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DOJ’s Tax Division Updates Criminal Tax Manual to Address Marinello’s Impact on Charging Decisions – by SANDRA R. BROWN and GARY MARKARIAN

On March 21, 2018, the Supreme Court issued its much awaited decision in Marinello, and in doing so, imposed significant limitations on the government’s ability to bring obstruction charges in tax cases under the so-called Omnibus Clause of 26 U.S.C. § 7202(a).  Since that time, tax practitioners have been watching to see how impactful the decision would be on the government’s charging decisions in criminal tax cases.  Part of the watching also involved waiting for updates to the U.S. Justice Department’s Criminal Tax Manual (“CTM”) concerning the scope of Section 7212(a)’s Omnibus Clause.[i]  Earlier this month, the Tax Division ended the waiting and issued Chapter 17 of the CTM to specifically address the impact of Marinello on prosecutorial decisions involving charges contemplated by the Omnibus Clause of Section 7212(a).[ii]

Background of 26 U.S.C. § 7212(a) & Marinello

IRC § 7212(a) prohibits acts that obstruct or impede, or endeavor to obstruct or impede, the due administration of the Internal Revenue Code.[iii]  This statutory provision is referred to as the “Omnibus Clause.”  

In 2018, the Supreme Court in Marinello reviewed the scope of the Omnibus Clause as a result of a split in the Circuit.  The split was significantly more favorable to the government, in that, only in decisions rendered by the Sixth Circuit were judicial limits being placed on charges prosecuted under the Omnibus Clause.  All other courts of appeals considering the issue had upheld a more generous interpretation of the Omnibus Clause and thus, affirmed convictions of defendants prosecuted for actions that occurred before, or even in the absence of, an IRS audit or investigation.[iv] 

The decision in Marinello significantly narrowed the approach of the majority of the Circuits,  holding that § 7212(a) obstruction charges required that the government prove the defendant was aware of a pending tax-related proceeding or that the defendant could “reasonably foresee that such a proceeding would commence”, and that the government also establish a “nexus” between the defendant’s acts and the investigation.[v]  The Marinello Court made clear that the Omnibus Clause as a whole must involve actions intended to interfere with targeted tax-related proceedings, such as a particular investigation or audit.[vi]

Prosecutorial Discretion in Tax Cases

As noted above, prior to the Supreme Court’s ruling in Marinello, a majority of the courts supported an expansive reading of the Omnibus Clause, thus leaving charging decisions under this statute largely up to the discretion of prosecutors.  This discretion, more often than not, did evidence a fair amount of restraint by prosecutors such that charges under Section 7212(a) were limited to actions occurring after an IRS audit or overt tax investigation had begun.  

To provide further context as to the limits on prosecutorial discretion in criminal tax cases, it is worth noting that approval to file a federal tax charges is, in most instances, ultimately overseen by the Tax Division, as Tax Division authorization is required to prosecute crimes arising under Title 26.  As part of the Tax Division’s oversight of tax cases, in addition to providing the basic foundation for national consistency in charging decisions, the Tax Division makes its policies and directives available to both prosecutors and the public in the CTM.  Again, worth noting, the CTM, in general, “provides only internal Department of Justice guidance.  It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal.  Nor does the CTM place any limitations on otherwise lawful litigative prerogatives of the Department of Justice.”[vii] 

The CTM does, however, provide uniform, internal guidance in charging decisions, including Tax Division Directives which speak directly to prosecutorial decisions in charging violations of Title 26.  Violations of Title 26, of course, include charges involving the Omnibus Clause of § 7212(a).[viii] 

The CTM has, for over 30 years, specifically included directives relevant to § 7212(a).  Tax Division Directive 77, issued in 1989, created DOJ’s self-imposed limitations on charging a violation of § 7212(a), stating the charge “should be reserved for conduct occurring after a tax return has been filed- typically conduct designed to impede or obstruct an audit or criminal tax investigation”.[ix]   Tax Division Directive 129, issued in 2004, to supersede Directive 77, set forth that a § 7212(a) charge was most appropriate for corrupt conduct intended to impede an IRS audit or investigation such as “providing false information, destroying evidence, attempting to influence a witness to give false testimony, and harassing an IRS employee.”[x]  The Tax Division’s recent issuance of the updated Chapter 17 in the CTM, as such, is intended to provide such information to not only the public, but also federal prosecutors considering charges under the Omnibus Clause of § 7212(a) in light of the Supreme Court’s decision in Marinello.

