Criminal Tax Bulletin 200142002: Case summaries from February and April 2001

Plain-English summary

This issue of the IRS Criminal Tax Bulletin summarizes recent Supreme Court and lower court decisions relevant to criminal tax enforcement. Topics include search and seizure, the right to counsel, tax notices and civil summonses, tax evasion, forfeiture, money laundering, sentencing, and other procedure and evidence questions. The bulletin describes the cases and includes a table of cases at the end. It is informational and states that it is not a directive. It does not decide a taxpayer's case.

Ruling snapshot

• Question: What recent court decisions did the Criminal Tax Bulletin highlight for February and April 2001?
• Outcome: Reference bulletin; no case specific ruling.
• Key authorities: IRC § 7206 and the court decisions cited in the bulletin.

Full text (IRS public release)

Number: 200142002
CT-100476-01
Release Date: 10/19/2001
UILN: 9999.98-00
CC:CT
May 14, 2001

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

FEBRUARY/APRIL This bulletin is for informational purposes. It is not a directive. 2001

namely unlawful drugs. Second, the police had good reason to fear, unless restrained, McArthur would destroy the
SUPREME COURT CASES d r u g s

Suspect Barred From Entering His Home
While Warrant Sought To Search For Drugs before the police could return with a warrant. Third, the
In Illinois v. McArthur, 121 S. Ct. 946 (2001), the Supreme police made reasonable efforts to reconcile their law Court held the Fourth Amendment was not violated by enforcement needs with the demands of personal privacy by police officers who prevented McArthur from entering his neither searching the trailer nor arresting McArthur before home for approximately two hours, while they obtained a obtaining a warrant. Finally, the police imposed the warrant to search the premises for drugs. McArthur’s wife restraint on McArthur for a limited period of time, two had requested two police officers to accompany her to the hours. Moreover, prior case law revealed overwhelming trailer where she lived with McArthur, so they could keep support that the restriction was reasonable. the peace while she removed her belongings. Upon leaving the trailer, McArthur’s wife remarked her husband "had Ineffective Assistance Of Counsel dope in there." McArthur refused the police officer’s request to search the premises. One of the officers was then dispatched to get a search warrant. The remaining officer, In Glover v. United States, 121 S. Ct. 696 (2001), Glover who was standing on the porch with McArthur, informed was convicted of labor racketeering, money laundering and him he could not reenter the trailer unless a police officer tax evasion. At sentencing, the government argued the accompanied him. After obtaining the warrant, the officers money laundering counts should not be grouped with the searched the trailer, discovering marijuana and a pipe. other counts. Glover’s attorneys did not contest the Subsequently, McArthur was prosecuted for misdemeanor government’s argument against grouping and failed to raise possession. The trial court suppressed the evidence as the grouping issue when they appealed to the Seventh "fruit" of an unlawful police seizure of McArthur. The Circuit on other grounds, despite the existence of judicial
Appellate Court of Illinois affirmed.
precedent holding grouping money laundering with other
counts was proper under some circumstances. Accordingly
In reversing the Illinois Appellate Court, the Supreme Court the district court did not group the counts and, as a result, stated "rather than employing a per se rule of Glover’s offense level was increased by two levels, unreasonableness, we balance the privacy-related and law resulting in a six to 21 month increase to his sentence. enforcement-related concerns to determine if the intrusion was reasonable." The Court then set forth a combination of Glover filed a pro se motion to correct his sentence arguing circumstances which allowed it to find the restriction of the failure of his attorneys to press the grouping issue McArthur did not violate the Fourth Amendment. First, the constituted ineffective assistance of counsel and was police had probable cause to believe McArthur’s trailer prejudicial since it increased his sentence. The district court home contained evidence of a crime and contraband, denied Glover’s motion. The Seventh Circuit, relying on

Strickland v. Washington, 466 U.S. 668 (1984), affirmed resulted in "sufficient prejudice" to warrant setting aside the because an increase of six to 21 months was not significant sentence. enough to amount to prejudice. Strickland held, to reverse a sentence on grounds of ineffective assistance of counsel, a defendant must show counsel’s deficient performance
offenses." The Court declined to read into McNeil’s "offense
Granting Glover’s petition for certiorari, the Supreme specific" definition an exception for crimes factually related Court noted a minimal amount of additional time in prison to a charged offense. Stating there is "no constitutional was not a mere different outcome, but rather constitutes difference between the meaning of the term offense in the prejudice. The Court expounded any amount of actual jail contexts of double jeopardy and of the right to counsel," the time has Sixth Amendment significance. The Court also Court referred to the definition of "offense" noted the Seventh Circuit’s holding was flawed since it lacked any indication how much longer a sentence must be for the increase to constitute substantial prejudice. The set forth in Blockbuster v. United States, 284 U.S. 299 (1932) Court did not reach the question of whether it was error not and opined "when the Sixth Amendment right to counsel to group the money laundering counts with the other counts, attaches, it does encompass offenses that, even if not but held only, if it were error, prejudice resulted from formally charged, would be considered the same offense
counsel’s failure to pursue the issue.
under the Blockburger test."

