Tax Perjury, § 7206(1) Is a Different Crime than Perjury, 18 USC § 1621 (12/25/19)

The following is a copy of a post to my Federal Tax Crimes Blog:

Yesterday, I was updating the working draft of my Federal Tax Procedure Book, here, for the 2020 editions to make a point about § 7206(1) here, which I and others call “tax perjury.”  See e.g., DOJ CTM 12.03 Generally, here (“Section 7206(1) is referred to as the “tax perjury statute,” because it makes the falsehood itself a crime.”) I added the caveat that tax perjury in § 7206(1) is not the crime of perjury, 18 USC § 1621.  The CTM thus cautions that “Although referred to as the ‘tax perjury statute,’ Section 7206(1) prosecutions are not perjury prosecutions.”  CTM 12.09[2] Law Of Perjury Does Not Apply To Section 7206(1) Prosecutions.  Thus features critical to perjury prosecutions (such as the two-witness rule and no corporate criminal liability) do not apply to § 7206(1) prosecutions.

In addressing this point, I discuss in a footnote Siravo v. United States, 377 F.2d 469 (1st Cir. 1967), here.  In Siravo , the defendant argued that § 7206(1) was not a perjury statute, because perjury requires false affirmative statements and the omission of income is not a false affirmative statement.  The Court held that the language of the jurat did cover such omissions because the jurat states that it is signed under penalty of perjury and the taxpayer attests under penalty of perjury that the return is true and correct, so that omitted income was clearly within the scope of the statement made under penalty of perjury covers omissions from the return (the Court treated the word "complete" in the jurat as superfluous to “true and correct”).  “Therefore, the government has made out a violation of the section, whether it be labelled a perjury statute or similar in nature,”  (Pp. 762-473 (cleaned up).  See also United States v. Cohen, 544 F. 2d 781, 783 (5th Cir. 1977) (cleaned up) (“The omission of a material fact [assets from the OIC] renders such a statement just as much not ‘true and correct’ within the meaning of§ 7206(1), as the inclusion of a materially false fact, Siravo v. United States, 377 F.2d 469 (1st Cir. 1967)."

Eleventh Circuit Sustains IRS Summons Issued For French Tax Investigation (12/18/19)

In Redfern v. United States (11th Cir. Dkt. 19-12649 12/17/19) (unpublished), here, the Court affirmed the IRS’s issuance of summonses to various banks “at the request of the French government, pursuant to the United States–France Income Tax Treaty, to aid an ongoing investigation into Redfern’s [French] tax liability.” 

For background on the process, I cut and paste this (footnotes omitted) from a version of the working draft of my Federal Tax Procedure Book (basically same as in my Federal Tax Procedure 2019 editions):

In an increasingly globalized economy, records relevant to tax administration in one country may be possessed by someone in another country. Under many U.S. bilateral tax treaties, one treaty partner is obligated to assist the other in gathering information relevant to the latter's tax administration. For example, the Canadian tax authority (referred to as the “competent authority” in treaty parlance) under the U.S./Canada Double Tax Treaty may request the U.S. tax authority (i.e., the U.S. competent authority) to obtain information in the U.S. for Canadian tax administration. (This is commonly referred to as an “exchange of information” provision.) If the request is within the scope of the treaty, the U.S. competent authority will authorize the IRS to issue an administrative summons. The ultimate taxpayer involved may then bring a motion to quash if the summons is to a third party or, if the summons is to the taxpayer, may invoke any basis for noncompliance and await the IRS's pursuit of a summons enforcement proceeding.  

In United States v. Stuart, 109 S. Ct. 1183 (1989), Canada made such a request to the U.S., the U.S. issued summonses to third parties, and the taxpayer brought a motion to quash. The issue presented was whether the Code's limitation on the use of administrative summonses when a DOJ referral is in effect (§ 7602(d)) applies in the case of a summons issued under the Canadian treaty in relation to the Canadian tax. That Code limitation had been enacted after the U.S./Canadian double tax treaty in question had been negotiated and entered into force. Arguably, even if that limitation were not in the treaty, Congress's subsequent legislation may have created a treaty override. The taxpayer argued that the status of the Canadian tax investigation was the equivalent of a DOJ referral and thus the use of an IRS administrative summons was not proper. The Court held that, notwithstanding the subsequent enactment, the treaty itself controlled and had no such limitation, so that it need not inquire into the status of the Canadian investigation.  

In subsequent cases, courts have held that the propriety of the foreign country’s tax investigation is not relevant to whether the IRS can issue and enforce the summons (or avoid a petition to quash the summons); rather, the issue is whether the IRS has met the Powell requirements for the summons focusing on its actions and not that of the foreign treaty partner requesting the IRS to use its processes to obtain the requested information.  

 Similar processes are available under the OECD Convention on Mutual Assistance in Tax Matters, which is a multilateral treaty, and possibly other treaties as well, although most of the litigated cases appear to involve the bilateral double tax treaties.

The process employed in Redfern for the summons as follows (Slip Op. p. 2):

As required by Internal Revenue Code § 7609(a)(1), the IRS provided Redfern, as the holder of the accounts, with notice of the summons and an explanation of the recipient’s right to bring a proceeding to quash the summons. Specifically, it mailed the required notice to Redfern at (1) the address that appeared on his most recently filed and processed federal tax return and (2) the address identified by France as the address he reported to the government, as well as (3) to Leslie R. Kellogg, an attorney at Hodgson Russ LLP, from whom the IRS had received a power of attorney signed by Redfern authorizing her to receive confidential tax information on Redfern’s behalf.

