Kathryn Keneally specializes in white-collar crime, tax controversy, and commercial litigation. In practice in New
York City, she is a member of the U.S. Sentencing Commission Practitioners' Advisory Group. She
is chairperson of the ABA Subcommittee of the Tax Section's Civil and Criminal Penalties
Committee on Department of Justice Procedures. She is a member of The Champion Advisory
Board.
In past issues, this column has considered the expansion of prosecutions brought for willful evasion of payment of taxes under Section 7201 of Title 26,1 the overly broad application of the omnibus clause of Section 7212(a) of Title 26, which criminalizes a corrupt endeavor to impede the due administration of the Internal Revenue Code,2 the increasingly aggressive use of the mail and wire fraud statutes,3 and the havoc that can result when the government fails to follow its guidelines for determining when to bring tax prosecutions.4 These disturbing trends have now come together in one misguided indictment: United States v. Webster L. Hubbell, Suzanna W. Hubbell, Michael C. Schaufele, and Charles C. Owen.5
The lead defendant is, of course, the same Webster Hubbell who was once Hillary Rodham Clinton's law partner and the Associate Attorney General of the U.S. Department of Justice. His co-defendants are his wife, his attorney, and his accountant. Significantly, the indictment was brought not by the Department of Justice, but by the Independent Counsel.
This column does not aim to explore what others have noted -- whether it is the best use of resources to prosecute again a man who has already served an extensive prison term; whether justice is served by a blatant attempt to coerce a man to change his stated position to meet a prosecutor's view as to what his testimony should be. Rather, at issue is the specific means used to reach those questionable ends: expanding the application of statutes already stretched to a dangerous degree.
Tax Evasion Charge: Evasion of Payment
The indictment charges Webster Hubbell, his wife, his attorney, and his accountant with one count of willful evasion of taxes in violation of Section 7201, Title 26. The indictment describes that Webster Hubbell pled guilty in 1994 to fraudulent billing during the years 1989 through 1992 and notes that the income from the billing activities was not reported on his joint tax returns for those years. Pursuant to the plea agreement in the first criminal proceeding against Webster Hubbell, he also pled guilty to one count of willful evasion of income taxes for failing to report the fraudulent billing receipts; and he agreed to file amended federal income tax returns reporting those receipts as income.6In the current indictment, the defendants are charged with evading payment on the taxes shown to be due on the Hubbells' amended tax returns for the years 1989 through 1992.7 Additionally, they are charged with evading payment on the tax liability that appears on the face of the Hubbells' joint federal income tax return for 1995 and their amended tax return for 1994.8
The evasion of payment charge cross-references 86 paragraphs, exclusive of sub-parts, which set out the allegations on which this charge is based. In summary, the alleged acts9 include:
The Hubbells did not include payments with their amended 1989, 1990, 1991, and 1992 tax returns.10
The Hubbells filed tax returns in 1994 through 1997 that showed in excess of $1 million in income over a four-year period, but they did not include payments of tax with their returns.11
The Hubbells spent in excess of $750,000 on personal items over a four-year period, and they "liquidated assets and spent down their funds."12
A business associate had repaid a $45,000 consulting fee that Hubbell had received for services which he did not perform. Defendant Owen, Hubbell's attorney, prepared a promissory note and a security agreement in valuable art owned by the Hubbells to the benefit of the business associate. Hubbell also repaid $10,000 to the business associate.13
Schaufele, the Hubbells' accountant, set up three trusts -- with himself as trustee -- titled the Webster Hubbell Legal Expense Trust, the Hubbell Children's Education Trust, and the Hubbell Family Support Trust, and three related non-interest bearing accounts. The indictment acknowledges that at least some of the funds deposited into the Hubbell Children's Education Trust came from their aunt. The indictment contends, however, that the Hubbells' personal funds found their way into one or more of the trusts, and that their personal expenses were paid from funds that went through the trusts.14