Attachment Of Sixth Amendment
Right To Counsel
TITLE 26 AND TITLE 26
In Texas v. Cobb, 121 S. Ct. 1335 (2001), the Supreme RELATED CASES
Court held because the Sixth Amendment right to assistance
of counsel is "offense specific," it does not necessarily Failure To Receive Tax Notice Is Not Prima extend to offenses which are factually related to or Facie Showing Service Abused Its Civil intertwined with those actually charged. While in custody, Summons Power Cobb confessed to burglarizing his neighbor’s home, denying any knowledge of the disappearance of a woman In United States v. Utecht, 238 F.3d 882 (2001), the district and child who resided at the home. Cobb was indicted for court denied Utecht’s LaSalle motion to dismiss, finding the the burglary and counsel was appointed to represent him. Service’s failure to send Utecht a tax notice once the criminal Approximately fifteen months later, Cobb told his father he investigation had begun was not an abuse of its civil had killed the missing woman and child during the burglary. summons power. Utecht was the owner of an entertainment After the father contacted the police, Cobb was arrested and equipment corporation which supplied pinball machines and taken into custody. He voluntarily waived his Fifth pool tables to bars in Wisconsin. In 1990, Utecht began Amendment rights under Miranda v. Arizona, 384 U.S. 436 supplying video poker machines to his bar owner customers. (1966) and confessed to the murders. Subsequently, his Video gambling is illegal in Wisconsin, so Utecht concealed confession was used to convict him of capital murder. the proceeds of the machines and fabricated Forms 1099 for
his bar owner customers. Ultimately, Utecht failed to report
On appeal to the Texas Court of Criminal Appeals, Cobb income from the machines on his corporate and personal argued his confession should have been suppressed because income tax returns. Utecht pled guilty to "making false it was obtained in violation of his Sixth Amendment right statements in his tax returns" and was sentenced to thirty-six to counsel which had attached when counsel was appointed months imprisonment. Utecht appealed the district court’s to represent him in the burglary case. The Texas court denial of his LaSalle motion, which was based on the agreed holding once the right to counsel attaches to the grounds he was denied discovery because the Service abused offense charged, it also attaches to any other offense that is its civil summons power. closely factually related to the charged offense.
In affirming the denial of Utecht’s motion, the Seventh
In reversing, the Supreme Court cited McNeil v. Wisconsin, Circuit noted "[i]f the IRS uses civil subpoenas without 501 U.S. 171, 176 (1991), where it held "a defendant’s establishing the probable cause necessary for criminal cases statements regarding offenses for which he had not been after having made an institutional commitment to charged were admissible notwithstanding the attachment of recommend prosecution. . .evidence obtained through these his Sixth Amendment right to counsel on other charged

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subpoenas possibly could be suppressed at a criminal trial." Affirmative Acts of Evasion Id. at 9. The court also recognized "civil matters should be suspended once a criminal investigation begins." Id. at 10. In United States v. Carlson, 235 F.3d 466 (9th Cir. 2000), the The court found Utecht’s failure to receive a tax notice after Ninth Circuit affirmed Carlson’s conviction for tax evasion. a civil audit did not constitute a prima facie showing the Carlson was convicted of three counts of evasion of Service abused its civil summons power and, if anything, assessment of taxes and two counts of evasion of payment. demonstrated the Service properly maintained a separation Carlson appealed his conviction arguing, inter alia, the
of its civil and criminal functions.
evidence was insufficient to show an affirmative act of
evasion. Carlson had been a successful dentist in Hawaii for nearly twenty years, who had operated under the theory the tax code did not apply to him and he had not filed a tax return since 1983. Moreover, on his returns for 1981, 1982 and 1983, he claimed he owed no taxes, despite having earned substantial income in those years.
Defendant Must Prove Assignment Of Duty
To Perform Along With Assignment Of
The Ninth Circuit affirmed Carlson’s conviction finding he
had clearly engaged in affirmative acts of evasion. The court
Income To Avoid Lucas v. Earl
found both documentary evidence and testimony which
established Carlson had opened secret bank accounts using
In United States v. Newell, 239 F.3d 917 (7th Cir. 2001), false social security numbers and places and dates of birth, Newell was president and 50 percent shareholder of "Inc.," after learning the Service was attempting to levy on his bank a commodity trading business incorporated under account. Carlson then withdrew money from the accounts Subchapter S. Newell directed one of Inc.’s large clients to which were known to the Service and deposited the money send to "Ltd.," a Bermuda corporation also owned by in the secret accounts. Consequently, it was clear Carlson’s Newell, $1.3 million the client owed for services Inc. had acts could easily have misled the Service or concealed rendered pursuant to a contract. Neither Inc. nor Newell information from it. reported the $1.3 million received by Ltd. as income. Newell was convicted of willfully filing false federal income tax returns in violation of 26 U.S.C. § 7206(1). The district court, in reaching its decision, relied on Lucas v.
SEARCH AND SEIZURE
Earl, 281 U.S. 111 (1930) which held a taxpayer cannot
escape his tax obligations by assigning income he has Probable Cause earned, to another person.
In United States v. Reinholz, No. 00-1166, 2001 U.S. App.
On appeal, Newell argued his case fell into an exception to LEXIS 5046 (8th Cir. Mar. 29, 2001), the Eighth Circuit held Lucas v. Earl. The exception provides, in the case of a a search warrant affiant’s misleading characterization of an contract, an assignor may shift his tax liability to an informant should be remedied by evaluating the sufficiency assignee only if the assignor assigns the duty to perform of the evidence without the intelligence from the informant, along with the right to be paid. Mere assignment of the not by evaluating the sufficiency of the affidavit after income, without assignment of the duty to perform, does supplementing it with accurate information about the
not shift tax liability.
character of the informant. In this case, a pharmacist who
sold Reinholz iodine crystals called the police and gave them
Judge Posner, writing for the Seventh Circuit, a description of Reinholz, believing he was manufacturing, acknowledged the existence of this exception but found distributing, and using methamphetamines. After the police Newell had not proven its applicability since Newell had searched trash bags in front of a co-defendant’s residence not proven the contract itself was assigned. The court noted where Reinholz was staying, a magistrate judge issued a it was not the government’s burden to disprove possibilities search warrant for the residence. The police searched the which may exonerate Newell. Moreover, the Seventh residence and arrested Reinholz for drug manufacturing. Circuit questioned whether any assignment had occurred at all since the assignment was to an alter ego of Newell and The district court granted Reinholz’s motion to suppress the not to another person as in Lucas v. Earl. The Seventh evidence found during the search on the ground the affiant Circuit held the assignment was a sham only designed to officer misled the magistrate regarding the nature of his
facilitate tax evasion.
source and the remaining information in the affidavit relating
to the solitary garbage search was not enough to provide

