Other 200412008: Criminal Tax Bulletin reviews federal cases

Plain-English summary

The IRS Criminal Tax Division's August 2003 bulletin collects case notes for informational purposes. It discusses bank and wire fraud, search and seizure, investigative techniques, and sentencing in cases related to tax enforcement. The bulletin reports federal court decisions and includes a table of cases. It does not decide a taxpayer's request for a ruling, and its heading says it is not a directive.

Ruling snapshot

• Question: What court decisions did the Criminal Tax Division report in this bulletin?
• Outcome: Informational bulletin; no taxpayer ruling.
• Key authorities: Cited federal court decisions and criminal statutes.

Full text (IRS public release)

Number: 200412008
Release Date: 3/31/04
UIL: 9999.98-00

Criminal Tax Bulletin
Department of Treasury
Office of Chief Counsel
Internal Revenue Service
Criminal Tax Division
August This bulletin is for informational purposes. It is not a directive. 2003

TITLE 26 AND TITLE 26
intent to defraud a bank is satisfied where an intent to
defraud some entity is present and the intended fraud
RELATED CASES
places a federally insured financial institution at a risk of
loss. Although the bank in this case never actually
Bank Fraud
transferred funds, the evidence showed Reaume’s acts
could have caused the bank to transfer funds, thus putting
In United States v. Reaume, 338 F.3d 577, (6th Cir. 2003), the bank at a risk of loss. Reaume opened checking accounts at a federally insured bank using small initial deposits, wrote checks from the 18 U.S.C. ' 1343 Violations Involving accounts for products knowing there were insufficient funds to cover the checks, then returned the goods in exchange for Foreign Governments cash. The bank refused to honor the bad checks and the actual losses were suffered by the retailers. A one count In United States v. Pasquantino, 336 F.3d 321 (4th Cir. indictment alleged Reaume knowingly executed a scheme to 2003), a majority of the Fourth Circuit sitting en banc held defraud the bank in violation of 18 U.S.C. § 1344. Reaume the federal wire fraud statute, 18 U.S.C. ' 1343, is appealed his conviction on the grounds there was no applicable to schemes to defraud foreign governments of evidence he intended to defraud the bank itself, as opposed their revenues. Pasquantino and his co-defendants were to the individual merchants, nor any evidence his acts caused convicted under ' 1343 for participating in a scheme to the bank to actually transfer funds resulting from the fraud. smuggle alcohol from the United States into Canada to
avoid paying higher Canadian excise taxes. A panel of the
To sustain a bank fraud conviction pursuant to § 1344, the Fourth Circuit later vacated the defendants= convictions, Sixth Circuit noted the government was required to prove however, at the government=s request, the Fourth Circuit three things: (a) Reaume knowingly executed a scheme to voted to rehear the case en banc. defraud a financial institution; (b) he did so with the intent to defraud; and, (c) the financial institution was federally The defendants first challenged their convictions on the insured. The court followed prior decisions in its reasoning, ground the common law revenue rule barred their noting bank fraud is established when fraudulent activity prosecution under ' 1343. Alternatively, the defendants causes the bank to transfer funds, even if the intended victim argued accrued tax revenue does not constitute property of the fraudulent activity is an entity other than a federally under ' 1343. The defendants= first argument presented an insured financial institution. United States v. Everett, 270 issue of first impression in the Fourth Circuit. The First and F.3d 986 (6th Cir. 2001). Thus, the court reasoned, it was Second Circuits have reached conflicting decisions as to irrelevant whether the bank was Reaume’s intended victim. whether similar prosecutions are precluded by the common Furthermore, in United States v. Hoglund, 178 F.3d 410 (6th law revenue rule. Under the common revenue law, courts Cir. 1999), the court found the showing of a defendant’s in the United States are to refrain from passing on the intent to put a bank at a risk of loss is sufficient to sustain a validity and operation of the revenue laws of foreign bank fraud conviction under § 1344. Thus, the bank need countries. As applied in the present case, the defendants not have actually transferred funds to have been at a risk of view the common law revenue law as an absolute loss. In affirming Reaume’s conviction, the court followed prohibition on American courts from recognizing a revenue the reasoning in both Hoglund and Everett, holding the law of a foreign sovereign.
to Davis and the room contained his belongings. Once
The en banc majority held the common law revenue rule authorities were made aware of these facts, it should have does not preclude prosecution under ' 1343 on the basis of a been clear Smith was not authorized to give consent. scheme to defraud a foreign sovereign of its property rights in accrued tax revenues. The majority reasoned affirming Consent depends on the third party’s access to or control the defendants= convictions would not be the functional over the specific container searched and not the premises as equivalent of enforcing the revenue laws of Canada and, a whole. Though Smith had access to and control over the therefore, does not require an inquiry into the validity and apartment, this control did not extend to Davis’s bedroom operation of Canadian law. Rather, the prosecution merely which he occupied solely with his girlfriend and did not enforced the United States= interest in preventing its share with Smith. Since there was no actual or apparent interstate wire communication systems from being used in authority for the search, the case was reversed and furtherance of criminal enterprises. The fact the property at remanded. issue belonged to a foreign government is merely incidental. With respect to the defendants= second argument the Third Party Consent majority held since a government has a property right in tax revenues when they accrue, the tax revenues owed to In United States v. Shelton, 337 F.3d 529 (5th Cir. 2003), Canada by reason of the defendants= conduct in the present the Fifth Circuit affirmed the district court’s denial of case constitute property for purposes of the wire fraud Shelton’s motion to suppress evidence removed from his
statute.
home and handed over to authorities by his estranged wife.