Schaufele also set up a non-interest bearing account in his name into which consulting fees paid to Hubbell were deposited. The account was titled "Mike C. Schaufele for the benefit of Webb and Suzy Hubbell."15
Owen, the attorney, assisted Suzanna Hubbell in preparing an IRS Form 433-A, which the IRS requires in collection matters. The Form 433-A did not list as assets the three trusts or the non-interest bearing accounts on which accountant Schaufele was the signatory.16
Hubbell made repeated withdrawals from his IRA account. Each time, he provided a statement acknowledging that he owed tax on the withdrawn amount, and as a result there was no tax withholding on the withdrawals. In several instances, Schaufele, as Hubbell's accountant, signed the statement on his behalf.17
Hubbell had borrowed against his pension plan, and was now in default. Failure to repay a pension plan triggers a declaration of distribution, which in turn is taxable income; in addition, a 20 percent mandatory tax withholding results. Allegedly to avoid these consequences, Hubbell issued a check to repay the plan, which was drawn against insufficient funds. At Schaufele's request, the fund manager held the check until funds were available. Hubbell then rolled over funds from the pension plan into an IRA account (which can be done without triggering current tax consequences), withdrew the funds from the IRA account, and funded the check drawn to the pension plan.18
Hubbell entered into a book contract. Initially, Owen asked that Hubbell's agent set up an escrow account for the payments Hubbell was to receive; the agent declined to do so. The attorney then set up a limited liability corporation, in which Webster and Suzanna Hubbell each owned forty-nine percent, and the Hubbell Children's Education Trust owned the remaining two shares. Accountant Schaufele was the managing member of the LLC, which entered into and received payments in connection with a contract pursuant to which Hubbell was to author a book.19
Willful non-payment of federal income taxes is a misdemeanor.20 The defendants were not charged with this misdemeanor, however. The Hubbells, their accountant, and their attorney were charged with felony evasion of taxes.
The allegations in the indictment that the Hubbells owed taxes that they did not pay are not, in themselves, sufficient to sustain a felony evasion charge.21 The mere favoring of other creditors, in and of itself, similarly should not give rise to criminal liability.22 The allegations concerning the Hubbells' assets and lifestyle may reflect an attempt by the Independent Counsel to foreclose a possible defense that they lacked the ability to pay the taxes,23 but such allegations should not be considered to advance the Independent Counsel's proof that the defendants feloniously evaded the payment of the Hubbells' taxes.
The Independent Counsel may be on stronger grounds with some of the other allegations in the indictment. In particular, recent cases have sustained Section 7201 evasion of payment charges on such conduct as placing assets in the names of third parties and conducting banking transactions in others' names.24 Notably, however, the indictment does not allege that the defendants worked hard to conceal the Hubbells' relationship to the bank accounts, trusts, and corporate entity that underlie the charges. Each of the trusts and the related accounts included the Hubbell name in its title; the account opened in Schaufele's name stated that it was for the benefit of "Webb and Suzy Hubbell;" the Hubbells and one of the trusts were the sole shareholders of the corporation that entered into the book contract.25
Even on the face of the indictment, explanations that may form the basis for defenses are suggested. The Hubbells had considerable debts in addition to their tax liabilities.26 Some of the charges in the indictment -- such as the issuance of a promissory note for the repayment of fees for services that were not rendered, or the creation of a trust fund to pay legal expenses -- may be defensible as steps taken in good faith to protect other creditors. Conversely, some of the alleged conduct may have been done to protect assets from creditors other than the IRS. In particular, the indictment acknowledges that some of the funds that went into the Hubbell Children's Education Trust came from Webster Hubbell's sister and presumably were intended as a gift to the children, not as income to the Hubbells.