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probable cause to support the warrant. On appeal, the never be waived. The majority relied on the Ninth Circuit’s Eighth Circuit held pursuant to Franks v. Delaware, 438 earlier holding in Sanchez v. United States, 50 F.3d 1448 (9th U.S. 154 (1978), a search warrant may be invalid if the Cir. 1995), where it held Brady rights are not automatically affidavit contained false statements made knowingly and waived by entry of a guilty plea. The majority decided here intentionally or with reckless disregard for their truth. The the rationale of Sanchez applied with equal force to plea court observed the same analysis which applies to false agreements. The disclosure of Brady evidence is just as statements, applies to omissions. Thus, to prevail on a important in ensuring the voluntary and intelligent nature of Frank’s claim a defendant must show: (1) a false statement a plea bargain as it is in ensuring the voluntary and knowingly and intentionally, or with reckless disregard for intelligent nature of a guilty plea. In both situations, the the truth was included in the affidavit; and, (2) the defendant’s decision is often influenced by her appraisal of affidavit’s remaining content is insufficient to establish the prosecution’s case. The court concluded Ruiz had
probable cause.
presented substantial evidence which revealed the
government withheld its downward departure
The Eighth Circuit agreed with the district court that the recommendation based on this improper motive and, affidavit’s characterization of the informer as "reliable and accordingly, remanded the case for a hearing on this issue confidential" was misleading. Rejecting the government’s and on the issue of whether Ruiz refused the government’s approach of supplementing the affidavit with accurate plea offer because of the Brady waiver requirement. information, the court held a Franks misrepresentation is remedied by deleting the false statements. The court EVIDENCE concluded the remaining facts in the affidavit, including the garbage search, provided sufficient probable cause to
support the warrant.
Rule 608, Prior Consistent Statements,
Relevance And Jury Instructions
PROCEDURE
In United States v. Simonelli, 237 F.3d 19 (1st Cir. 2001), the
First Circuit affirmed Simonelli’s conviction for filing false
Requirement of Brady Waiver for ‘Fast
returns, aiding and abetting in the filing of a corporate return
Track’ Guilty Plea Held Unconstitutional
and conspiracy. Simonelli challenged his conviction on the
ground the admission of evidence and failure to give an
In United States v. Ruiz, 241 F.3d 1157 (9th Cir. 2001), the accomplice testimony jury instruction were in error. Ninth Circuit held the Fifth Amendment’s Due Process Specifically with respect to the admission of evidence, Clause does not permit the government to require Simonelli challenged questions the government asked him defendants to waive their rights under Brady v. Maryland, about prior bad acts which tended to show untruthfulness, on 373 U.S. 83 (1963), as a condition of participating in the the basis the ". . . mere violation of a company gratuity local United States Attorney Office’s "fast track" program. policy [was] not evidence probative of untruthfulness, The Constitution’s requirement that plea agreements be admissible in the discretion of the court under [Federal Rule knowing and voluntary precludes waiver of a right to of Evidence] Rule 608, and the questions were so prejudicial receive unknown information. Plea bargains offered under they should have been excluded under Rule 403." Simonelli the "fast track" program required defendants, in addition to also argued his father’s testimony was irrelevant and was an pleading guilty, to waive their rights to an indictment, to an attempt to bias the jury against him and the admission of his appeal, to present motions, and to receive certain Brady accountant’s prior consistent statements was in error. material. Specifically, the defendants had to waive their right to receive impeachment material concerning The court, in evaluating Simonelli’s arguments, made the government witnesses. In exchange for the waiver, the following determinations: first, the admission of cross- government recommended a two level downward departure examination questions and answers regarding the gratuity
from the applicable offense level.
policy of Simonelli’s main customer was in error because
there was no showing the evidence met Rule 608; second, the
Ruiz claimed she declined the government’s "fast track" district court did not abuse its discretion in admitting plea offer because it contained the Brady waiver condition, Simonelli’s father’s testimony finding the evidence was and the government opposed her request for a "fast track" relevant to Simonelli’s company paying Simonelli’s personal departure only because she refused to enter into a plea expenses and his failure to report them as income or a loan; agreement containing the Brady waiver provision. The third, the accountant’s prior consistent statements were majority of the Ninth Circuit agreed with Ruiz that the right inadmissible because neither the rule of completeness nor the to discovery under Brady is one of those rights which can common law doctrine of admissibility of such statements

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justified their admission; and lastly, since the district court FED. R. EVID. 501, which recognizes the attorney-client had already given an immunized witness instructions that privilege, and FED R. CRIM. P. 17(c), which allows a court to accomplished the same purpose, declining an accomplice quash a subpoena if compliance with it "would be jury instruction was not error. The court considered unreasonable or oppressive." Here, the Third Circuit agreed whether the errors committed by the district court required with the government that the district court failed to properly reversal and concluded the ". . . evidentiary errors were analyze the invocation of the attorney-client privilege and the harmless individually and cumulatively as there was no applicability of the crime-fraud exception. Moreover, by rational basis to conclude that they had any effect on the requiring the government to demonstrate the information
jury," thus reversal was not required.
sought could not be obtained by other means, the district
court exceeded its authority under Rule 17 and improperly placed a burden on the government not provided for in the rules or case law. See United States v. R. Enter., Inc. 498 U.S. 292, 298-99 (1991).

