In United States v. Ogbazion, 2016 U.S. Dist. LEXIS 143358 (S. Dist. Ohio 2016); the Court rendered a detailed analysis of the statute of limitations in a case involving 7201, 7202 and 7212.
I. BACKGROUND
Defendant formerly owned and operated ITS Financial, LLC ("ITS Financial"). ITS Financial was headquartered in Dayton, Ohio, and was the national franchisor of Instant Tax Service ("ITS"), a nationwide tax preparation franchise business started by Defendant in 2004 and marketed by ITS Financial throughout the United States. ITS was one of the largest tax preparation companies in the United States.
Defendant was also the founder and sole-owner of TCA Financial, LLC ("TCA"), which served as the holding company for ITS Financial. Defendant was also the founder and sole-owner of Tax Tree, LLC ("Tax Tree"), an entity formed in 2010 to raise capital from private investors in order to fund ITS loan products, including Instant Cash Loans ("ICL") and Refund Anticipation Loans ("RAL"), which were marketed nationwide to ITS customers. Tax Tree also served as a clearinghouse for tax refunds issued by the IRS. Defendant was also the sole-owner and operator of TaxMate, LLC ("TaxMate").
On August 25, 2015, Defendant Ogbazion, along with co-defendant Kyle Wade, were charged in a twenty-three count Indictment with: engaging in a corrupt endeavor to obstruct and impede the due administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a) (Count 1); conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349 (Count 2); wire fraud, in violation of 18 U.S.C. § 1343 (Counts 3-7); money laundering, in violation of 18 U.S.C. § 1956(a)(1)(A)(ii) (Counts 8-13); bank fraud, in violation of 18 U.S.C. § 1344 (Count 14); tax evasion, in violation of 26 U.S.C. § 7201 (Count 15); and failure to collect and pay over payroll tax, in violation of 26 U.S.C. § 7202 (Counts 16-23).
Statute of Limitations
The issue of the statute of limitations was presented for three violations of Title 26. Those sections were 7201, 7202, and 7212.
Defendant argued that Counts 16 and 20, as well as parts of Counts 1 and 15, were barred by the applicable statutes of limitations and, therefore, must be dismissed.
1. Counts 16 and 20
Counts 16 and 20 of the Indictment charge Defendant with failure to pay over payroll tax on behalf of ITS Financial (Count 16) and TaxMate (Count 20) for the 2nd quarter of 2009, in violation of 26 U.S.C. § 7202.
Every employer who pays wages to an employee is responsible for withholding and deducting from said wages the employee's portion of social security and Medicare tax as well as federal income tax. 26 U.S.C. §§ 3402(a)(1), 3102(a). "The withheld sums are commonly referred to as 'trust fund taxes,' reflecting the Code's provision that such withholdings or collections are deemed to be a 'special fund in trust for the United States.'" Slodov v. United States, 436 U.S. 238, 243, 98 S. Ct. 1778, 56 L. Ed. 2d 251 (1978). (quoting 26 U.S.C. § 7501(a)). Thus, the employer is liable to the IRS for the payment of any taxes deducted and withheld from an employee's wages. 26 U.S.C. §§ 3102(b), 3403.
Additionally, an employer is required to file a Form 941, "Employer's QUARTERLY Federal Tax Return," in order to report the FICA and income tax withheld from employees' wages throughout that calendar quarter. 26 C.F.R. §§ 31.6011(a)-1, 31.6011(a)-4. A Form 941 must be filed starting from the first quarter in which the employer paid wages subject to withholdings, and continuing every quarter thereafter regardless of whether wages were paid. The Form 941 return "shall be filed on or before the last day of the first calendar month following the period for which it is made." 26 C.F.R. §§ 31.6071(a)-1(a). In other words, the calendar quarters and corresponding Form 941 due dates are as follows:
First Quarter (January, February, March)—Form 941 due by April 30
Second Quarter (April, May, June)—Form 941 due by July 31
Third Quarter (July, August, September)—Form 941 due by October 31
Fourth Quarter (October, November, December)—Form 941 [*27] due by January 31
"The taxes reportable on the Form 941 must be paid on or before the date the Form 941 is to be filed." Stevens Techs., Inc. v. C.I.R., T.C. Memo 2014-13, 107 T.C.M. (CCH) 1067 (T.C. 2014) (citing 26 U.S.C. § 6151(a)) This is accomplished by requiring employers to deposit by electronic funds transfer the withheld employment tax on either a semi-weekly or a monthly basis. 26 C.F.R. § 31.6302-1(a). The frequency of the deposits (i.e., semi-weekly or monthly) is determined annually based on the aggregate amount of employment taxes the employer previously reported. 26 C.F.R. § 31.6302-1(b). Ultimately, if the withholdings reported on the Form 941 exceed the funds actually deposited pursuant to the semi-weekly or monthly deposit schedule, the outstanding balance is due with the Form 941. 26 C.F.R. § 31.6302-1(h)(7).
