TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, July 10, 2017

NY Times:  Supreme Court May Use Tax Case To Narrow Definition Of 'Obstruction'

NY Times Dealbook (2013)New York Times DealBook:  What Constitutes Obstruction? A Tax Case May Narrow the Definition, by Peter J. Henning (Wayne State):

Prosecutors have enormous discretion in the American criminal justice system, aided greatly by catchall provisions in statutes.

Congress often adopts broadly worded laws to catch a wide range of conduct, especially for white-collar crimes, and regularly tacks on a section to catch actions that might otherwise slip through the cracks.

Over the past few years, the Supreme Court has shown a conspicuous concern when the Justice Department seemed to push the envelope of what constitutes a crime in a way that could reach ostensibly innocent acts, or at least conduct that does not deserve the severe punishment meted out under federal law.

Last week, the justices agreed to review the conviction of Carlo J. Marinello II for obstructing the administration of the tax laws, presenting another opportunity to cut back on the scope of white-collar prosecutions under a catchall section.

Mr. Marinello was convicted of failing to file tax returns and obstructing the tax laws for not submitting returns for himself or his company, a courier service in upstate New York, and for taking funds from the business to pay for personal expenses. He discarded most of his business records, like bank statements and receipts, and paid employees in cash without any withholding or providing annual income statements.

The issue in the case was not the failure to file tax returns, which he essentially admitted despite being told to do so by a lawyer and an accountant. He objected to the obstruction charge brought under a provision known as the “omnibus clause,” making it a crime for a person who “corruptly” or by force or by threats of force “obstructs or impedes, or endeavors to obstruct or impede, the due administration of” the Internal Revenue Service laws.

This is a felony offense that can result in a sentence of up to three years in prison, unlike the failure to file charges, which are only misdemeanors. Mr. Marinello asked the trial judge to instruct the jury that the government had to prove he knew about an I.R.S. investigation or audit when he destroyed records and failed to provide the required information. The judge refused, and after the conviction sentenced Mr. Marinello to three years in prison. ...

In Mr. Marinello’s case, he clearly violated the requirement of filing annual income tax returns and did not appeal his convictions on those charges. Whether one can obstruct the tax laws by destroying documents and not reporting the income of workers is a different issue, because almost anything that might reveal your tax liability could be a violation under the approach taken by the Second Circuit.

The Supreme Court’s concern with provisions that serve as a catchall is that they appear to catch too much. Mr. Marinello may find his name added to the list of defendants who skirted crossing over the line of criminality under a narrower view of the law.

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Interesting. I thought criminal charges require intent. So if I buy a radar detector, does this mean I intend to break the law? If I buy Bitcoins, does this mean I intend to cheat on my taxes?

Posted by: Dale Spradling | Jul 11, 2017 8:01:55 AM