PRIVILEGES
FORFEITURE
Crime-Fraud Exception
When Forfeiture Notice Is Returned
In In Re: Grand Jury Proceeding Impounded, 241 F.3d The Government Must Check 308 (3rd Cir. 2001), the Third Circuit vacated the decision of the district court to quash a grand jury subpoena issued to All Obvious Sources the attorney for the target of a grand jury investigation.
Over the course of several years, a grand jury had issued In Foehl v. United States, 238 F.3d 474 (3rd Cir. 2001), subpoenas for the production of various documents, Foehl was stopped for speeding in Texas and, upon searching business records, etc., relating to businesses controlled by the vehicle, the officers discovered marijuana and $93,163 in the target of the investigation. The target’s attorney cash hidden in Foehl’s vehicle. Foehl provided the officers assumed responsibility for complying with the subpoenas with a driver’s license listing his old address and a vehicle and produced some of the requested records. However, he registration card listing his new address, both which were in asserted many of the records simply did not exist. Upon the Alabama. The parties disputed whether Foehl also informed execution of a search warrant, many of the records the the officers of his new address. The Texas authorities attorney claimed were nonexistent were discovered. The forfeited Foehl’s truck, sending their forfeiture notice to government then subpoenaed the attorney to testify before Foehl’s new address. The DEA adopted the forfeiture of the the grand jury concerning his previous assertions that the cash, sending its forfeiture notice to Foehl’s old address. records did not exist. After the attorney invoked the After the DEA’s forfeiture notice was returned, the DEA attorney-client privilege, the government filed a motion to contacted its Houston Division in an unsuccessful attempt to compel his testimony. The government argued the crime- find Foehl’s new address but made no further efforts to fraud exception invalidated the attorney-client privilege locate Foehl. Several months later, the DEA’s Alabama because the target of the investigation used the attorney to Division, which had been separately investigating Foehl obstruct justice. The district court quashed the subpoena before his arrest in Texas, arrested Foehl on other drug finding it "fundamentally unfair" to compel the attorney’s charges. testimony. In doing so, the court failed to assess the applicability of the crime-fraud exception and stated the Foehl sued to invalidate the DEA’s forfeiture of his cash on government could have pursued other avenues in its efforts grounds the DEA failed to properly notify him of its
to obtain the desired information.
forfeiture. The district court granted the government’s
motion for summary judgment on grounds the lack of notice
On appeal, the Third Circuit stated the two principal was Foehl’s own fault for not updating his driver’s license. mechanisms for judicial review of grand jury subpoenas are Foehl appealed.