Much of the indictment seems to suggest that the Hubbells were two people desperately in debt, looking for ways to put their lives in some order. Certainly, some of the alleged acts were ill-considered. The trusts, third-party bank accounts, and corporate structures may not have withstood civil collection efforts by the IRS and other creditors. Maybe evidence at trial could establish that one or more of the acts alleged in the indictment occurred in a manner that demonstrates, beyond a reasonable doubt, that the conduct was fraudulently undertaken with the intent to defeat the IRS in the collection of taxes.27 At least one court has suggested that a jury may infer that a defendant's acts "were 'designed' to evade the payment of admitted tax deficiencies, even if such actions otherwise might constitute wholly innocent conduct."28 Taken on its face, however, the indictment stands as another aggressive application of Section 7201.
Section 7206(2) Charge: Hubbell Allegedly Aided and Abetted Himself
For all its detailed pleading, the indictment is strongest where it is most succinct. The federal tax returns filed for the Hubbells for the years 1994 and 1995 are alleged to be materially false. The 1994 return allegedly understated income and tax by omitting $74,000 representing the fees paid to Hubbell from five clients, and by claiming personal expenses as business items.29 The 1995 return allegedly omitted capital gains and interest income in connection with the installment sale of a warehouse owned by the Hubbells.30 The 1996 return allegedly omitted an $18,000 advance paid to Hubbell in connection with the book contract, which was purportedly deposited into the account Schaufele set up in his name.Despite the simplicity of these allegations, the charges that the indictment chooses to allege are not so straightforward.
The introductory section of the indictment alleges that the accountant, Schaufele, "prepared and filed false federal tax returns [for the Hubbells] for 1994, 1995, and 1996, which understated income and tax."31 The indictment charges, however, that Schaufele willfully aided and abetted in the preparation of the allegedly materially false 1995 tax return, in violation of Section 7206(2) of the Internal Revenue Code, based on the assertion that he knew and misstated the income that resulted from the warehouse installment sale.32 His purported knowledge of the omission of the income is pled only in the most conclusory terms. No substantive charge is made against Schaufele for the 1994 or 1996 tax returns. To the extent his alleged conduct in connection with these returns is included in the indictment, it is lumped into the conspiracy and evasion of payment counts and in the overarching theory pled in the Section 7212 count.
The pleading of the Section 7206(2) count against Webster Hubbell is even stranger.33 Section 7206(1) of the Internal Revenue Code makes it a crime willfully to subscribe under penalties of perjury to a tax return that the taxpayer did not believe to be true and correct as to material matter.34 Hubbell was not charged under Section 7206(1), however. Rather, Hubbell is charged with aiding and abetting in the filing of his own tax return.
The indictment alleges that "[p]rior to reporting to federal prison," Hubbell prepared a handwritten list of his consulting income by client and his business expenses for the year 1994.35 He listed fees in the amount of $376,075, but he allegedly failed to list an additional $74,000 from five other clients. The Hubbells' joint 1994 federal income tax return was signed by Suzanna Hubbell for both of them.36 In late 1996, the Hubbells filed an amended 1994 tax return, reporting an additional $77,000 in consulting fee income; the indictment contends that this amended return was filed only after subpoenas had been issued for records relating to the income.37 Thus Hubbell is charged, inter alia, with criminally aiding and abetting in the preparation of his own tax return -- errors that he apparently subsequently corrected on an amended return.
Section 7212: Aggressive Use of an Overly Broad Statute
The Hubbell indictment represents an aggressive use of Section 7201 and convoluted pleadings under Section 7206(2). Even more distressing is its overarching theory of prosecution under Section 7212(a).Section 7212(a) imposes criminal liability on any person who "corruptly obstructs or impedes, or endeavors to obstruct or impede, the due administration" of the Internal Revenue Code.38 The omnibus clause of Section 7212(a) is so general in its terms as to invite challenges that it is unconstitutionally vague and overbroad.39 Moreover, a broad interpretation of the statute would cause it to overlap with other, more specific criminal tax offenses, thereby inviting challenges based on duplicity and multiplicity.40
In United States v. Kassouf,41 the Sixth Circuit recently considered the "vast range of activities" encompassed in the "due administration of" the Internal Revenue Code, including "mailing out internal revenue forms; answering taxpayers' inquiries; receiving, processing, recording and maintaining tax returns, payments and other taxpayers submissions; as well as monitoring taxpayers' compliance with their obligations."42 The defendant in Kassouf was charged with conduct that fell squarely within garden-variety criminal tax offenses: making personal use of partnership assets, using partnership and corporate bank accounts to conceal income, and maintaining the partnership books and records so that the tax consequences to him were concealed, all of which resulted in the filing of false returns by the partnership and enabled him to under-report income. The indictment included a charge, however, that in the steps taken in preparation to filing his personal tax return, the defendant corruptly endeavored to impede the administration of the tax code in violation of Section 7212(a).