It should be noted that the Court focused on the language that referred to when the crime occurred.
Pursuant to 26 U.S.C. § 6151(a):
Except as otherwise provided in this subchapter, when a return of tax is required under this title or regulations, the person required to make such return shall, without assessment or notice and demand from the Secretary, pay such tax to the internal revenue officer with whom the return is filed, and shall pay such tax at the time and place fixed for filing the return (determined without regard to any extension of time for filing the return). In other words, the tax payment is due when the return is due.
An employer who willfully fails to collect or truthfully account for and pay over employment taxes is subject to criminal prosecution under 26 U.S.C. § 7202. See 26 U.S.C. § 7501(b).
Section 7202 is subject to a six-year statute of limitations, as set forth in 26 U.S.C. § 6531(4). Specifically, pursuant to 26 U.S.C. § 6531(4):
No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years—
..
(4) for the offense of willfully failing to pay any tax ... at the time or times required by law or regulations.
See Blanchard, 618 F.3d at 568-69 (holding that the extended six-year statute of limitations period applies to 26 U.S.C. § 7202 violations pursuant to the exception set forth under 26 U.S.C. § 6531(4)).
Additionally, 26 U.S.C. § 6531 specifies that, "[f]or the purpose of determining the periods of limitation on criminal prosecutions, the rules of section 6513 shall be applicable."
Specifically, 26 U.S.C. § 6513(c), entitled "Return and payment of social security taxes and income tax withholding," states that:
(1) If a return for any period ending with or within a calendar year is filed before April 15 of the succeeding calendar year, such return shall be considered filed on April 15 of such succeeding calendar year; and
(2) If a tax with respect to remuneration or other amount paid during any period ending with or within a calendar year is paid before April 15 of the succeeding calendar year, such tax shall be considered paid on April 15 of such succeeding calendar year. 26 U.S.C. § 6513(c)(1) and (2).
In other words, if a return filed or a tax payment is made for a specific tax year, and if the filing or payment occurred any time before April 15 of the year after that tax year, then the date on which the filing or payment is deemed to have occurred becomes April 15 of the following year, regardless of the date on which the return was actually filed or payment was actually made.
Here, Defendant and the Government are in agreement that, pursuant to 26 U.S.C. § 6531(4), the statute of limitations is six years for the offense of failing to pay over payroll tax under 26 U.S.C. § 7202.
Defendant, however, argued that the clock began to run on July 31, 2009 which is the date identified in the Indictment at the "Quarterly Due Date" for the 2nd quarter of 2009. Thus, Defendant believes that the six-year statute of limitations expired on July 31, 2015, i.e., 25 days before the Indictment was returned on August 25, 2015.
Conversely, the Government argued that, "[w]ith respect to a criminal prosecution arising from failure to pay over employment taxes reported on a filed Form 941, [26 U.S.C.] § 6513(c)(2) provides the statute of limitations begins to run on April 15 the year following the year for which the Form 941 was filed and the taxes were paid." Accordingly, the Government asserts that the statute of limitations began to run on Counts 16 and 20 on April 15, 2010 and would have expired on April 15, 2016, i.e., approximately eight months after Defendant was indicted.