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The Third Circuit found the DEA’s single call to its Venue Houston Division, after receiving its returned forfeiture notice, failed to comport with due process which requires In United States v. Villarini, 238 F.3d 530 (4th Cir. 2001), notice to the claimant be reasonably calculated to apprize Villarini was convicted of one count of embezzlement, in the claimant of the pendency of the action and to afford him violation of 18 U.S.C. § 656, and four counts of money an opportunity to present his objections. With minimal laundering in violation of 18 U.S.C. § 1956 (a)(1)(B)(i). The effort the DEA could have obtained Foehl’s correct address convictions arose from Villarini’s theft of money from a from the Texas police, the Texas district attorney, the bank in Virginia, at which she worked as a teller, and four DEA’s Alabama Division, or the Alabama Driver’s License subsequent transactions she conducted at a bank in Florida Bureau. The Third Circuit noted the DEA was not required involving the stolen funds. Although the transactions which to check all possible sources for a claimant’s address but, gave rise to the money laundering charges occurred in under the circumstances, its actions were unreasonable. Florida, the government charged Villarini in the Western
District of Virginia. Villarini’s motion to dismiss the
Payment Of Interest Not Required In
charges based upon improper venue was denied at trial.
Unsuccessful Civil Drug Forfeiture Actions On appeal, the Fourth Circuit held, although the evidence
In United States v. $30,006.25 (Rodgers), 236 F.3d 610 was sufficient to support the money laundering convictions, (10th Cir. 2000), following the government’s unsuccessful they nevertheless should be vacated due to improper venue. attempts to forfeit property seized from Rodgers, the district The court stated "[v]enue on a count is proper only in a court ordered the government to return his property. On district in which an essential conduct element of the offense appeal, Rodgers argued the district court erred when it took place." See United States v. Bowens, 224 F.3d 302, 309 failed to require the government to pay interest on the (4th Cir. 2000). Here, the conduct alleged in the money amounts due him. The Tenth Circuit concluded sovereign laundering counts consisted solely of four transactions immunity prohibited the award of interest on the currency conducted entirely in Florida. The court rejected the
and proceeds returned to Rodgers.
government’s argument that venue was proper in Virginia
pursuant to 18 U.S.C. § 3237(a), which provides for venue
The Tenth Circuit noted there is a circuit split on whether in any district where an offense was begun, continued, or the government can be ordered to pay interest when it must completed. The court relied upon United States v. Cabrales, return seized property to a claimant following an 524 U.S. 1 (1998), in which the Supreme Court construed § unsuccessful forfeiture action. The Second and Eighth 3237(a) in relation to money laundering prosecutions, Circuits hold sovereign immunity bars an award of interest determining the money laundering statute prohibits only the since the government has not waived its immunity from suit financial transaction and "not the anterior criminal conduct" in this respect. On the other hand, the Sixth and Ninth which produced the funds that were laundered. 524 U.S. at Circuits acknowledge there is no waiver of sovereign 7. Thus, the Supreme Court abrogated the Fourth Circuit’s immunity but view the matter, not as an award of interest, decision in United States v. Heaps, 39 F.3d 479 (4th Cir. but as the government’s duty to disgorge property earned 1994), where the appellate court held venue for the while the seized res was in the government’s hands. The laundering of drug proceeds was proper in the district in Tenth Circuit found it could not agree with the Sixth and which the proceeds were criminally generated. Id. at 482. Ninth Circuits that recharacterizing an interest award as a The government’s reliance on Heaps and its attempt to disgorgement of profits circumvents the effect of sovereign differentiate Villarini’s case from that of the factual situation immunity. Consequently, the Tenth Circuit held Rodgers in Cabrales was flawed as Heaps was based upon the was not entitled to interest upon the government’s return of proposition that the generation of the funds to be laundered
the property to him.
was an essential element of the crime of money laundering,
a proposition rejected in Cabrales.
The Tenth Circuit acknowledged the Civil Asset Forfeiture
Reform Act of 2000 ("CAFRA") had now waived sovereign First Circuit Relies on Congressional Intent, immunity with respect to interest on returned currency, Dower to Uphold "Innocent Owner" Defense negotiable instruments and proceeds. CAFRA, however, did not apply to this case as it was only effective with In United States v. 221 Dana Avenue, 239 F.3d 78 (1st Cir. respect to forfeiture proceedings commenced after Feb. 6, 2001), the First Circuit vacated the district court’s
August 23, 2000.
decision and directed dismissal of the government’s
forfeiture action with prejudice. The issue on appeal was whether a claimant may assert an innocent owner defense MONEY LAUNDERING
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where the claimant was unaware of illegal activity at the base offense level for filing a false tax return, so that a tax time it occurred but was aware of the illegal activity at the loss of more than $40,000.00 resulted in a base offense level time the claimant acquired her interest in the property of 13, instead of 11. When sentencing Lewis, the district
through her husband’s will.
court followed the guidelines which specifically instruct if a
"defendant is convicted of two offenses, the first committed
The government started forfeiture proceedings against the before, and the second after, a revised edition of the claimant because her late husband used the marital home for Guidelines manual became effective, the revised edition of his side business as a drug dealer, unbeknownst to his wife. the Guidelines manual is to be applied to both offenses." See At the close of evidence the district court granted the U.S.S.G. § 1B1.11(b)(3). Accordingly, the court applied the government’s motion for a directed verdict and denied the revised version of the guidelines. claimant’s motion for entry of judgment. The court concluded the claimant was not entitled to assert the On appeal, Lewis argued the district court violated the ex "innocent owner" defense since she did not possess an post facto clause by applying the revised version of the ownership interest in the property until after she learned the guidelines in determining her sentence causing her to receive
property had been used for drug dealing.
increased punishment for the first, pre-revision tax offense.
In rejecting her claim, the Fourth Circuit stated the central
In vacating the district court’s decision, the court reasoned concern of the ex post facto prohibition is "the lack of fair the claimant had satisfied the requirements of the innocent notice and governmental restraint when the legislature owner defense. Specifically, the court found the claimant increases punishment beyond what was prescribed when the was innocent with respect to the illegal activities when they crime was consummated." Miller v. Florida, 482 U.S. 423, occurred and learned of those activities only upon the arrest 430 (1987). The court opined, since the guidelines were of her husband. The court found, under Massachusetts law changed on November 1, 1993, Lewis had "ample warning" on dower interests, the claimant had a partial interest in the when she committed the later acts of tax evasion, that those property, the marital home, at the time of the illegal activity, acts would cause her sentence for the earlier crime to be and that interest existed long before she knew her husband determined by the guidelines applicable to her later offenses. was dealing drugs. Thus, the court found the claimant had Therefore, "it was not § 1B1.11(b)(3) that disadvantaged a sufficient interest in the property at the time to also Lewis, but rather her decision to commit further acts of tax qualify as an "owner" as to that interest. Accordingly, the evasion after the effective date of the 1993 guidelines." court concluded, because the claimant had a partial (dower) interest in the property prior to learning about the illegal Use Of Tax Guidelines Affirmed In False activities and because the congressional purpose of
Claims and Klein Conspiracy Conviction deterring drug crimes would not be served by forfeiture, she could assert the innocent owner defense.
In United States v. Aragbaye, 234 F.3d 1101 (9th Cir. 2000), Aragbaye and his co-conspirators ran two tax preparation businesses which they used to prepare false returns in the
SENTENCING
names of customers and other people whose names and
personal information they obtained from state welfare
Application Of Revised Sentencing
agencies. In addition, Aragbaye duped an unrelated
legitimate payroll company into preparing fictitious Forms
Guidelines To Pre-Revision Tax Crime
W-2 for these individuals and opened a check cashing
Does Not Violate Ex Post Facto Clause
business to deposit the $551,664 of refunds he ultimately
received. Following a plea to 18 U.S.C. §§ 287 and 371, the
In United States v. Lewis, 235 F.3d 215 (4th Cir. 2000), the district court calculated Aragbaye’s sentence using the tax Fourth Circuit held the Ex Post Facto Clause of the United guidelines (U.S.S.G. §§ 2T1.4 and 2T1.9) rather than the States Constitution was not violated when revised fraud guidelines (U.S.S.G. § 2F1.1). On appeal to the Ninth sentencing guidelines were applied to offenses which Circuit, Aragbaye contested the district court’s use of the tax predated and postdated the revision of the guidelines. At guidelines. trial, Lewis was convicted of, inter alia, four counts of filing false tax returns. The first offense occurred on April Aragbaye argued U.S.S.G. § 1B1.2(a) directs the district 13, 1993, when Lewis filed a false tax return for 1992. The court to use the Statutory Index in Appendix A to determine other three offenses occurred on December 10, 1993, when which guidelines are most applicable to the offense of Lewis filed false amended tax returns for 1990, 1991, and conviction. Since the Statutory Index recommends use of the 1992. In the meantime, on November 1, 1993, the United fraud guidelines for a violation of § 287, the district court States Sentencing Guidelines were amended to increase the should have applied the fraud guidelines. The Ninth Circuit