The Sixth Circuit read into Section 7212(a) a requirement that the defendant be on notice of a pending IRS proceeding, and it held that the indictment in Kassouf failed to plead this necessary element. The court drew an analogy between Section 7212(a) and Section 1503 of Title 18, which criminalizes corruptly endeavoring to obstruct or impede "the due administration of justice." The court noted that including the language "the due administration of justice" required a showing of the existence of a judicial proceeding to which the defendant had notice. The court held that the parallel language of Section 7212(a) similarly required a nexus between the defendant's conduct and the "due administration of this title" which could be met only by the existence of an IRS audit or investigation to which the defendant had notice.43 The court concluded that "[b]ecause Title 26 encompasses such routine actions . . . imposing liability for actions committed before a person knew of an investigation or proceeding would open them up to a host of potential liability of conduct that is not proscribed."44
While the decision in Kassouf is the latest pronouncement on the interpretation of Section 7212(a), it offers no safeguard against an indictment of the scope brought against the Hubbells, their counsel, and accountant. The indictment in their case pleads the existence of an on-going audit known to them.45
At one time, the best protection against overzealous use of Section 7212(a) in a case such as the Hubbell indictment existed in the published policy of the Department of Justice Tax Division. The DOJ policy directive advised that prosecutions under Section 7212(a) should be limited to those cases which the directive identified as "consistent with . . . the overall purpose of Section 7212(a), which is to penalize conduct aimed directly at IRS personnel in the performance of their duties, and at general IRS administration of the federal tax enforcement program, but not to penalize tax evasion as such." The directive contended that prosecutions may also be appropriate "when directed at parties who engage in large-scale obstructive conduct involving actual or potential returns of third parties." However, the directive advised against bringing Section 7212(a) charges in garden variety tax evasion or false return cases: "The omnibus clause should not be utilized when other more specific charges are available and adequately reflect the gravamen of the offense."46 The Section 7212(a) charge in the Hubbell indictment is redundant of the Section 7201 evasion of payment charge and thus would seem to contradict the edicts of the DOJ policy directive.
For two reasons the DOJ policy directive offered little comfort to the Hubbells and their co-defendants. First, the indictment was not brought by or with the review and approval of the Department of Justice. Although the DOJ Tax Division is entrusted to review criminal tax charges pre-indictment to ensure nationwide uniformity and fairness in the enforcement of the Internal Revenue Code, the Hubbell indictment was almost uniquely exempted from this process because it was brought by the Office of Independent Counsel.
Second, the Department of Justice has of late failed to invoke the policy directive against the overreaching use of Section 7212(a). Rather, there has been an alarming increase in the practice of adding Section 7212(a) charges to tax indictments.47 Certain allegations and evidence, which may be irrelevant to determining whether a given defendant "willfully" evaded the assessment or payment of tax, and which may be deemed inadmissible and even unfairly prejudicial, are somehow considered differently when the issue is whether the defendant acted "corruptly."48 Thus, the room for prosecutorial abuse in a Section 7212(a) case is as great as the temptation to add it as a charge.