Few courts have addressed the issue of when the limitation period commences for the offense of failing to pay over payroll taxes specifically, and the issue appears unsettled. The notable decisions as to this issue include: United States v. Hussain, No. 13-cr-00408-JST, 2016 U.S. Dist. LEXIS 7838, 2016 WL 270956 (N.D. Cal. Jan. 22, 2016); United States v. Whatley, No. 2:09CR531DAK, 2010 U.S. Dist. LEXIS 29952, 2010 WL 1236401 (D. Utah Mar. 29, 2010); and United States v. Creamer, 370 F. Supp. 2d. 715 (N.D. Ill. 2005), opinion vacated in part on reconsideration, No. 04 CR 281, 2006 U.S. Dist. LEXIS 52605, 2006 WL 2037326 (N.D. Ill. Apr. 4, 2006).
The Court found that 26 U.S.C. § 6513 appears to have no logical application for determining the commencement of the limitation period for a 26 U.S.C. § 7202 offense, and the few cases that have addressed the issue have not provided a consistent or compelling basis upon which the Court can rely.
Therefore, the Court undertook its own analysis to determine whether the limitation period for the offense of failing to pay over payroll taxes, in violation of 26 U.S.C. § 7202, is triggered by: (1) the Form 941/employment tax due date; (2) the fixed April 15 deadline set forth in 26 U.S.C. § 6513, which is incorporated by reference in 26 U.S.C. § 6531; or (3) another relevant occurrence.
As previously stated, in order to prosecute an individual for failing to pay over payroll taxes, the United States must return an indictment within six years "after the commission of the offense." 26 U.S.C. § 6531(4). By its plain language—specifically, the term, "after the commission of the offense"—26 U.S.C. § 6531 necessarily implies that the offense must have already been committed.
The Court looked to the statutory language of the offense, as well as the specific conduct alleged in the relevant counts.
Pursuant to 26 U.S.C. § 7202:
Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, [may be fined, imprisoned, or both].
In other words, the offense is complete once the person who was required to collect, account for, and pay over the tax, willfully fails to do any one of those required tasks. Relevant here is the 'failure to pay over' taxes.
As previously stated, supra, the payment is due when the return is due. 26 U.S.C. § 6151(a); see Stevens Techs., Inc., T.C. Memo 2014-13, 107 T.C.M. (CCH) 1067. However, the mere failure to pay over the taxes on or before the due date is not sufficient to satisfy the elements of the § 7202 offense. The failure must also be willful.
Therefore, "[t]he most reasonable and logical point at which to note that a 'failure' has already occurred is the point at or after the due date when the lack of payment has become willful." United States v. Quinn, No. 09-20075-01-JWL, 2011 U.S. Dist. LEXIS 10506, 2011 WL 382369, at *1 (D. Kan. Feb. 3, 2011) (noting that if the payment due date were also the triggering event for the statute of limitations, the result in many cases would be that the limitation period would commence prior to the crime having been completed (e.g., where the initial failure to pay was an inadvertence or misunderstanding)) (emphasis added). Notably, in United States v. Sams, the Sixth Circuit made this precise determination as applied to 26 U.S.C. § 7203, which section criminalizes as a misdemeanor offense the willful failure to file return, supply information, or pay tax. 865 F.2d 713, 715-16 (6th Cir. 1988).
In Sams, the defendant filed his 1979 income tax return on November 24, 1980 (i.e., the return would have been late even with an extension) and, further, failed to pay the taxes owed on the return. 865 F.2d at 714. On November 19, 1986, the defendant was indicted for failing to pay tax in violation of 26 U.S.C. § 7203. Id. The case proceeded to a jury trial and the defendant was ultimately convicted. On appeal, the defendant argued that the statute of limitations had expired as to his count of conviction. Specifically, the defendant argued that 26 U.S.C. § 6513 was controlling as to the commencement of the limitation period and, accordingly, that the statute of limitations began to run when the tax was actually due, i.e., April 15, 1980. Conversely, the Government in Sams argued that the appropriate triggering event for failing to pay his taxes was the date that defendant actually filed his tax return, i.e., November 24, 1980. Id. The Sixth Circuit rejected both arguments.