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analogized § 287 to 18 U.S.C. § 1001 which also proscribes Utecht’s activities, including ". . .hiding the existence of the a range of conduct. The notes to § 2F1.1 state where the video poker machines and proceeds from his accountants; indictment charges §1001 but establishes an offense more fabricating receipts to account for the proceeds, generating aptly covered by another guideline, that other guideline false 1099s that caused bar owners to file false tax should be applied, not § 2F1.1. In Aragbaye’s case, since returns. . .and generating false personal property returns" his indictment charged § 287 but established a tax offense, were more complex than the standard tax fraud case and the district court was correct in applying the tax guidelines. warranted the imposition of the sophisticated concealment
increase. Id. at *17. Accordingly, the Seventh Circuit found
Aragbaye also contended § 2T1.9 only applies to offenses no error in any of the district court’s sentencing calculations involving interference with tax collection, such as money and affirmed Utecht’s sentence. laundering or tax shelters. The notes to § 2T1.9 provide
§ 2T1.9 should not be applied to taxpayers who only file a Grouping fraudulent return. The Ninth Circuit found the purpose of the notes was to distinguish between actual conspiracies and In United States v. Syrax, 235 F.3d 422 (9th Cir. 2000), the mere joint filers of a fraudulent return. Although Ninth Circuit held Syrax’s convictions of wire fraud and Aragbaye’s scheme did not involve money laundering or money laundering should not be grouped. Syrax used some tax shelters, the court found it was the type of complex of the proceeds from a wire fraud scheme involving conspiracy to which § 2T1.9 was meant to apply. telemarketing to further promote the fraud in violation of
18 U.S.C. § 1956. Syrax contended the district court erred by failing to group his fraud and money laundering counts

Tax Loss And Sophisticated Concealment as a single group under U.S.S.G. § 3D1.2(b) or (d). Section th
In United States v. Utecht, 238 F.3d 882 (7 Cir. 2001), as 3D1.2 provides for the grouping of closely related counts or factually set forth on page two of this Bulletin, the Seventh those that involve substantially the same harm. Circuit upheld the district court’s sentencing calculations and affirmed Utecht’s sentence. The district court rejected The court held Syrax’s contention that his fraud and money Utecht‘s arguments for offense level reductions for laundering counts should have been grouped together under acceptance of responsibility, unclaimed deductions and § 3D1.2(d) was foreclosed by United States v. Taylor, 984 depreciation, and imposed a two level increase for F.2d 298 (9th Cir. 1993), which held grouping under
sophisticated concealment.
§ 3D1.2(d) is inappropriate when the guidelines measure
harm differently. In Taylor, the Ninth Circuit noted the
On appeal, the Seventh Circuit affirmed the district court’s offense level under the fraud guideline was determined based refusal to decrease the sentence for acceptance of on the loss attributable to the scheme, while the money responsibility, finding Utecht’s prevarication under oath laundering guideline looked at the value of the funds denying he had filed false tax returns was sufficient basis attributable to the scheme. The court held the rationale
for denying the downward adjustment.
underlying Taylor applies whether a defendant is charged
under 18 U.S.C. § 1956 or 18 U.S.C. § 1957, since the
Utecht also argued the amount of tax loss was improperly guidelines for wire fraud and money laundering measure calculated because the district court failed to reduce the tax harm differently. The court, however, did recognized the loss for depreciation of the poker machines. Utecht’s Seventh and Eleventh Circuits have held otherwise. Syrax accountant testified he could not recall whether the video also cited United States v. Rose, 20 F.3d 367 (9th Cir. 1994), poker machines had depreciated in value after he learned in which the court upheld the grouping of fraud and money the machines existed. The court upheld the district court’s laundering convictions. The court pointed out in Rose it calculation of the tax loss where the accountant’s lack of distinguished Taylor based on the fact, unlike Rose, there recollection was insufficient to show Utecht was entitled to was complete identity between the laundered funds and the a depreciation deduction. The Seventh Circuit, therefore, fraudulently obtained funds. Rose, therefore, was not found no clear error in the district court’s calculation of tax controlling. loss.
The court also rejected Syrax’s contention that his
Utecht also appealed the sophisticated concealment convictions should be grouped under § 3D1.2(b). The court enhancement, arguing his actions were no more complex held Syrax’s telemarketing scheme had identifiable victims than a routine tax evasion case. The Seventh Circuit stated whereas society was the victim of his money laundering,

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therefore, his convictions did not involve the same victims Cir. 1994), and United States v. Senn, 129 F.3d 886 (7th Cir. for purposes of grouping under subsection (b). Although 1997). some circuits agree with the Ninth Circuit that money laundering and fraud involve different victims and should Downward Departure For Extraordinary not be grouped, other circuits have held such convictions do involve the same victims and should be grouped.
Family Ties and Employment History

In United States v. Thompson, 234 F.3d 74 (1st Cir. 2000),
Obstruction of Justice
Thompson pled guilty to one count of distributing cocaine
in violation of 21 U.S.C. § 841(a)(1). At the first sentencing In United States v. Arambula, 238 F.3d 865 (7th Cir. 2000), hearing, the district court, taking into account Thompson’s the Seventh Circuit held the giving of testimony which aids timely plea, acceptance of responsibility, and criminal in the conviction of a co-conspirator but fails to reveal the history, determined his guideline sentencing range to be 87 true scope of the conspiracy does not equate to obstruction to 108 months of imprisonment. Thompson then moved, of justice meriting an enhancement under U.S.S.G. § 3C1.1. pursuant to U.S.S.G. §§ 5H1.6 and 5H1.5, for a downward Noting obstruction of justice by perjury requires material departure to the mandatory minimum of 60 months in prison, misstatements, the court concluded merely withholding based on his extraordinary family obligations and details about related third parties was not material when employment history. The district court continued the Arambula was testifying on the issue of the co-conspirator’s sentencing hearing and invited Thompson to present more
guilt.
evidence regarding his family and employment history.