Criminal Tax Manual – Updated Chapter 17

Chapter 17 begins with the statutory language of IRC § 7212[xi] and an explanation of the code section and Marinello.[xii] The chapter continues with the Tax Division’s policy, which is stated as follows – “an Omnibus Clause charge should… be based on acts of commission and not acts of omission.”   Here are the highlights:

Section 17.04 analyzes, generally, the elements of the omnibus clause as construed in Marinello. It provides a more detailed explanation of the case and the Court’s findings. It also provides a brief description of United States v. Aguilar[xiii] in relation to Marinello.

Section 17.04[1] discusses the Omnibus Clause’s means rea requirement as “corruptly” rather than “willfully” and notes that Marinello did not alter the definition of “corruptly.”

Section 17.04[2] discusses the second element of the Omnibus Clause – an “endeavor.” The manual notes that Marinello “did not purport to place any categorical limitations on the types of ‘endeavors.’”

Section 17.04[3] discusses “Omissions as Endeavors.” In Marinello, the government suggested the Supreme Court limit the Omnibus Clause’s scope by excluding omissions from the scope of the statute.[xiv]  However, the Court opted to limit scope by requiring a nexus to a pending or foreseeable proceeding, leaving open the question of whether an Omnibus Clause conviction could be predicated upon an omission. “Against this legal backdrop” the Tax Division has decided that Omnibus Clause prosecutions would not be based on omissions without the express authorization of the Tax Division.

Section 17.04[4] discusses “Targeted Administrative IRS Action.”  The Supreme Court did not provide an exhaustive list of administrative conduct that would fall within the scope of the Omnibus Clause, but did make specific reference to both “investigations” and “audits.”[xv]  The section refers to United States v. Miner[xvi] for further guidance on this issue. Miner explained that knowledge of pending IRS collection activities against a taxpayer, including notices of deficiency, notices of tax past due, and federal tax liens falls within the scope.[xvii]  United States v. Faller provides further guidance by finding that a taxpayer’s knowledge that the IRS had taken steps to collect unpaid income taxes was sufficient to fall within scope.[xviii]  Finally, United States v. Westbrooks adds within the scope a taxpayer who provides false testimony at a hearing to show cause where a court had to determine a taxpayer’s compliance with an IRS subpoena for tax records.[xix]

Section 17.04[5] discusses the “Pending or Reasonably Foreseeable” requirements.  The Marinello Court statedthat the administrative proceeding intended to be obstructed or impeded must be “pending at the time the defendant engaged in obstructive conduct or, at the least, was then reasonably foreseeable by the defendant.”[xx]  Marinello slightly expanded the Andersen ruling to state that “it is not enough for the Government to claim that the defendant knew the IRS may catch on to his unlawful scheme eventually,” but “the proceeding must at least be in the offing.”[xxi]

Section 17.04[6] discusses the “‘Nexus’ Between Conduct and a Particular Administrative Proceeding.” Marinello did not analyze how the government would prove a nexus and did not require proof of a nexus between the corrupt endeavor and the IRS’ administrative proceedings with regards to a specific tax year or period.  Rather, the government must prove a “‘nexus’ between the defendant’s conduct and a particular administrative proceeding.”[xxii]  Marinello used the definition of “nexus” from United States v. Aguilar.[xxiii]

Section 17.04[7] discusses “Pleading Violations of the Omnibus Clause under Marinello.”  The Tax Division’s position is that “the nexus requirement is one of proof and does not constitute a newly created core element that must be expressly and separately pled in the indictment in order to state an offense.”  However, to avoid issues in the future, the manual recommends that indictments should “at least allege facts showing that the nexus-to-a-pending-or-foreseeable-proceeding requirement is satisfied…”  The manual provides a model indictment form which expressly alleges a nexus to a pending or foreseeable proceeding.

Section 17.04[8] titled “Jury Instructions after Marinello” states that the “nexus-to-a-pending-or-reasonably-foreseeable-proceeding” requirement must be reflected in jury instructions. Section 17.04[8][a] titled “Specific Unanimity of Corrupt Endeavors” states that although a jury must unanimously agree that all elements of the offense have been proven, the jury does not have to be unanimous with regards to the particular means by which the offense was committed.

Section 17.04[9] discusses “Unit of Prosecution.” Though not expressly stated, Marinello assumes that the Officer Clause and Omnibus Clause of IRC 7212(a) state two separate offenses.[xxiv] Marinello did not address other interpretations.

Section 17.05 discusses “Venue” but acknowledges that “courts have not yet addressed whether Marinello’s holding that the government must prove a nexus to a targeted tax-related proceeding provides a basis for venue in a district where such a proceeding is pending, in addition to any district where a corrupt endeavor took place.”