SEARCH AND SEIZURE
Shelton was under investigation by the IRS for running a
“skimming operation” and evading taxes in connection with
Third Party Consent
the operation. After six years of marriage and due to
suspicions of infidelity, Shelton’s wife, Cheryl, moved out of the couple’s home. With Shelton’s knowledge and In United States v. Davis, 332 F.3d 1163 (9th Cir. 2003), the assent as sole owner of the property, Cheryl retained her Ninth Circuit ruled searches and seizures performed with house key and personal security access code. She made only third party consent are unconstitutional unless the third several visits to the home to collect personal belongings, party had mutual use or joint control over the searched and sometimes alone and sometimes with friends or relatives. seized property at the time of the search.
A week after leaving, Cheryl began cooperating with the IRS in its investigation of Shelton. Cheryl entered the Davis’ suspected involvement in a deadly game of Russian house and turned over numerous documents and books roulette prompted authorities to search the apartment Davis related to Shelton’s “skimming operation.” leased along with his girlfriend and a third woman, Smith.
Smith was the only one present when police arrived and the In his motion to suppress, Shelton alleged Cheryl lacked only one to consent to a search of the apartment. Smith told the common authority to consent to a search of the home, police which bedroom belonged to Davis and the belongings arguing her authority to enter the home after she moved out inside were Davis’s. Once inside, authorities found a gun was restricted to picking up mail and retrieving personal hidden in a gym bag under the bed. belongings. In response, the government argued Cheryl possessed the requisite authority since she enjoyed The court found police lacked both actual and apparent unlimited physical access to the interior of the home authority to search Davis’s room, citing two decisions in without interference from Shelton. support of its position. In United States v. Matlock, 415 U.S. 164 (1974), the court said a third party may authorize a The court determined the validity of a third party consent search if the third party has mutual use of and joint access to search necessitates a fact specific inquiry and the extent to or control over the property in question. Smith did not have which a defendant forgoes his expectation of privacy is a joint access or control over Davis’s room. Smith occupied a substantial factor in determining whether or not the third separate bedroom in the apartment and the fact Davis hid the party has the requisite common authority to consent to a bag under the bed indicated his expectation of privacy. search. In this case, Shelton failed to alter his position in Consequently, there was no actual authority for the search. regard to Cheryl’s use of the house after she moved out, In United States v. Fultz, 146 F.3d 1102 (9th Cir. 1998), the thereby allowing her to continue to enter even without his court said apparent authority for a search does not exist if presence. Thus, Shelton had a low expectation of privacy police were aware of facts negating the third party’s right of establishing Cheryl’s common authority and Shelton’s consent to a search. Smith told police which room belonged assumption of risk for a search.
-2- possession of and intent to distribute controlled substances in violation of 21 U. S. C. § 841(a)(1). Both appealed the district court’s denial of their motions to suppress evidence obtained during the execution of an anticipatory search warrant.