In this case, as part of a plea bargain, Arambula agreed to At the next sentencing hearing, based on information and provide complete and truthful information regarding the testimony provided by and on behalf of Thompson, the involvement of himself and others in a drug distribution district court found Thompson exhibited extraordinary family conspiracy. He testified for the government at the trial of a ties and employment history. Consequently, it departed co-conspirator, which resulted in a conviction. Although downward to the 60 month minimum. The court explained Arambula provided information at his co-conspirator’s trial, its decision to depart downward was justified after reviewing the trial judge was convinced his testimony failed to offenders similarly situated to Thompson as to place of accurately describe the overall extent of the conspiracy. At residence, time, and offense committed, i.e., sale of crack sentencing, the trial court enhanced Arambula’s sentence cocaine. for obstruction of justice based on his alleged false
testimony.
On appeal, the First Circuit stated, although the district
court’s reasoning made sense, it was nevertheless contrary to
On appeal, Arambula argued his false testimony did not the law of the circuit. The court cited United States v. address a material matter and, therefore, was not perjury. DeMasi, 40 F.3d 1306, 1324 (1st Cir. 1994), where it held He reasoned the minimizing of the scope of the conspiracy when a district court contemplates a downward departure was not crucial to the guilt or innocence of his co- based upon discouraged factors, such as family ties and conspirator. The Seventh Circuit agreed. Arambula’s false responsibilities and employment history, it must compare the statements minimizing the conspiracy were immaterial to defendant to others who have exhibited those factors, not to the issue of his co-conspirator’s guilt or innocence and did others who have been convicted of the same offense. The not affect the outcome of the trial. There was no evidence court stated a sentencing court "should survey those cases Arambula’s testimony implicating the co-conspirator was where the discouraged factor is present without limiting its false, and any further testimony the government could have inquiry to cases involving the same offense, and only then elicited from Arambula would not have aided the case in ask whether the defendant’s record stands out from the
which he was testifying.
crowd." Id. In the present case, by limiting its inquiry to
cases involving only crack cocaine dealers and then asking
The court observed the nature of the false testimony whether Thompson’s record stood apart, ". . .the district provided by Arambula was different than any it had court did what DeMasi forbids." Accordingly, Thompson’s previously found to merit an obstruction enhancement. sentence was vacated and the case remanded for Prior cases reserved obstruction enhancements for instances resentencing. in which a defendant falsely testified that a co-conspirator was innocent. See, United States v. Parker, 25 F.3d 442 (7th

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Prosecutor’s Inconsistent Statements In
arguments and affirmed the district court sentence, citing the
Closing Arguments And At Sentencing Are
plain language in U.S.S.G. § 2T1.1(c)(1), and the
corresponding Application Note, stating "[n]othing in that
Not Occasion For Application Of Judicial
language indicates that self-employment taxes should be
Estoppel Doctrine
excluded from the calculation of tax loss." Id., at 3-4.
Further, the court distinguished the Eleventh Circuit case
In United States v. Newell, 239 F.3d 917 (7th Cir. 2001), as cited by the Twiegs, stating the "court faced the issue of factually set forth on page two Newell was convicted of whether interest and penalties should be included in the tax willfully filing false federal income tax returns in violation loss," noting the applicable Guideline specifically excluded
of 26 U.S.C. § 7206(1).
interest and penalties, and there was no such provision
excluding self-employment taxes. Id., at 8. The court
On appeal, Newell argued the district court’s application of indicated that a review of pre and post 1993 Guideline an enhancement for sophisticated means was barred by language refuted the Twiegs argument and must be judicial estoppel because of the prosecutor’s statement in considered with the language of the Internal Revenue Code, closing arguments in which he said Newell’s scheme was which "indicates that self-employment taxes are a "not particularly sophisticated." The judicial estoppel subcategory of "Income Taxes." Id., at 5. Finally, the court doctrine forbids a litigant who has obtained a judgment on dismissed the assertion that the government suffered no tax some ground to seek judgment in another case on an loss and stated the "failure to pay the self-employment taxes inconsistent ground. The Seventh Circuit found the judicial results in a loss to the government of at least the present estoppel doctrine inapplicable here since conviction is not value of the tax payments, and possibly the future value as the judgment in a criminal case, the sentence is the well because the individual may never become entitled to judgment. The prosecutor, therefore, was not trying to collect those payments." Id., at *6. The Seventh Circuit obtain a second judgment on inconsistent grounds by affirmed the sentence and calculation of tax loss, which making inconsistent statements in closing arguments and at included self-employment taxes. sentencing. Although the Seventh Circuit acknowledged the existence of case law applying the judicial estoppel doctrine Sentence Extended For Violation without requiring a previous judgment, the Seventh Circuit disparaged this line of cases. The Seventh Circuit,
Of Court’s Order affirming Newell’s sentence, analogized the prosecutor’s inconsistent arguments to pleading in the alternative which In United States v. Hoover, 240 F.3d 593 (7th Cir. 2001),
is permitted.
Hoover, after being previously convicted of violating 26
U.S.C. § 7206(1) and 18 U.S.C. § 1001, was sentenced to imprisonment and ordered to turn over his savings bonds to
Employment Taxes Included
the government for application to the costs of his defense.
In Tax Loss
On application of the government, the court also ordered
Hoover "not to cash, negotiate, or transfer . . . not to do
In United States v. Twieg, 238 F.3d 930 (7th Cir. 2001), the anything with them" prior to turning the bonds over to the Twiegs pled guilty to three counts of filing false federal government. Within weeks of this order, however, Hoover income tax returns in violation of 26 U.S.C. § 7206(1). The gave his son approximately half of the bonds. The court Twiegs owned a carpet sales and installation business from found Hoover in contempt and extended the sentence he had 1990 through 1996, during which time they underreported received on the substantive charges by six months. Hoover receipts of the business and filed false tax returns. The appealed. Twiegs’ sentence was based on a tax loss which included unpaid self-employment taxes. The Twiegs appealed the The elements of criminal contempt are a lawful and sentence, arguing the district court erred in including self- reasonably specific order of the court and a willful violation employment taxes in calculating the tax loss. of that order. On appeal, Hoover contended the district
court’s order did not meet these elements. Specifically, he
The Twiegs argued the self-employment taxes should be claimed because the bonds had always been held in his sons’ excluded from the calculation of tax loss for the following names, he did not "transfer" the bonds but rather merely reasons: the Eleventh Circuit has excluded self-employment returned the bonds to their natural owner. The Seventh taxes; a review of pre and post 1993 Guideline language Circuit disposed of Hoover’s semantical argument noting revealed such an intent to exclude those taxes from tax loss; "transfer" includes both changing of physical posssession as and, the government suffered no tax loss. well as title. In any event, the district court had previously
held title to the bonds remained in Hoover since he had put The Seventh Circuit dismissed each of the Tweigs’ the bonds in his sons’ names only to evade legal