More specifically, the Sixth Circuit, citing the Supreme Court's decision in United States v. Habig, 390 U.S. 222, 88 S. Ct. 926, 19 L. Ed. 2d 1055, 1968-2 C.B. 589 (1968), held that 26 U.S.C. § 6513 only applies where either taxes are paid in advance or an early return is filed. Sams, 865 F.2d at 715. Moreover, the Sixth Circuit rejected the Government's contention that the return's actual filing date was the triggering event. Id. Instead, the Sixth Circuit held:
[S]ince 'willfulness is an essential element' of this crime, the statute of limitations 'begins to run not when the taxes are assessed or when payment is demanded, but rather when the failure to pay the tax becomes willful ....' United States v. Andros, 484 F.2d 531, 532 (9th Cir.1973). We hold that the limitations period for willfully failing to pay income taxes cannot be determined by any general rule. Rather, the limitations period begins to run when the taxpayer manifests some act of willful nonpayment. Sams, 865 F.2d at 716. Moreover, the Sixth Circuit stated that because "[t]he determination of when willfulness manifests itself is a factual issue," it must be decided by a jury.
This Court finds the Sixth Circuit's analysis and holding in Sams entirely relevant and applicable to the instant case. Moreover, the finding that 26 U.S.C. § 6513 does not apply in the instant case is further supported by the Supreme Court's decision in United States v. Habig. Specifically, in Habig, the Supreme Court noted that, "[p]ractically, the effect of the reference to 6513 in 6531 is to give the Government the administrative assistance, for purposes of its criminal tax investigations, of a uniform expiration date for most taxpayers, despite variations in the dates of actual filing." 390 U.S. at 225-26. Further, the Supreme Court, in reliance on the legislative history of 26 U.S.C. § 6513, expressly emphasized that:
There is no reason to believe that 6531, by reference to the 'rules of section 6513' expands the effect and operation of the latter beyond its own terms so as to make it applicable to situations other than those involving early filing or advance payment. The reference to 6513 in 6531 extends the period within which criminal prosecution may be begun only when the limitations period would also be extended for the refunds and tax suits expressly dealt with in 6513—only when there has been early filing or advance payment. Habig, 390 U.S. at 225.
In short, the reference to 26 U.S.C. § 6513 is not intended to prolong running the statute of limitations in every case, and particularly not where 26 U.S.C. § 6513's firm deadline has no logical correlation to the elements of the offense at issue. Thus, where the case does not involve an "early filing or an advance payment," § 6513 does not apply. Further, as the Sixth Circuit noted in Sams, where the offense is only completed once the element of 'willfulness' arises, determining the commencement of the statute of limitations requires a finding by a jury as to when, if ever, a defendant's failure to pay became willful.
As the Court cannot yet make the determination regarding whether Counts 16 and 20 are time barred, dismissal is not appropriate.
2. Parts of Count 1
Next, Defendant argues that parts of Count 1 are barred by the statute of limitations. Count 1 charges Defendant with engaging in a corrupt endeavor to obstruct and impede the due administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a). More specifically, Defendant was charged under the 'omnibus clause' of the statute, which prohibits any act that corruptly obstructs or impedes, or endeavors to obstruct or impede, the due administration of Internal Revenue Code. 26 U.S.C. § 7212(a).
The parties agree that the statute of limitations applicable to Count 1 is six years, pursuant to 26 U.S.C. § 6531(6). However, Defendant argues that, as a result of the six-year statute of limitations, "any conduct occurring before August 25, 2009 [i.e., six years prior to the Indictment] cannot form the basis of any charges against the Defendant." Defendant notes that the Indictment includes numerous allegations relating to conduct that occurred as early as January 1, 2004. Moreover, Defendant asserts that the allegations under Count 1 lack the 'singleness of thought, purpose, or action' to make it a continuing offense. (Id. at 30-31). Thus, Defendant moves to dismiss those allegations of conduct occurring prior to August 25, 2009. (Id.)
The Government counters that the broad language of the omnibus clause allows for the 'corrupt endeavor' to be alleged by way of various acts. Moreover, the Government argues that the statute of limitations does not bar prosecution under the omnibus clause, "so long as the charge includes some obstructive conduct or act occurring within six years of the return of the indictment." The Court agreed.