Based on information from an informant, law enforcement
Questions Unrelated To Traffic Stop
officers planned a controlled delivery of drugs. The
informant was familiar with the area and had previously visited the residence to which the drugs were to be
In United States v. Burton, 330 F.3d 869 (6th Cir. 2003) delivered, but gave the wrong address which was used in Burton was convicted of offenses related to the possession the anticipatory search warrant. When no residence was of drugs and firearms. Burton entered a guilty plea and was discovered at the address given, the informant who was sentenced to 120 months of imprisonment, followed by four with the police, identified the correct house; however, the
years of supervised release.
correct house number was not communicated to the officer
charged with obtaining the warrant which was ultimately A police officer responded to a tip alleging individuals were executed. selling narcotics when he found Burton in a vehicle parked too close to a “no parking” sign. Burton was initially Lora-Solano and Cortez-Cruz argued that listing the wrong detained for this minor traffic violation. Burton got out of house number and failure to provide a physical description his car and, after questioning, admitted he had drugs in his of the premises to be searched, constituted a lack of possession. Burton also consented to a search of his car and sufficient particularity and, thus rendered the warrant a gun was discovered. Burton filed a motion to suppress the invalid. The court cited United States v. Pervaz, 118 F.3d evidence obtained by the officer which the district court 1, 9 (1st Cir. 1997), which held “[t]he test for determining denied. Burton appealed the district court’s decision the adequacy of the description of the location to be alleging the scope of the initial stop exceeded that which is searched is whether the description is sufficient ‘to enable constitutionally permissible. the executing officer to locate and identify the premises with reasonable effort, and whether there is any reasonable The court cited Knowles v. Iowa, 525 U.S. 113, (1998), probability that another premise might be mistakenly which held the Fourth Amendment did not permit an officer searched.’” Since agents did not identify a residence at the to stop a driver for a traffic violation, issue a citation, and dispatched address and the informant made the controlled then search the vehicle. The court, however, found the delivery to the premises which was searched before the instant case to be distinguishable since the officer had not warrant was executed, the mistake of searching the wrong issued Burton a traffic violation when he asked for consent house was unlikely. Given that no reasonable probability to search the vehicle. existed for the wrong house to be searched, the court held the warrant satisfied the particularity requirement.
The court further noted in United States v. Childs, 277 F.3d
947,954 (7th Cir.) (en banc) cert. denied, 154 L. Ed. 2d 43,
123 S. Ct. 126 (2002), the Seventh Circuit relied upon INVESTIGATIVE TECHNIQUES Atwater v. City of Lago Vista, 532 U.S. 318 (2001), which held “questions that hold potential for detecting crime, yet create little or no inconvenience, do not turn reasonable Failure To Name Authorizing Official detention to unreasonable detention.” Childs, 277 F.3d 947, Not Fatal To Wiretap 954 (2002). Thus, the court concluded a police officer in the process of conducting a traffic stop does not violate the Fourth Amendment by asking questions unrelated to the In United States v. Radcliff, 331 F.3d 1153 (10th Cir.
purpose of the stop.
2003), Radcliff was convicted of conspiracy to possess and
distribute methamphetamines. Much of the evidence used to convict Radcliff came from a government wiretap of
Incorrect Address Did Not Invalidate
Radcliff’s brother-in-law’s home.
Anticipatory Search Warrant
On appeal, Radcliff moved to suppress evidence obtained
In United States v. Lora-Solano, 330 F.3d 1288 (10th Cir. from the wiretap on the grounds the order did not name the 2003) Lora-Solano and Cortez-Cruz were convicted for Department of Justice (“DOJ”) official authorizing the
request. 18 U.S.C. § 2516(1) requires authorization from a -3-
DOJ official for a wiretap request and § 2518 requires the 3D1.2(c). The court also noted grouping in this case wiretap order specifically identify the authorizing official. prevented “. . . double counting of offense behavior . . .
[which] . . . Application note 5 to § 3D1.2 explains . . . [is]
On its face the wiretap order was unlawful; however, the purpose of subsection (c) . . .” Accordingly, the suppression was not required unless the violated provision sentence was vacated and the case remanded for played a substantive role in the regulatory system. The resentencing. holding in United States v. Giordano, later codified under 18 U.S.C. § 2518(10)(a)(i), mandates suppression only when the violated provision is one of the “statutory requirements Miscarriage Of Justice Exception To Appeal that directly and substantially implement[s] the Waiver congressional intention to limit the use of intercept procedures.”
In United States v. Andis, 333 F.3d 886 (8th Cir. 2003),
In this case, the violated provision was only designed to fix Andis pled guilty to transporting a minor in interstate responsibility and played no substantive role in the statutory commerce for illegal sexual activity and waived his right to scheme. Thus, the violation did not call for suppression of appeal as part of his plea agreement. Andis subsequently the evidence. The authorizing DOJ officials were named in claimed a miscarriage of justice exception to certain the applications, although they were not named in the actual conditions of his supervised release constituted an illegal wiretap order. This strengthened the argument against sentence and, therefore, the waiver in his plea agreement suppression, since the missing names were obtainable and did not bar the appeal of his sentence. the violation had no real negative ramifications. Accordingly, the Tenth Circuit affirmed the district court’s The court found no miscarriage of justice in this case denial of Radcliff’s motion to suppress evidence obtained although it agreed there is a narrowly construed
from the wiretap.
miscarriage of justice exception to waivers. In prior cases,
