U.S. Supreme Court: Government Went Too Far In Tax Obstruction Prosecution

Author:Ms Kathy Keneally, Frank J. Jackson and Michael J. Scarduzio
Profession:Jones Day

The U.S. Supreme Court today barred the government from prosecuting taxpayers for obstructing the administration of the Internal Revenue Code, unless it can show they acted in response to a pending or reasonably foreseeable IRS proceeding. In Marinello v. United States, the Court addressed the so-called "Omnibus Clause" of Section 7212(a) of the Internal Revenue Code, which provides for a felony charge when any person "corruptly ... obstructs or impedes, or endeavors to obstruct or impede, the due administration" of the Internal Revenue Code. The government had charged that a taxpayer who paid expenses in cash, did not maintain tax records, and kept a second set of books violated Section 7212(a). 

Reversing the Second Circuit, the Supreme Court, in a 7-2 opinion, held that to secure a conviction under the Omnibus Clause, the government must show that: (i) "there is 'nexus' between the defendant's conduct and a particular administrative proceeding"; and (ii) a "proceeding was pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant." 

Justice Breyer, writing for the majority, also rejected the government's position that "corruptly" merely requires proof that a defendant acted with "specific intent to obtain an unlawful advantage." The Court equated the term "corruptly" with the requirement under other criminal tax statues that the government prove that the defendant...

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