First, the broad language of the omnibus clause allows for a charge based upon multiple, varied acts of corrupt and obstructive conduct. See, e.g., United States v. Murphy, 824 F.3d 1197, 1206 (9th Cir. 2016) (holding nine discrete acts of interference alleged under one omnibus clause count to be permissible as "multiple ways of committing the same offense"); United States v. Daugerdas, F.3d , No. 14-2437-cr, 2016 U.S. App. LEXIS 17219, 2016 WL 5111248 (2d. Cir. Sept. 21, 2016) (holding that one count under the omnibus clause may properly "allege that this crime was committed in many different ways"). Thus, the alleged corrupt acts, although distinct, are all part of one crime. Moreover, the charge is timely so long as Defendant "committed at least one act of interference less than six years before the indictment was returned." Murphy, 824 F.3d at 1206 (citing United States v. Wilson, 118 F.3d 228, 236 (4th Cir. 1997) ("The limitations period for a violation of § 7212(a) ... begins to run on the date of the last corrupt act")).
Accordingly, the allegations in Count 1 that occurred prior to August 25, 2009 are not stricken as untimely.
3. Parts of Count 15
Count 15 charges Defendant with willfully attempting to evade and defeat the payment of payroll taxes, in violation of 26 U.S.C. § 7201. The statute of limitations applicable to the offense of tax evasion under 26 U.S.C. § 7201 is six years. 26 U.S.C. § 6531(2). As the Indictment here was returned on August 25, 2016, the limitation period began to run on August 25, 2009.
Defendant notes that the Indictment charges the offense as having commenced on July 31, 2009, albeit continuing into the limitation period. Defendant then points to three affirmative acts listed in the Indictment—specifically the acts included in paragraph 80(a), (c), and (i)—which are alleged to have occurred generally, although no date or date range is specified. In the absence of a specific date, Defendant argues that the acts should be construed as having occurred on July 31, 2009 and, therefore, should be stricken as falling outside of the applicable statute of limitations.
As an initial matter, the Court does not believe that the absence of a date necessarily compels the finding that the undated acts occurred on July 31, 2009. The July 31, 2009 date in the Indictment appears instead to reference the earliest due date for payment of the employment taxes that Count 15 alleges Defendant attempted to evade. Thus, the undated conduct is simply a general statement regarding the acts which are more specifically alleged in the remaining sub-paragraphs.
Regardless, however, the rule as to tax evasion under 26 U.S.C. § 7201 is that the limitation period begins to run on the date of the last affirmative act of evasion. United States v. Threadgill, 572 F. App'x 372, 380 (6th Cir. 2014) ("Under 26 U.S.C. § 7201, the statute of limitations begins to run on the day of the last affirmative act of tax evasion") (citing United States v. Butler, 297 F.3d 505, 511 (6th Cir.2002)). Indeed, the Sixth Circuit found that "to hold otherwise would only reward a defendant for successfully evading discovery of his tax fraud ...." United States v. Dandy, 998 F.2d 1344, 1355-56 (6th Cir. 1993). Thus, even if this Court were to attribute the date of July 31, 2009 to the undated acts, this would not warrant striking those allegations, as Count 15 includes several additional acts which occurred well within the six-year statute of limitations. Accordingly, Defendant's request to dismiss Count 15 in part was denied.
1. Count 1
In Count 1 of the Indictment, Defendant was charged with engaging in a corrupt endeavor to obstruct and impede the due administration of the Internal Revenue Code, in violation of 26 U.S.C. § 7212(a). Specifically, the Indictment alleges that, between approximately January 1, 2004 and November 1, 2012, "Defendants FESUM OGBAZION and KYLE WADE did corruptly endeavor to obstruct and impede the due administration of the internal revenue laws ... by engaging in a scheme to obstruct and impede the IRS ("the scheme to obstruct"). The Indictment then lists the various obstructive acts which are at the core of "the scheme to obstruct" the IRS
The alleged obstructive acts listed in the Indictment include, inter alia: preparing and filing client tax returns without receiving prior authorization, and based upon improper proper documentation; back-dating, forward-dating, and falsely signing e-file authorization forms; preparing and filing individual income tax returns on behalf of clients, which returns falsely inflate Schedule C income; "creation of counterfeit Forms W-2, in the names of ITS customer/taxpayers, using tax preparation software, maintaining those same false Forms W-2s in customer files in the event of an IRS audit, and presenting these fraudulent Forms W-2 to IRS auditors"; and using and distributing "back-up" Electronic Filing Identification Numbers ("EFIN") to franchisees who did have their own EFIN or whose EFIN had been suspended.
