Does failure to file constitute obstruction?

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Does failing to file constitute obstruction of the IRS?

Code Section 7212(a) is one of many federal statutes that include a “catchall” residual clause designed to apply to conduct that might not be covered by the specific language in the rest of the statute. In a case coming up this fall, the Supreme Court will determine if the catchall phrase, also called an omnibus clause or “uber” clause, is justified in its broad use and interpretation by federal prosecutors when it comes to taxes.

The Tax Code phrase in question states that, “Whoever corruptly or by force … endeavors to intimidate or impede any officer… of the United States acting in an official capacity under this title [the Tax Code] or in any other way corruptly or by force … endeavors to obstruct or impede the due administration of this title, shall, upon conviction thereof, be fined no more than $5,000, or imprisoned not more than three years, or both.”

“It’s been called ‘the one-man conspiracy statute,’” said Nathan Hochman, a partner in the Litigation Practice Group of Morgan Lewis, and former head of the Tax Division of the Department of Justice. “Normally you need two or more people for a conspiracy, but not with Section 7212,” he said. “And with a conspiracy, you don’t need to commit the underlying offense to be guilty of a crime.”

Code Section 7201 (“attempt to evade tax”) or 7206 (“fraud and false statements”) are generally used by prosecutors, Hochman explained. “But what happens in a tax case where you can’t charge either because you don’t have all the elements to prove a false return or an evasion scheme? That’s where Section 7212 comes into play,” he said.

“You can go back into every act taken by someone, whether it’s an affirmative act of tax evasion or not,” he said. “And you can go back as far as you want, even beyond the statute of limitations, if necessary, and lead up to its eventual overall effect on the IRS.”

The statute has been used in a number of contexts, according to Hochman. “It’s used in situations where people were taking a variety of steps, and the prosecutor wants to get all the steps before the jury. It makes relevant all types of evidence that may be irrelevant if the charge was just tax evasion or a false statement on a return. It’s a very potent weapon for a prosecutor to have in his or her arsenal. The question for the Supreme Court is, what are the limits?”


For Carlo J. Marinello II, this clause had the effect of turning his failures to file tax returns over a period of years from misdemeanors into a felony.

Marinello owned and operated a freight service that couriered items between the United States and Canada. From 1992 to 2010, he did not keep business records or file personal or business tax returns. He was indicted by a grand jury on nine counts of tax-related offenses, and a jury found him guilty on all counts. Eight of the counts were misdemeanors under Code Section 7203 for willfully failing to file personal income and corporate tax returns for the years 2005 through 2008. The remaining count charged him with violating Code Section 7212(a)’s residual clause. The district court instructed the jury that proof beyond a reasonable doubt of any one of the eight obstructive acts alleged in the indictment, including omissions, would be sufficient to find Marinello guilty under section 7212(a).

Marinello appealed to the Second Circuit, arguing that guilt under the residual clause requires knowledge of a pending IRS action or investigation. He urged the court to adopt the Sixth Circuit’s interpretation of Code Section 7212(a), which held that the reference to “due administration of this title” requires some pending IRS action, such as a subpoena or audit, of which the defendant was aware. The Second Circuit rejected the Sixth Circuit’s interpretation, holding that the statute covers any corrupt act or omission that obstructs or impedes any activity under the Tax Code.

In his dissent from Marinello’s request for a rehearing en banc (by the full court), Judges Jacobs and Cabranes observed that such a broad reading of the statute “had cleared a garden path for prosecutorial abuse.”

In the petition for certiorari asking the IRS to hear an appeal from the Second Circuit, Marinello noted that under the Second Circuit’s interpretation, “a defendant who does not maintain records at a time when the IRS does not have a pending action against him – let alone undertaking an action of which he is aware – can nonetheless be convicted of a felony of obstructing the administration of the Tax Code.”

“An aggressive prosecutor could use almost any act or omission – the failure to keep a receipt, the decision to be paid in cash, the choice to use a particular method of bookkeeping – as the basis of an obstruction charge under this interpretation,” the petition stated.

Marty Davidoff, CPA, Esq., of E. Martin Davidoff & Associates, believes the Second Circuit made the right decision. “Because of the IRS’s limited budget, too many people are getting away with intentional violation of tax laws through non-filing or underreporting of their income,” he said. “Until the breach in having sufficient manpower is closed, I’m in favor of courts being aggressive about punishing intentional violators. It’s become too easy for people to play the manpower lottery to get away with tax fraud.”

“I’m fine with a long-term intentional violator having a felony conviction. The fact that they had to stretch to punish him doesn’t bother me,” he added.

It’s unclear how the Court will rule, according to Hochman: “We don’t know if they granted certiorari in order to give the government more power, or to rein it in,” he said.

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