The Kassouf court observed that "courts should be mindful not to criminalize activity that is not specifically proscribed by statute, however annoying it may be."49 The Hubbell indictment mixes allegations of annoying conduct with wholly legal acts and, if proven, tax crimes under a very broad and dangerous theory of the reach of Section 7212(a). The indictment thereby ignores another warning proffered by the court in Kassouf: "In this day, when Congress is attempting to curb the reach of the IRS into the homes of taxpayers, we cannot construe a penal law such as 7212(a) to permit such an invasion into the activities of law-abiding citizens."50
Mail Fraud Based On Bills the Defendant Received
While the tax charges in the Hubbell indictment are aggressive and arguably overly broad, the mail fraud charges are simply mind-boggling.Section 1341, the federal mail fraud statute, requires that the U.S. mails be used in furtherance of the scheme to defraud. The Hubbell indictment alleges that the defendants engaged in a scheme to defraud the District of Columbia of taxes, penalties, and interest. Put aside momentarily whether the general mail fraud statute can or should be used to charge tax crimes.51 The four mailings pled in the indictment were all allegedly mailed from the Government of the District of Columbia.52
In United States v. Maze,53 the Supreme Court noted that "Congress could have drafted the mail fraud statute so as to require that only the mails be in fact used as a result of the fraudulent scheme. But it did not do this; instead, it required that the use of the mails be 'for the purpose of executing such scheme or artifice.'" Thus courts have determined that the mailing must be in furtherance of the scheme to defraud for the federal mail fraud statute to be invoked.54 It will be intriguing to see how the Hubbell prosecutor might contend that the defendants' receipt of notices that taxes were due and owed constituted a mailing that furthered their alleged fraudulent tax scheme. The indictment certainly does not suggest an argument supporting such a position.
Conspiracy and Superfluity
The conspiracy count in the indictment is odd in its breadth and imprecision. It charges a single conspiracy to commit four offenses: to defraud the IRS; to evade taxes in violation of Section 7201, Title 26; "to knowingly and willfully devise . . . scheme to defraud" the State of Arkansas and the District of Columbia of tax, penalty, and interest, and the Rose Law Firm of money due to it under a settlement agreement with the Hubbells, in violation of Section 1341, Title 18, the federal mail fraud statute; and "to knowingly and willfully devise . . . scheme to defraud" Arkansas, the District of Columbia, and the Rose Law firm in violation of Section 1343, Title 18, the federal wire fraud statute.55 In addition to the issues raised by the substantive tax and mail fraud charges pled in the indictment, the conspiracy charge invites many other questions. For example, does the indictment intend to refer to wires and mailings other than those listed in the substantive counts? Does the indictment mean to suggest that the alleged fraud on the IRS can be charged as a conspiracy to commit mail or wire fraud? The indictment charges that records subpoenaed from Schaufele were not timely produced.56 Is this allegation intended to suggest a continuation of the alleged conspiracy, a new conspiracy to cover-up the crimes, or a single alleged act of obstruction by an individual defendant?Perhaps most odd, however, are the nearly gratuitous allegations concerning the Rose Law Firm.57 No substantive charge is made in the indictment in connection with a purported fraud on the Rose Law Firm, and no specific mail or wire acts are pled in the conspiracy count. Rather, these allegations seem to have the same basis for their inclusion in the indictment as certain other pleading peculiarities. For example, why is it relevant to the crimes charged that "[i]n or about March 1994, there was a meeting at the White House, at which was discussed the issue of whether [Webster Hubbell] should resign . . . ?"58 Similarly, the identities of the clients who paid Hubbell the consulting fees add little if anything to the prosecutor's cause.59 More to the point, the indictment's allegation that Hubbell "performed little or no work for some of these payments," and its recurring practice of referring to Hubbell's consulting business in quotation marks, would seem to contradict the core tax charges.60 Does the indictment mean to suggest that the payments were gifts, or in some other way not income?
These needless allegations may not be superfluous, however, to a true understanding of the Hubbell indictment. In its aggressiveness, overreaching, and basic obtuseness, it begs inquiry into the true motives of the prosecutor. In its gratuitous commentary, it suggests the answer to that inquiry. That debate will be left to others.
