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

PROCEDURE

United States v. Ranger Electronic Communications Inc., 210 F.3d 627 (6th Cir. 2000), . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

United States v. Truesdale, 211 F.3d 898 (5th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

EVIDENCE

United States v. Logan, 210 F.3d 820 (8th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

FORFEITURE

United States v. Wetterer, 210 F.3d 826 (2nd Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

MONEY LAUNDERING

United States v. Butler, 211 F.3d 826 (4th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

INVESTIGATIVE TECHNIQUES

United States v. Turner, 209 F.3d 1198 (10th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

United States v. Harris, 209 F.3d 165 (3nd Cir. 2000), . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

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  SENTENCING

United States v. Standard, 207 F.3d 1136 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

United States v. Maloof, 205 F.3d 819 (5th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

United States v. Tenzer, No. 99-1123, 2000 U.S. App. LEXIS 8078 (2nd Cir. Apr. 26, 2000) . . . . . . . . . . . . . . . . . . . . . . . . . 7

Department of the Treasury
Internal Revenue Serivce
Document 10023 (6-2000)
Catalog Number 24304B

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