The U.S. Supreme Court held on Wednesday that to convict a defendant for corruptly obstructing or impeding the due administration of the Internal Revenue Code under the Omnibus Clause of Sec. 7212(a), the government must prove the defendant was aware of a pending tax-related proceeding, such as a particular investigation or audit, or could reasonably foresee that such a proceeding would commence (Marinello, No. 16-1144 (U.S. 3/21/18)).
Justice Stephen Breyer delivered the Court’s opinion, joined by Chief Justice John Roberts and Associate Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor, Elena Kagan, and Neil Gorsuch.
Carlo Marinello had not filed a tax return since 1992. The IRS did not begin investigating him until 2004, but suspended the investigation soon after because it could not find any financial information about him, primarily because he apparently operated in cash and destroyed all of his records. In 2009, the IRS opened another investigation into Marinello, which resulted in 2012 in a felony charge against him under Sec. 7212(a), which forbids (in its Omnibus Clause) “corruptly or by force or threats of force . . . obstruct[ing] or imped[ing], or endeavor[ing] to obstruct or impede, the due administration of” the Internal Revenue Code. A trial in a federal district trial court convicted him, and the Second Circuit affirmed the conviction.
Citing Aguilar, 515 U.S. 593 (1995), in which it interpreted a similarly worded statute, the Court found that the government must show there was a nexus between the defendant’s obstructive conduct and a particular judicial proceeding. The Court, as it had in Aguilar, came to this conclusion because it has “traditionally exercised restraint in assessing the reach of a federal criminal statute, both out of deference to the prerogatives of Congress and out of concern that ‘a fair warning should be given to the world in language that the common world will understand, of what the law intends to do if a certain line is passed’ ” (slip op. at 4, quoting Aguilar). Interpreting the Omnibus Clause as not requiring proof that a defendant knew about the proceeding, the Court said, would permit prosecutors to turn routine tax misdemeanors into felonies (slip op. at 6).
The Court held, therefore, that to convict a defendant under the Omnibus Clause, the government must prove the defendant was aware of a pending tax-related proceeding or could reasonably foresee that such a proceeding would commence.
Justice Clarence Thomas filed a dissenting opinion, which was joined by Justice Samuel Alito, reasoning that the Omnibus Clause prohibits obstructing the administration of the tax code in general, not just for IRS proceedings, and that Marinello’s behavior, which included destroying records, using cash, and using the company’s income to pay his personal expenses, clearly violated Sec. 7212(a).
— Sally Schreiber (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.