Notes
1. Willful Evasion of Payment and Willful Non-Payment of Taxes, The Champion, April 1996.2. Hard Facts & Tax Protester, The Champion, August 1997.
3. What Montana Needs To Know, The Champion, April 1998.
4. The IRS and its Public Promises/ The IRS and its Secret Policies, The Champion, January/February 1998.
5. Criminal No 98-0151, filed April 30, 1998, in the U.S. District Court for the District of Columbia (hereinafter the Hubbell Indictment).
6. See Hubbell Indictment, Criminal No. 98-0151, 18, citing United States v. Webster Hubbell, No. LR-CR-94-241 (E.D. Ark.); see also Hubbell Indictment, 25, 26.
7. Hubbell Indictment, 2, 3, 5, 6.
8. Hubbell Indictment, 4, 6. The indictment also includes allegations that the 1994, 1995, and 1996 tax returns were materially false; these allegations are discussed more fully infra.
9. The summary of allegations is based on the Hubbell Indictment and is not intended to suggest that any of the charged conduct in fact occurred, or occurred as set out in that Indictment.
10. Hubbell Indictment, 27.
11. Hubbell Indictment, 6(b), 15, 31-36, 66. The Indictment also notes that the Hubbells entered into a contract to sell their residence. Hubbell Indictment, 42. This allegation seems to serve no purpose, unless to suggest that the Hubbells had at least one asset of value; the Indictment fails to state whether the home was otherwise encumbered, however. Compare Hubbell Indictment, 42, 85(a) (suggesting that the value of the home exceeded $600,000), with 49 (noting that Suzanna Hubbell's financial disclosure to the IRS reported equity in assets of $12,758).
12. Hubbell Indictment, 6(c), 67-69, 85(a).
13. Hubbell Indictment, 41. The Indictment also alleges that the documents are dated December 14, 1995, but "were not prepared, executed and filed until February 1996." Hubbell Indictment, 41(b). The import of this two-month difference is not apparent on the face of the Indictment.
14. Hubbell Indictment, 6(d), 19-22, 44, 69(a).
15. Hubbell Indictment, 6(e), 44.
16. Hubbell Indictment, 6(f), 45, 49-51.
17. Hubbell Indictment, 70-85.
18. Hubbell Indictment, 74-84.
19. Hubbell Indictment, 6(g), 40(a), 56(a), 57, 59-62.
20. 26 U.S.C. 7203.
21. See, eg., United States v. McGill, 964 F.2d 222, 231 (3d Cir.), cert. denied, 506 U.S. 1023 (1992) ("Merely failing to pay assessed taxes, without more, . . . does not constitute evasion of payment, though it may satisfy the requirements for the willful failure to pay taxes under 7203").
22. There is a split in authority as to whether favoring creditors other than the IRS, or simply maintaining an expensive lifestyle, without more, can provide the basis for denying a party discharge in bankruptcy based on allegations of an attempt to evade or to defeat the payment of tax See In re Hass, 48 F.3d 1153 (11th Cir. 1995) (favoring other creditors over the IRS did not constitute an attempt to evade or to defeat the payment of tax and therefore did not bar bankruptcy discharge); In re Sonnenberg, 148 B.R. 35 (1992) (maintaining luxurious lifestyle while failing to meet tax liabilities did not constitute an attempt to evade or to defeat the payment of tax and therefore did not bar bankruptcy discharge); but see In re Toti, 24 F.3d 806 (6th Cir. 1994), cert. denied, 513 U.S. 987 (1994) (bankruptcy discharge denied); cf. In re Fegeley, 118 F.3d 979 (3d Cir. 1997). Perforce, if there is uncertainty as to whether such acts constitute grounds in a civil proceeding, similar allegations should be found insufficient to sustain criminal liability.
