University of Houston School of Law
Tax Fraud and Money Laundering
Spring 2003
Adjunct Professors Campagna and Townsend

Update Materials
Last Updated:  02/09/07

These materials are intended for students of the course for supplemental reading and for updating and correcting the book titled on Tax Crimes.  Readers interested in this general subject will find additional materials at Townsend & Jones's Newsletter pages by clicking here, but students of the course should focus their fire on the ones listed below.

Ch. 1 Introduction.

1. Webster Commission Report in Adobe Acrobat Format.  (OPTIONAL)

Ch. 2 The Crimes

• Cheek Defense:  The Cheek defense can be presented in a myriad of contexts.  Juries often do not believe the defense and convict the defendant accordingly.  A recent reported decision on pre-trail motions illustrates the defense.  In United States v. Loglia (D. Nev No. 2:05-cr-00121), the defendant received payment for goods and services in U.S. gold and silver coins with a fair market value much greater than the face value.  The taxpayer claimed that his obligations to the IRS were measured according to the face value of the coins -- e.g., a coin with a face value of $100 but a market value of $10,000 would be $100 in gross income to the taxpayer and his tax liability would be computed accordingly.  Despite the fact that the substantive tax law, as interpreted by the 9th Circuit, held that the tax liability is to be determined according to fair market value, the district court in Loglia allowed the defendant to present the Cheek defense that he believed that his tax liability was to be measured by face value.  Whether the jury will accept that defense is an open issue.
• 404(b) quote (p. 47, first full paragraph, second sentence).  Strike the "provided that upon request by the accused at the end."  I apologize, I was overinclusive on the cut and paste operation.
• Section 7212 (Omnibus Clause).  For optional reading see the article co-authored by Larry Campagna here.
• Conspiracy.  See Frank Lyon Draft Indictment.  This is a draft of an indictment I prepared inspired by the charges in United States v. Stein (SD NY - S1 05 Cr. 888 (LAK)), a case presently awaiting trial for tax evasion and tax conspiracy arising from KPMG's tax shelter activity.  Judge Kaplan, the judge presiding over the massive case, recently described the case as follows:

This case has been described as the largest criminal tax case in history. The indictment contains forty-five counts. Eighteen defendants await trial. The issues are complex. The evidence is mountainous. According to the latest account, the government has produced over 22 million pages in discovery, much of it in electronic form that may be used effectively only with the assistance of electronic evidence consultants. n3 No end to the document production is in sight. In addition, the government has named 68 trial witnesses n4 and identified 5,024 trial exhibits amounting to over 128,000 pages. Estimates of the duration of the trial range from a low of four to a high of eight months or more.  

I have taken the charges in Stein and overlayed them to the facts of Frank Lyon Co. v. United States, 435 U.S. 561 (1978), a case that should be familiar to those of you who have studied substantive tax law.  Frank Lyon, was a low point in Supreme Court jurisprudence -- certainly tax jurisprudence -- blessing one of the more gossamer tax shelters.   The major charge in Stein -- Count One of the indictment -- is conspiracy to commit a specific offense (tax evasion) and conspiracy to defraud the United States by impairing and defeating the lawful functions of the IRS.  In the text for this class, I discuss the defraud conspiracy in some detail.  What I tried to do with this draft indictment in Frank Lyon is to show that the sweeping claims for the defraud conspiracy that the Government makes in the Stein case could have applied equally to the Frank Lyon facts.  In Frank Lyon, the Supreme Court ultimately blessed the shelter on the tax merits.  But if the Government had proceeded first by way of indictment and made the sweeping claims it makes in Stein, could it have convicted the parties on a fact pattern ultimately sustained civilly by the Supreme Court?  Consider this draft indictment for what you think it may be worth in the context of the materials in the text with respect to conspiracy.

• Chart of Currency Reporting Forms from IRS Web Site.

Ch. 3 Sentencing and Related Issues

Ch. 4  Other Consequences

• Immigration Consequences.  A note of caution for practitioners. The attorney should advise or obtain another qualified attorney to advise the defendant of the collateral consequences, including the immigration consequences, of the charges and a plea to the charges if the defendant considers making a plea (as will usually be the case). Certainly, at least as to this immigration collateral consequence, courts have noted that the attorney has a professional duty to advise the client. So there will be a malpractice issue involved where the attorney fails to advise or advises incorrectly. In terms of a defendant’s attack on a conviction based in ineffective assistance of counsel, the courts have historically made a distinction between the attorney who failed to advise on immigration consequences and an attorney who gives erroneous advice on the immigration consequences. Failure to advise alone is not ineffective assistance of counsel, but erroneous advice is ineffective assistance of counsel. However, courts have at least suggested that they may be willing to reconsider this historical distinction because, in view of the attorney’s duty to the client, it makes no sense; if they do so, are likely to hold that failure to advise is ineffective assistance of counsel also. Cover this point with your clients. [For the foregoing points, see United States v. Kwan, 407 F.3d 1005, 1015-16 (9th Cir. 2005) (collecting and discussing cases), and United States v. Couto, 311 F.3d 179, 187-88 (2d Cir. 2002).]

Ch. 5 Statutes of Limitation

Ch. 6 Venue

Ch. 7 Enforcement Strategies, Policies and Practices

• TIGTA Report on Criminal Investigation Statistics - May 2006.
• USA Bulletin (Describing Interface Between DOJ Tax and the United States Attorney's Office; has excellent discussions of some DOJ Tax policies and practices.

Ch. 8 Information Gathering Techniques

Ch. 9 Mitigating the Damages

Ch. 10 Proof Issues

Ch. 11 The Process A to Z

Ch. 12 Policy Issues

Miscellaneous

    Federal Rules
        Criminal Procedure:
            Cornell Law School
                Cornell also offers the Federal Rules for download at a small cost.
            House Judiciary Committee
        Evidence
            Cornell Law School
            House Judiciary Committee

    LEXIS-NEXIS Criminal Laws and Rules - This is a CD ROM that provides easy access to many, if not most, federal criminal statutes (including procedural statutes), as well as the various federal rules (criminal procedure, evidence, appellate procedure and Supreme Court) and key criminal cases. The obvious deficiency in the disk is that it does not include the Sentencing Guidelines. Otherwise, it is quite an excellent product and relatively inexpensive and uses a great program (Folio Views) to access and search the information.

    Tax Analysts

        One Disc - This is a CD ROM product that can be obtained in monthly, quarterly or annual editions. It is principally aimed at the civil tax market, but does have the Internal Revenue Code (which has the tax specific crimes), all tax cases (including criminal tax cases), and developments in tax areas generally (as well as specifically in the criminal tax area). This also uses the Folio Views program.

        Internal Revenue Manual - This is a CD-ROM product with the IRM, including Ch. 9 dealing with Criminal Investigations.  The IRM can be reviewed on the internet free of charge as noted above.

    Texts
        Ian Comisky, Lawrence Feld, Steven Harris, Tax Fraud & Evasion (2 vols.)
            Vol. 1: Offenses, Trials, Civil Penalties
            Vol. 2: Money Laundering, Asset Forfeiture, Sentencing
        Michael Saltzman, IRS Practice and Procedure

Web Sites of Interest

Department of Justice
    Criminal Tax Manual - HTML & PDF.
    Tax Division Home Page

Internal Revenue Service
    Criminal Investigation Division:
        CI Home Page
        Investigative Areas
    Internal Revenue Manual
        Ch. 9 - Criminal Investigation

    United States Sentencing Commission

Additional