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responsibilities and he, rather than his sons, controlled the appropriate." Id., at 2. bonds at all times. The Seventh Circuit noted the purpose of the district court’s order was to prevent Hoover from The court noted the sentencing court imposed a sentence at causing the bonds to be unavailable for restitution and the higher end of the guideline range. "A judge who Hoover accomplished exactly what the order was intended preferred to depart downward, but thought the legal rules to avoid, namely making the bonds unavailable. Having blocked such a step, would sentence the defendant at the determined the district court’s order was sufficiently clear, bottom of the available range." Id., at 2-3. Furthermore, the Seventh Circuit concluded a trier of fact could the court remarked, "[a] top-of-range sentence surely determine beyond a reasonable doubt Hoover was aware his dispels ambiguity in the district judge’s rulings." Id., at 3. conduct was unlawful and Hoover’s transfer of the bonds to his son was a willful violation of the court’s order. Relying on an Eighth Circuit holdng, Buckowich also
argued the sentence was an unjust result of the disparity
Outside "Heartland" And Departure
between the base offense levels for fraud and money
Discretion
laundering and because the nature of her actions were
outside the heartland of money laundering cases, the fraud guideline offense level should have been used for In United States v. Buckowich, 243 F.3d 1081 (7th Cir. sentencing. The Seventh Circuit declined to follow the 2001), Buckowich was convicted of wire fraud and money Eighth Circuit, noting its decision relied heavily on a 1995 laundering and was sentenced to forty months’ Sentencing Commission amendment proposal which was imprisonment. Buckowich defrauded an individual of nullified by Congress. "[Congress] enacted legislation that $500,000 with the promise the money would grow to $93 nullified the proposed amendment, which would have million within three months. She used bank transfers to abrogated all punishment for money laundering unless that move the individuals funds overseas, then spent the money. were the only offense of which the defendant was Buckowich appealed the district court’s sentence, arguing convicted." Id., at 10. The court also noted Buckowich the district court judge erroneously believed he lacked failed to ask for a one or two level departure; rather, she authority to depart downward to a sentence below the wanted a reduction to the base offense level for fraud, applicable Sentencing Guideline range. The Seventh disregarding the money laundering district court’s sentense Circuit disagreed and affirmed the sentence, stating "the and its decision not to exercise its discretion in Buckowich’s district judge did not act as if constrained to sentence favor.
Buckowich to a longer term than the judge believed

CRIMINAL TAX BULLETIN
TABLE OF CASES
FEBRUARY/APRIL 2001

SUPREME COURT CASES

Illinois v. McArthur, 121 S. Ct. 946 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Glover v. United States, 121 S. Ct 696 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Texas v. Cobb, No. 121 S.Ct. 1335 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

TITLE 26 AND TITLE 26 RELATED CASES

United States v. Utecht, 238 F.3d 882 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

United States v. Newell, 239 F.3d 917 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

United States v. Carlson, 235 F.3d 466 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SEARCH AND SEIZURE

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United States v. Reinholz, No. 00-1166, 2001 U.S. App. LEXIS 5046 (8th Cir. Mar. 29, 2001) . . . . . . . . . . . . . . . . . . . . . . . . 3

PROCEDURE

United States v. Ruiz, 241 F.3d 1157 (9th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

EVIDENCE

In United States v. Simonelli, 237 F.3d 19 (1st Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

PRIVILEGES

In Re: Grand Jury Proceeding Impounded, 241 F.3d 308 (3rd Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

FORFEITURE

Foehl v. United States, 238 F.3d 474 (3rd Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

United States v. $30,006.25 (Rodgers), 236 F.3d 610 (10th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

MONEY LAUNDERING

United States v. Villarini, 238 F.3d 530 (4th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

United States v. 221 Dana Avenue, 239 F.3d 78 (1st Cir. Feb. 6, 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

SENTENCING

United States v. Lewis, 235 F.3d 215 (4th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

United States v. Aragbaye, 234 F.3d 1101 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

United States v. Utecht, 238 F.3d 882 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

United States v. Syrax, 235 F.3d 422 (9th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

United States v. Arambula, 238 F.3d 865 (7th Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

United States v. Thompson, 234 F.3d 74 (1st Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

United States v. Newell, 239 F.3d 917 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

United States v. Twieg, 238 F.3d 930 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

United States v. Hoover, 240 F.3d 593 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

United States v. Buckowich, 243 F.3d 1081 (7th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

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Department of the Treasury
Internal Revenue Service
Document 10023 (2/4-2001)
Catalog Number 24304B

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