23. See, eg., United States v. Andros, 484 F.2d 531, 533-34 (9th Cir. 1971); see United States v. Poll, 521 F.2d 329 (9th Cir. 1975); United States v. Goodman, 190 F. Supp. 847 (N.D. Ill. 1961); but see United States v. Ausmus, 774 F.2d 722, 724 (6th Cir. 1985); United States v. Tucker, 686 F.2d 230, 233 (5th Cir.), cert. denied, 459 U.S. 1071 (1982).
24. See, eg., McGill, 964 F.2d at 233; United States v. Conley, 826 F.2d 551, 556-57 (7th Cir. 1987).
25. It was surely not kept secret that Webster Hubbell authored a book.
26. See Hubbell Indictment, 49 (noting that Suzanna Hubbell's financial disclosure to the IRS reported "equity in assets of $12,758 and liabilities of $1,696,869"); 55 (noting that Webster Hubbell agreed to pay restitution to the Rose Law Firm).
27. For example, in the recent decision in United States v. Voigt, 89 F.3d 1050, 1090 (3d Cir. 1996), the court distinguished that, "[w]hereas simple nonpayment of taxes owed cannot sustain a conviction under the statute, acts intended to conceal or mislead are sufficient." The prosecution, accordingly, must prove "an intent to mislead or conceal beyond mere failure to pay assessed taxes; it is for the jury to determine, as a matter of fact, whether the affirmative act was undertaken, in part, to conceal funds from or mislead the government." Id.
28. Id.
29. Hubbell Indictment, 6(d), 15, 24, 30. The indictment also alleges that accountant Schaufele filed an extension form which did not include the required payment, and that the 1994 return was not filed until months after the expiration of the colorably invalid extension. Hubbell Indictment, 32. It is hard to see how these allegations, even if true, bear on the alleged falsity of the 1994 tax return.
30. Hubbell Indictment, 35, 43.
31. Hubbell Indictment, 6(d).
32. Hubbell Indictment, 98.
33. There is no Section 7206 charge against either Suzanna Hubbell or defendant Owen.
34. 26 U.S.C. 7206(1).
35. Hubbell Indictment, 24.
36. Hubbell Indictment, 30.
37. Hubbell Indictment, 52-54. The indictment also alleges that the amended return did not correct the deductions taken for personal expenses. Hubbell Indictment, 53.
38. 26 U.S.C. 7212(a).
39. See United States v. Poindexter, 951 F.2d 369, 377-86 (D.C. 1991), cert. denied, 506 U.S. 1021 (1992) (holding Section 1505, Title 18, which essentially parallels the language of Section 7212(a), Title 26, unconstitutionally vague as applied due to (i) the inherent imprecision of the term "corruptly" and (ii) the existence of a more specific statute under which the same alleged acts could be charged); cf., e.g., United States v. Brennick, 908 F. Supp. 1004, 1009-13 (D. Mass. 1995) (Section 7212(a) was not unconstitutionally vague as applied).
40. See Blockburger v. United States, 284 U.S. 299, 304 (1932) ("where the same act or transaction constitutes a violation of two distinct statutory provisions, the test to be applied to determine whether there are two offenses or only one is whether each provision requires proof of a fact which the other does not"); cf. United States v. Brennick, 908 F. Supp. 1004, 1013-15 (D. Mass. 1995) (rejecting multiplicity arguments in the context of charges based on 26 U.S.C. 7202, 7212(a), and 31 U.S.C. 5313, 5322 & 5324).
41. No. 96-4381, 1998 U.S. App. LEXIS 10376 (6th Cir. May 21, 1998). At the time of publication of this column, page citations to the official reporter were not yet available. Thus only page citations to the slip opinion as reported by LEXIS have been included.
42. Id. at *11.
43. Id. at *11-15. See, e.g., United States v. Aguilar, 515 U.S. 593 (1995) (holding that uttering false statements to an investigative agent is an insufficient showing on which to base a Section 1503 obstruction of justice prosecution).