the court defined illegal sentences as those not authorized for the crime of conviction or those outside the statutory
SENTENCING
limits. An allegation the sentencing court misapplied the
Sentencing Guidelines or abused its discretion does not
Grouping
constitute a miscarriage of justice and is not subject to
appeal where a valid waiver exists.
In United States v. Sedoma, 332 F.3d 20 (1st Cir. 2003),
Sedoma, a detective sergeant with the Tiverton, Rhode A sentence is illegal when it is not authorized by law, Island Police Department, was convicted of conspiracy to exceeds a statutory provision, or violates an applicable possess and distribute marijuana (21 U.S.C. § 846), statute. A sentence is not illegal when the terms of the conspiracy (18 U.S.C. § 371) and mail and wire fraud. On sentence are not in excess of the relevant statutory appeal, Sedoma argued the district court erred in failing to provisions or the sentence itself is not legally or group the two conspiracy charges. Sedoma contended the constitutionally invalid. two level increase for abuse of a position of trust, attached to the drug conspiracy charge, overlapped with the conspiracy The court dismissed Andis’s appeal since he admitted to to defraud charge. The government felt grouping “. . . entering the waiver knowingly and voluntarily and because would result in some of the conduct constituting the the supervised release conditions were not based on some
conspiracy to defraud going unpunished.”
constitutionally impermissible factor, such as race, which
would have made the sentence illegal.
USGG § 3D1.2(c) provides counts should be grouped
together “when one of the counts embodies conduct that is
treated as a specific offense characteristic in, or other
adjustment to, the guideline applicable to another of the
counts.” The court determined a full overlap of conduct is
not necessary to group counts. The conduct necessary for
the first count need only be included in the conduct for the
second count. “Embody” does not mean “fully accounts
for.” The court determined the conspiracy to defraud was
committed for the purpose of facilitating the drug conspiracy
and, therefore, embodied conduct within the meaning of § -4-
Conviction Of Willful Offense Does Not
mental capacity.
Preclude Downward Departure For Mental
Incapacity
Relevant Conduct
In United States v. Reaume, 338 F.3d 577, (6th Cir. 2003),
In United States v. Cockett, 330 F.3d 706 (6th Cir. 2003), Reaume opened several checking accounts with small the Sixth Circuit affirmed Cockett=s sentence of one year=s initial deposits, wrote checks from the accounts for probation for each count of aiding and assisting in the products knowing there were insufficient funds to cover the preparation of false returns. The district court departed amount of the checks, then returned the goods to the same downward pursuant to USSG ' 5K2.13 based on a finding stores in exchange for cash. A jury convicted him of Cockett suffered from a significantly reduced mental committing bank fraud in violation of 18 U.S.C. § 1344. capacity at the time she committed the offense. The Reaume appealed his sentence on grounds the district court government appealed the sentence arguing the departure was improperly denied his motion for a reduction for inconsistent with the jury=s finding, beyond a reasonable acceptance of responsibility and improperly included doubt, that Cockett understood the wrongfulness of her relevant conduct in calculating his guideline range. actions.
In affirming the sentence, the Sixth Circuit noted a lack of a guilty plea would not preclude a court from granting a
The court held ' 5K2.13 may be applied in cases in which a reduction for acceptance of responsibility; however, the defendant is found guilty of a willful offense while suffering Sentencing Guidelines indicate such a reduction should be from a significantly reduced mental capacity not resulting based primarily on pre-trial statements and, a defendant’s from voluntary intoxication. Upholding the departure, the conduct. At trial, Reaume contested the issue of whether majority concluded there was enough evidence to support he participated in the scheme and intended to defraud the the district court=s finding that Cockett suffered from a bank, a factual determination regarding his responsibility depression and thought disorder that impaired her ability to for the criminal acts. In convicting Reaume, the jury found reason, despite the level of sophistication required to he harbored such an intent. Thus, Reaume made no commit the offenses. The court held Cockett Acould indication he accepted responsibility for his acts and the voluntarily and intentionally violate the tax laws, but refusal of the district court to award Reaume a reduction nevertheless be impaired in her ability to exercise the power was not clear error. of reason.@ The court also found the impairment need not have a causal link to the offense committed. Although the In calculating Reaume’s sentencing range, the district court parties agreed under Sixth Circuit precedent, a sentencing estimated relevant conduct losses to be between $200,000 finding that directly conflicted with a jury=s verdict could not and $350,000. The relevant conduct was based on stand, the majority found it possible to reconcile the jury=s Reaume’s prior arrests for bad checks, his admissions to verdict against Cockett with the existence of a Asignificantly making as much as $70,000 per year through his bad check
reduced mental capacity.@
scheme, and testimony Reaume traveled the country writing
bad checks for three years and obtained thousands of
The dissent believed it was impossible to reconcile the jury=s dollars a month doing so. The Sixth Circuit upheld the rejection of Cockett=s defense that she did not understand calculations, noting the district court need only find the what she was doing was against the law, with the district showing of relevant conduct be proven by a preponderance court=s finding that Cockett was suffering from a of the evidence, a standard which was met by the significantly reduced mental capacity that contributed to her government. commission of the offense. Moreover, the dissent believed the trial evidence, including witness testimony, failed to support the district court=s finding of a significantly reduced