Townsend Article on Burden of Proof and Valuation in Tax Cases (12/9/19)

Caveat:  The ABA Tax Lawyer publication has published my article:  John A. Townsend, Burden of Proof in Tax Cases: Valuation and Ranges—An Update, 73 Tax Lawyer 389 (2020).  I have posted the article as published to SSRN where it can be reviewed or downloaded in pdf format.  The suggested citation on SSRN and the link for review or downloading is:  Townsend, John A., Burden of Proof in Tax Cases: Valuation and Ranges — An Update (2020). 73 Tax Lawyer 389, 2020. Available at SSRN: https://ssrn.com/abstract=3599481.  The final published article supersedes the draft and should be the one consulted going forward.

I have posted on SSRN a draft of an article, titled  Burden of Proof in Tax Cases: Valuation and Ranges - an Update, I have submitted to the ABA Tax Lawyer for publication.  The SSRN posting where the draft can be downloaded is here.

The SSRN Abstract is:

In this article, I update a previous article, John A. Townsend, Burden of Proof in Tax Cases: Valuations and Ranges, 2001 TNT 187-37 (2001). I discuss the difficulty in many valuation cases of determining a finite valuation point by the required degree of persuasion (more likely than not in most civil cases). This point was made cogently in a frequently cited opinion of by the Delaware Court of Chancery (which I quote in the next paragraph): 

It is one of the conceits of our law that we purport to declare something as elusive as the fair value of an entity on a given date. Valuation decisions are impossible to make with anything approaching complete confidence. Valuing an entity is a difficult intellectual exercise, especially when business and financial experts are able to organize data in support of wildly divergent valuations for the same entity. For a judge who is not an expert in corporate finance, one can do little more than try to detect gross distortions in the experts' opinions. This effort should, therefore, not be understood, as a matter of intellectual honesty, as resulting in the fair value of a corporation on a given date. The value of a corporation is not a point on a line, but a range of reasonable values, and the judge’s task is to assign one particular value within this range as the most reasonable value in light of all the relevant evidence and based on considerations of fairness.

Sometimes where ranges are identified, arbitrary conventions (such as the midpoint as in the case of publicly traded stock) can be used to determine the issue in litigation. But where there is no such convention that should be applied, the burden of persuasion can resolve the case by identifying the range. The party bearing the burden of persuasion (or risk of nonpersuasion) then has persuaded only as to the end of the range that does not favor that party and the value, based on persuasion, is determined accordingly. 

The party bearing the burden of persuasion in tax cases is usually the taxpayer. In the article, I discuss interesting features of the burden and how, at least in the Tax Court, the burden of persuasion might shift to the Commissioner under Helvering v. Taylor, 293 U.S. 507 (1935), which I think is often misunderstood. 

Another benefit of identifying the range is that, if it is determined on appeal that the trier of fact misapplied the burden of persuasion but did identify the range, the court of appeals can resolve the case by picking the other end of the range (unless a successful attack is made on the choice of the ends of the range).

The purpose of the advance publication on SSRN is to advised the community of the article and solicit comments for those wishing to make them.  I find that comments will help me make final revisions that make the final publication better.  Thanks in advance.

The SSRN listing for all of my articles is here.

The Missing Witness Negative Inference and the Impeachment Proceedings (12/1/19)

This is a cut and paste from the same post on my Federal Tax Crimes Blog, here.

A couple of days ago, I wrote on the D.C. Circuit Court’s rejection of another Bullshit Tax Shelter.  D.C. Circuit Swats Down Bullshit Tax Shelter (Federal Tax Crimes Blog 11/29/19), here.  One of the issues discussed in the case (but only lightly discussed in the blog) is the negative inference that a trier of fact may draw from a missing witness.  I noted: “In its most common iteration, the missing witness negative inference is deployed when the witness is controlled by one of the party’s to the litigation.”  I use this separate blog entry to discuss the missing witness negative inference in this context because of its potential for its application where, in the impeachment proceedings or the resulting trial, President Trump has control or suasion over witnesses whom he directs or encourages not to testify.

A good statement of the missing witness rule--usually invoked in a jury instruction context to explain to the jury how to use the rule--is (United States v. St. Michael's Credit Union, 880 F.3d 579, 597 (1st Cir. 1989), here (cleaned up):

The rationale behind the missing witness instruction has been stated as follows: "the failure of a party to produce available evidence that would help decide an issue may justify an inference that the evidence would be unfavorable to the party to whom it is available or whom it would ordinarily be expected to favor." 2 C. Wright, Federal Practice and Procedure § 489 (1982). First Circuit precedent has established three circumstances that may warrant a missing witness instruction.  

The jury may draw an inference adverse to a party toward whom the missing witness is favorably disposed, because the party would normally be expected to produce such a witness. In addition, the jury may draw an adverse inference when a party fails to produce a material witness who is peculiarly available to that party. Finally, when a party having exclusive control over a witness who could provide relevant, noncumulative testimony fails to produce the witness, it is permissible to draw an adverse inference from that party's failure to do so, even in the absence of any showing of the witness's predisposition toward the party.

Readers will note that the negative inference from a missing witness is an evidentiary context for inferences that we use everyday in all sorts of contexts beyond a trial setting.  If it is important to establish the truth of a proposition and any party withholds potentially important evidence as to the truth or falsity of the proposition, then an inference can be and often is drawn that the evidence would be negative to that party.  The inference is deployed in a trial setting where it is critically important to establish the truth of facts which the trier of fact (judge or jury) is requested to find.  The party who suffers if the fact is or is not true and declines to produce evidence within that party's control can be subject to a negative inference as to the content of the withheld evidence.  Just that simple.

In the current context, President Trump has directed and clearly signaled to all persons within his control or suasion that they should not testify.  That is the classic case in which the missing witness negative inference can be made.  As I indicated, that rule is important in fact finding in every day life and in trials.