Recently on the Federal Tax Crimes blog, the tax fraud case of Happy Asker was analyzed in the context of the willful blindness jury instruction given at trial. On this tax law blog, we have previously written about the case of Happy Asker, the former owner of Happy’s Pizza. The last time we assessed Mr. Asker’s case, he was convicted on 32 counts of tax and related criminal charges including allegations that he engaged in a conspiracy to defraud the government, filed false income tax returns, and obstructed the administration of the U.S. Tax Code.
While the situation originally faced by Mr. Asker was fraught with legal danger, the path that his trial took revealed the danger that taxpayers who face a willful blindness jury instruction must contend with. That is, individuals who face a willful or deliberate blindness instruction as part of their matter’s jury instructions face an uphill battle when attempting to clear their name.
Happy Asker was one of the owners of a successful pizza chain known as Happy’s Pizza. At some point, a credible tip alleging drug activity in the organization was made to the DEA. The DEA began an investigation which ultimately culminated in the issuance of a wiretap and search warrant which revealed an array of improper tax actions including income tax fraud and payroll tax fraud. Fraudulent and improper actions revealed by the investigation included keeping multiple sets of books, under-reporting gross sales receipts, and understating payroll. The tax charges Mr. Asker was convicted of were:
In all, Mr. Asker was sentenced to serve 50 months in prison, three years of supervised release, and additional penalties.
At trial, Mr. Asker faced jury instructions that included instructions regarding the defendant’s alleged willful blindness. The jury instructions contained language stating that:
No one can avoid responsibility for a crime by deliberately ignoring the obvious. If you are convinced that the defendant deliberately ignored a high probability that the returns at issue that the defendant filed or aided or assisted in filing were false, then you may find that the defendant knew that they were false.
Generally, a jury must be convinced beyond a reasonable doubt that the defendant’s willful blindness or other acts were to preserve ignorance of the law. Despite the apparent preservation of a “beyond a reasonable doubt” standard, the willful blindness standard does introduce certain problems for a tax defendant.
As identified by Judge Posner, the willful blindness instruction can serve to “allow juries to convict upon a finding of negligence for crimes that require intent.” U.S. v. Giovannetti, 919 F.2d 1223, 1230 (7th Cir. 1990). However, there is a significant question regarding whether a person merely does not have knowledge of criminal endeavors or whether they expend resources and take steps intended to avoid learning about the crime. These issues are often fraught with confusion. In the context of allegations of criminal conduct, it can be easy for the charges and allegations to color a jury’s interpretations of an individual’s actions or inactions.
Beyond the difficulties that can exist at trial, the presence of deliberate blindness instructions can also pose problems at appeal. In Mr. Asker’s appeal, he challenges the propriety of the willful blindness instruction. Asker raised a number of issues including the fact that the jury instruction diluted the government’s burden of proof and that the factual scenario could not constitute willful blindness. The court dismissed this argument and further found that the harmless error doctrine applied. Under the harmless error doctrine, “a deliberate ignorance instruction that properly states the law is harmless error.” United States v. Rayborn, 491 F.3d 513, 520-21 (6th Cir. 2007). Furthermore, courts will affirm convictions provided that “sufficient evidence supports one of the grounds for conviction” on each count.” Ibid.
Willful blindness, also known as the conscious avoidance doctrine in the Second Circuit, is a standard that continues to change as the IRS and courts determine how willfulness can be defined. The conscious avoidance doctrine states that a defendant may not escape criminal liability by avoiding important facts that would make them guilty of committing a financial crime.
When applying the conscious avoidance standard, the jury must consider two factors:
In the United States v. Gatto, decided in January 2021 by the Second Circuit, the defendant argued that, on appeal, the jury instruction for conscious avoidance was given erroneously. However, the appellate court ruled that the jury could still find that a defendant had knowledge, even though there is no evidence that clearly shows the defendant had actual knowledge of their offense. As a result, the defendant could have a high burden of proof for trying to overturn a judgment that they willfully evaded their tax obligations.
The appellate court also noted the conscious avoidance doctrine could not be utilized as a “substitute for proof.” Instead, it must be considered as a factor when determining willful blindness.
As the IRS has still not created a bright-line test for willful blindness, there could be many more changes to how a willful violation of tax law is adjudicated. Our firm could ensure that you remain in compliance with ever-shifting tax regulations.
The penalties for filing a late FBAR is one of the main reasons that you should fear a jury instruction for deliberate or willful blindness. The penalties assessed for a violation largely depend on the frequency of the violation and the amount of income that went unreported.
If a defendant is found guilty of “willful violation of transaction” because they did not report a foreign financial agency transaction, they could be fined the greater of $129,210 or 50% of the total amount of money within the foreign account. Note that these are just the civil penalties for an FBAR case.
If the IRS decides to refer an FBAR case to the Department of Justice, the taxpayer would be subject to criminal penalties and fines. The following is a list of criminal penalties that may be imposed if a defendant is convicted of failure to file their FBAR deliberately or willfully:
A maximum of five years in prison or up to $250,000 in fines or both
Maximum sentence of 10 years in prison or up to $500,000 in fines, or both
Up to five years in prison or a maximum of $10,000 in fines or both
To avoid facing the full extent of these penalties, you should work with a California Tax Attorney and CPA today. We could get started on planning your defense for these allegations today.
If you failed to review tax returns before submitting them to the IRS or otherwise are facing allegations that you intentionally avoided learning about improper or illegal conduct, the tax lawyers of The Tax Law Offices of David W. Klasing may be able to fight for you. To schedule a reduced rate initial consultation, call our Orange County or Los Angeles law offices.