Section 17.06 titled “Statute of Limitations” states that the statute of limitations for a violation of the Omnibus Clause is six years from the last act that constitutes a violation.

Conclusion

The Tax Division’s CTM, which is part of the Justice Manual, is important to ensuring that Department of Justice policies are not only available to all DOJ components and employees to facilitate government efficiency and overall consistency in the execution of their sworn duties, but also provides transparency to the public.  The Tax Division’s updated Chapter 17, to address the Supreme Court’s decision in Marinello, provides further insight into the circumstances when a charge under the Omnibus Clause of Section 7212(a), will most likely be deemed appropriate.

Sandra R. Brown is a Principal at Hochman Salkin Toscher Perez P.C.  Prior to joining the firm, Ms. Brown served as the Acting United States Attorney, the First Assistant United States Attorney and the Chief of the Tax Division of the Office of the U.S. Attorney (C.D. Cal)  Ms. Brown  specializes in representing individuals and organizations who are involved in criminal tax investigations, including related grand jury matters, court litigation and appeals, as well as representing and advising taxpayers involved in complex and sophisticated civil tax controversies, including representing and advising taxpayers in sensitive-issue audits and administrative appeals, as well as civil litigation in federal, state and tax court. 

Gary Markarian is an Associate at Hochman Salkin Toscher Perez P.C., and a graduate of the joint JD/LL.M. Taxation program at Loyola Law School, Los Angeles. While in law school, Mr. Markarian served as an intern at the Tax Division of the U.S. Attorney’s Office (C.D. Cal) and Internal Revenue Service Office of Chief Counsel’s Large Business and International Division.


[i] Sandra R. Brown, A Taxing Impediment, L.A. Law.,  Jan. 2019, at 24, 29, https://www.lacba.org/docs/default-source/lal-back-issues/2019-issues/january-2019.pdf.

[ii]  Criminal Tax Manual at Chapter 17.

[iii] 26 U.S.C. § 7212(a) provides, in relevant part, “Whoever corruptly or by force or threats of force (including any threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force (including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both.”

[iv] See Dep’t of Just., Crim. Tax Manual, 3.00, Note 3, Tax Div. Pol’y Directives & Memoranda, 49 (2012), https://www.justice.gov/sites/default/files/tax/legacy/2014/08/05/CTM%20Chapter%203.pdf#Directive %20No.%20129.

[v]  United States v. Marinello, 138 S. Ct. 1101, 1110 (2018).

[vi]  United States v. Marinello, 138 S. Ct. at 1104.

[vii] Criminal Tax Manual at Title Page 0. https://www.justice.gov/tax/foia-library/criminal-tax-manual-title-page-0

[viii] See Justice Manual, formerly United States Attorney’s Manual, 6-4.200 – Tax Division Jurisdiction and Procedures, available at https://www.justice.gov/usam/usam-6-4000-criminal-tax-case-procedures#6-4.200.

[ix] See United States v. Kassouf, 144 F.3d 952, 955 (6th Cir. 1998).

[x] See Dep’t of Just., Crim. Tax Manual, 3.00 Tax Div. Pol’y Directives & Memoranda, 49 (2012), https://www.justice.gov/sites/default/files/tax/legacy/2014/08/05/CTM%20Chapter%203.pdf#Directive %20No.%20129.

[xi] CTM 17.01.

[xii] CTM 17.02.

[xiii] United States v. Aguilar, 515 U.S. 593 (1995).

[xiv] Sup. Ct. Tr. Pp. 59-63.

[xv] United States v. Marinello, 138 S. Ct. at 1110.

[xvi] United States v. Miner, 774 F.3d 336 (6th Cir. 2014).

[xvii] United States v. Miner, 774 F.3d at 346.

[xviii] United States v. Faller, 675 Fed App’x 557 (6th Cir. 2017).

[xix] United States v. Westbrooks, 728 Fed. App’x 379 (5th Cir. 2018) (per curiam).

[xx] United States v. Marinello, 138 S. Ct. at 1110 (citing Arthur Andersen LLP v. United States, 554 U.S. 696, 703, 707-08 (2005)).

[xxi] United States v. Marinello, 138 S. Ct. at 1110.

[xxii] United States v. Marinello, 138 S. Ct. at 1109.

[xxiii] United States v. Marinello, 138 S. Ct. at 1109 (quoting United States v. Aguilar, 515 U.S. 593 (1995).

[xxiv] United States v. Marinello, 138 S. Ct. at 1104-05.

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