Defendant argued that Count 1 of the Indictment fails to set forth an essential element of a 26 U.S.C. § 7212(a) offense—that is, is the existence of a pending IRS action of which the defendant was aware. Defendant further notes that the Government could not make such an allegation in this case, as there is no evidence that Defendant was aware of any pending IRS actions prior to November 2011. Accordingly, Defendant moved for the dismissal of Count 1.
In response, the Government argued that the instant case is factually distinct and, therefore, the element does not need to be expressly alleged. Specifically, the Government claims that the element is required in cases that "deal with an individual taxpayer, while here the § 7212(a) charge is brought against a nationwide tax return preparation business with hundreds of locations, hundreds of employees, and by its nature, continually subject to IRS scrutiny and review."The Government argues that ITS was an Electronic Return Originator ("ERO") and, accordingly, "was subject to the rules and regulations promulgated in IRS Publications 1383 and 1345 which set forth guidelines for the operation of EROs ... [thereby] inform[ing] individuals, such as Defendant, that operation of an ERO subjects one to periodic review of their operations by the IRS." In short, the Government argues that the references in the Indictment to the continual possibility of IRS compliance audits is sufficient to give Defendant notice of the basis for the 26 U.S.C. § 7212(a) offense, including "Defendant's knowledge that the alleged conduct was intended to obstruct ongoing IRS action."
The omnibus clause of 26 U.S.C. § 7212(a) proscribes conduct that, "in any other way corruptly ... obstructs or impedes, or endeavors to obstruct or impede, the due administration of [the Internal Revenue Code]." The Sixth Circuit has held that the omnibus clause "requires some pending IRS action of which the defendant was aware." United States v. Kassouf, 144 F.3d 952, 957 (6th Cir. 1998). The pending IRS action "may include, but is not limited to, subpoenas, audits or criminal tax investigations." Id. at 957 n.2.
Here, Count 1 of the Indictment does not allege, as an element of the omnibus clause offense, the existence of an IRS action of which Defendant was aware and which he corruptly undertook to impede.
Further, the Government's assertion that this element is implicit based on Defendant's knowledge that ITS was subject to IRS review at any time is without merit and contradicts the law of this circuit. Specifically, in United States v. Miner, the Sixth Circuit held as follows:
The requirement is that the government prove the defendant's awareness of "some pending IRS action." Kassouf, 144 F.3d at 957. Such action "may include, but is not limited to, subpoenas, audits or criminal tax investigations." Id. at 957 n.2. This means that the government must prove that the defendant is aware that the IRS has taken some step to investigate a particular taxpayer beyond routine administrative procedures such as those required to accept and process tax filings in the ordinary course. See id. at 958. In other words, the impeding conduct must be linked to a specific IRS inquiry into a particular taxpayer: Once the defendant knows that the IRS's interest in a given taxpayer (including himself) has been piqued in a manner that is out of the ordinary, any attempt to corruptly impede the IRS's inquiries into the taxpayer after that point is potentially criminal. 774 F.3d 336, 346 (6th Cir. 2014), cert. denied, 135 S. Ct. 2060, 191 L. Ed. 2d 964 (2015).
Here, the Indictment focuses exclusively on the obstructive acts that Defendant allegedly undertook in an effort to prepare for the possibility of an IRS audit, which audits are routinely conducted upon all EROs as a matter of course. Indeed, in setting forth the alleged obstructive acts, the only specific reference in the Indictment to 'IRS auditors' is found in Paragraph 30(m) of the Indictment, which states:
In or about 2010, and continuing to in or about 2012, Defendant OGBAZION directed an ITS franchise owner in Toledo, Ohio to print out counterfeit customer Forms W-2 using commercial tax preparation software and place those counterfeit Forms W-2 in the ITS's customers' files to deceive IRS Auditors into believing that they were employer issued, actual Forms W-2.