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CRIMINAL TAX BULLETIN

August 2003

TABLE OF CASES

TITLE 26 AND TITLE 26 RELATED CASES

United States v. Reaume, 338 F.3d 577 (6th Cir. 2003) ............................................................................................................. 1

United States v Pasquantino, 336 F.3d 321 (4th Cir. 2003) ...................................................................................................... 1

SEARCH AND SEIZURE

United States v. Davis, 332 F.3d 1163 (9th Cir. 2003)............................................................................................................... 2

United States v. Shelton, 337 F.3d 529 (5th Cir. 2003) .............................................................................................................. 2

United States v. Burton, 330 F.3d 869 (6th Cir. 2003)............................................................................................................... 3

United States v. Lora-Solano, 330 F.3d 1288 (10th Cir. 2003).................................................................................................. 3

INVESTIGATIVE TECHNIQUES

United States v.Radcliff, 331 F.3d 1153 (10th Cir. 2003) .......................................................................................................... 3

United States v. Sedoma, 332 F.3d 20 (1st Cir. 2003)................................................................................................................ 4

United States v. Andis, 333 F.3d 886 (8th Cir. 2003)................................................................................................................. 4

United States v. Cockett, 330 F.3d 706 (6th Cir. 2003).............................................................................................................. 4

United States v. Reaume, 338 F.3d 577 (6th Cir. 2003) ............................................................................................................. 5

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