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Prior to the 2018 U.S. Supreme Court case Marinello v. United States, in order to prove tax obstruction through interfering with the administration of Internal Revenue Laws under §7212(a), the government only needed to show that a defendant engaged in a prohibited activity corruptly or by force or threats of force. For example, to prove a case under the old standard, you would only need to show that someone had done some sort of illegal act to avoid detection or assessment of taxes by the IRS, and not that they had done so with knowledge of a pending IRS action against them.
However, in Marinello, the U.S. Supreme Court held that the government must now prove an additional element in such cases- that the defendant was aware of a pending tax-related proceeding, such as an audit or investigation, or could reasonably foresee that such a proceeding would commence at the time the defendant corruptly engaged in a prohibited activity. While someone like the defendant in Marinello could be charged with other tax crimes, the Court held that he could not be charged with obstruction under § 7212(a) unless he undertook his actions with the awareness that the IRS was investigating him, not just in reaction to standard tax reporting requirements.
This has led to questions about whether this nexus element must also be met in Klein conspiracy cases under 18 U.S.C. §371, because, as one tax blogger put it, “the interpretation of the defraud /Klein conspiracy parallels the tax obstruction statute.” Our skilled tax attorneys at the Tax Law Offices of David W. Klasing have recently taken note of an 8th circuit case that offered some clarification on this issue.
In United States v. Flynn, Scott Philip Flynn appealed the government’s refusal to let him withdraw a guilty plea he had entered to conspire to defraud the United States under 18 U.S.C. §371, which allows for charges when “two or more people conspire… to defraud the United States.” Flynn had pleaded guilty six months earlier but filed the motion to withdraw his plea a week before sentencing was set to occur. Under the law, a defendant may withdraw a guilty plea after it has been accepted by the district court only if “the defendant can show a fair and just reason for requesting the withdrawal.” One of the “fair and just” reasons Flynn cited for the withdrawal was that it lacked factual basis because, after the Supreme Court’s decision in Marinello, Klein charges cannot be brought without showing an additional element not mentioned in his plea- a “nexus” between a defendant’s obstructive conduct and a “targeted administrative action” like an audit.
The court begins by addressing Flynn’s argument by pointing out the language of 26 U.S.C. § 7212(a) that the Supreme Court was interpreting in the Marinello case, and how it compares to the language of in the statute at issue in the Flynn matter. In particular, the court noted the language in the § 7212(a) statute which “forbids ‘corruptly or by force… obstructing or impeding, or endeavoring to obstruct or impede, the due administration of [the Internal Revenue Code.” (emphasis added) In coming to its decision in Marinello, the Supreme Court held that the phrase “due administration of the Internal Revenue Code” did not include things like the ordinary review of income tax returns but rather implied that there must be a “nexus” between a defendant’s obstructive conduct and a “targeted administrative action” like an audit.
In the matter before the court, they noted, the issue was § 371 rather than § 7212(a), and § 371’s broad language makes no reference to “the due administration of the Internal Revenue Code” like the wording of § 7212(a) does. In rejecting Flynn’s argument that the same nexus element should apply to Klein conspiracies as it does to tax obstruction under §7212(a), the court pointed to a past Supreme Court decision, Haas v. Henkel, that held that “The Klein conspiracy statute is broad enough in its terms to include any conspiracy for the purpose of impairing, obstructing, or defeating the lawful function of any department of government.” Because this broad scope is established in a “robust serious of Supreme Court decisions” independent of the Marinello case, the circuit court stated that any attempts to narrow it “are properly directed to a higher authority.”
So far, the lower courts have declined to extend to Klein conspiracy charges under § 371 the nexus element requirement that the U.S. Supreme Court ruled in Marinello was necessary in tax obstruction cases brought under §7212(a). As such, Klein charges can still be brought for a very broad set of actions, and those who face these charges can end up with serious penalties, including potential jail time. At the Tax Law Offices of David W. Klasing, our skilled dual tax attorneys and CPAs have years of experience successfully helping clients charged with Klein conspiracy mitigate the damage and work out the best possible deal. To set up a consultation, call us today at (661) 432-1480.
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