However, even in the above-quoted paragraph, the reference to IRS auditors does not reflect that auditors were actually present as part of a specifically undertaken audit or investigation. This deficiency is particularly emphasized by the broad two-year time frame (i.e., approximately 2010 through 2012), as well as the reference to "customers" (i.e., an unspecified number of unnamed customers). Thus, there is no basis for this Court to find that the alleged conduct involved the deliberate obstruction of a specific "pending IRS action," versus the mere anticipation of a routine compliance audit.
The only other allegation in the Indictment that appears on its face to possibly reference a specific IRS action is found in Paragraph 30(s). Specifically, Paragraph 30(s) states: "In or about September 2010, Defendant WADE, at his Middletown, Ohio ITS Franchise, in preparation for an IRS audit of his franchise, falsely and fraudulently endorsed ITS customers' signatures on several forms to create the appearance that the customers had timely signed these forms."
While slightly more specific, Paragraph 30(s) still fails to capture the thrust of the essential element of 26 U.S.C. § 7212(a)—that the defendant must have known of a pending IRS action and thus engaged in obstructive conduct in order to impede that specific, pending IRS action. To be clear, the specificity as to Paragraph 30(s) is focused on the obstructive conduct, i.e., around September 2010, Defendant Wade allegedly forged customer signatures on various forms. And while the Indictment alleges that this was done "in preparation for an IRS audit of his franchise...," there is nothing indicating that the preparatory conduct alleged (i.e., forging customer signatures) was done with any awareness of a specific upcoming audit.
In truth, based on the remainder of the allegations in the Indictment, which allegations focus entirely on preparatory conduct in anticipation of a possible, routine compliance audit, the language of Paragraph 30(s) is insufficient to allege that Defendant Wade specifically undertook the obstructive actions in an effort to impede a planned IRS audit of which he was actually aware, as opposed to his general awareness that the IRS may choose to conduct a compliance audit at any time.
In sum, Defendant's general awareness that the IRS periodically conducts compliance audits of EROs does not meet the requirement that he be aware of a pending IRS action. To hold otherwise would undermine the Sixth Circuit's express intent to limit the breadth of the omnibus clause so as to "impose criminal liability narrowly to ensure proper notice to the accused." Kassouf, 144 F.3d at 958.
As the Kassouf court acknowledged:
[O]ut of the hundreds of people who file taxes every day, there is no guarantee that a particular tax return will be audited. Therefore, it would be highly speculative to find conduct such as the destruction of records, which might or might not be needed, in an audit which might or might not ever occur, is sufficient to make out an omnibus clause violation. 144 F.3d at 958.
Thus, the requirement that the IRS action be "linked to a specific IRS inquiry," and that it be, "out of the ordinary," is critical to an essential element of the offense and, accordingly, must be set forth in the Indictment.
To allow the prosecutor, or the court, to make a subsequent guess as to what was in the minds of the grand jury at the time they returned the indictment would deprive the defendant of a basic protection which the guaranty of the intervention of a grand jury was designed to secure. For a defendant could then be convicted on the basis of facts not found by, and perhaps not even presented to, the grand jury which indicted him.
Russell, 369 U.S. at 770. Here, the Indictment is devoid of any indication that either the Government or the Grand Jury was even aware that a charge under 26 U.S.C. § 7212(a)'s omnibus clause requires the defendant to have been aware of a pending IRS action.
Finally, in arguing that the Indictment provides sufficient details to give Defendant notice of the intended allegations, the Government fails to appreciate the importance of ensuring the Indictment's validity in all respects. In short, the Government's 'he knows what we meant' argument does not satisfy the requirement that the indictment clearly set forth all elements of the offense charged. The indictment must "fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offence intended to be punished." Hamling, 418 U.S. at 117. In the instant case, the Indictment fails to do so as to Count 1.