44. Kassouf, 1998 US. App. LEXIS 10376, at *16.
45. Indeed, while well-grounded, it remains to be seen how much of a safeguard the Kassouf decision will be at all. The majority opinion in Kassouf noted that "no circuit courts have directly confronted the issue ... [of] whether the omnibus clause of 7212(a) requires a pending IRS proceeding or investigation of which the defendant was aware." Id. at *9. The dissent, however, countered that although the issue had not been directly addressed, "every sister circuit that has examined the reach of 26 U.S.C. 7212(a) has accepted the principle that the provisions of that subsection do not require the government to prove the existence of an ongoing or pending tax investigation or proceeding." Id. at *28 (citations omitted).
46. Department of Justice Tax Division Directive No 77 (dated July 7, 1989), titled "Section 7212(a) Policy Statement" (the directive is reprinted in Department of Justice Criminal Tax Manual at 3-29 to 3-30 (1995-1 Supp. at 6-245).
47. The order dismissing the Hubbell Indictment found that the DOJ directive does not prohibit, but only discourages, certain uses of Section 7212. Hubbell slip op. at 33. While the government's use of Section 7212(a) has been increasing for several years, the most aggressive use of the statute to date, and the cases causing the greatest alarm, have been the prosecutions in several jurisdictions against referees of the National Basketball Association. The NBA referees were entitled pursuant to their collective bargaining agreement to travel first class for all flights exceeding two hours; any referee choosing to fly at a less expensive fare was entitled to keep the difference between the first class ticket and the lesser fare. Typically, the indictments have charged that referees filed tax returns that, the government contended, understated income by allegedly claiming improper deductions for travel expenses or by allegedly failing to report income derived from downgrading first class airline tickets. The indictments have charged violations of Section 7206(1) and Section 7212(a). The three decisions to date have rejected arguments based on vagueness, multiplicity, duplicity, legislative history, and the DOJ policy directive. See, e.g., United States v. Armstrong, 974 F. Supp. 528 (E.D. Va. 1997); United States v. Toliver, 972 F. Supp. 1030 (W.D. Va. 1997); United States v. Mathis, Case No. CR- 1-97-015 (December 17, 1997). Notably, the first two decisions, Armstrong and Mathis, are in district courts in the Fourth Circuit, which has historically given Section 7212(a) a broad interpretation. See, e.g., United States v. Mitchell, 985 F.2d 1275 (4th Cir. 1993). The district court in Mathis initially dismissed the Section 7212(a) charge, but then granted the government's motion to reconsider in view of the decisions in Armstrong and Mathis. All three decisions rejected the argument made by the defendant in Kassouf, but all three also pre-date the Sixth Circuit's opinion in that case. None of the referee cases were appealed, as each of the referees entered guilty pleas.
48. See, eg., United States v. Wilson, 118 F.3d 228, 238 (4th Cir. 1997).
49. Kassouf, 1998 US. App. LEXIS 10376, at *7.
50. Id. at *18.
51. Or, if the reader so pleases, see, What Montana Needs To Know, The Champion, April 1998.
52. Hubbell Indictment 102. The indictment also includes a single wire fraud count, based on an alleged wire from defendant Schaufele to an unidentified Washington, D.C., law firm, of a document described only as "Letter and attached Statement of D.C. Income Tax Due."
53. 414 US. 395, 407 (1974).
54. See, eg., United States v. Altman, 48 F.3d 96, 103 (2d Cir. 1995). The order dismissing the Hubbell Indictment noted that the bare bones of mail fraud violations were pled, and that any failure of proof should be left to the jury, or a post-trial motion to dismiss. Hubbell slip op. at 32-33.
55. Hubbell Indictment, 86.
56. Hubbell Indictment, 87(10).
57. Hubbell Indictment, 55, 86 (3) & (4), 87(5).
58. Hubbell Indictment, 12.
59. See, eg., Hubbell Indictment, 16.
60. See, eg., Hubbell Indictment, 15, 16.
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White-Collar Crime
Kathryn Keneally
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