Tag Archives: Criminal Law

Tax and Criminal Law

(Kristin Hickman) So here’s another interesting “tax and” topic:  the criminalization of tax shelters (and, possibly, tax practice?).  This is a thought I have only preliminarily considered, so I will merely present the problem and hope that those with more experience will weigh in.  Apologies in advance for a long post; but I think it’s worth it.

Tax shelters have a bad reputation, for some pretty obvious reasons.  Among other things, abusive tax shelters illegitimately deprive the government of revenue, force the rest of us to pay higher taxes to make up for that deprivation, and generally breed disrespect for the tax system.  Note that in that last sentence I added the descriptive “abusive,” however.  Not all tax shelters are illegitimate, at least in the eyes of the law.  While most tax experts will agree that abusive tax shelters have become a big problem, those same folks will disagree over precisely how to distinguish legitimate non-shelter tax planning from tax shelters, and legitimate from abusive tax shelters. 

Most people know the story of the demise of the Arthur Andersen accounting firm. Certain partners of the firm behaved very badly in connection with the Enron scandal.  The Department of Justice indicted the entire Andersen firm (not just the partners) for the actions of those individuals.  The indictment alone destroyed Andersen and eliminated the jobs of tens of thousands of employees who had nothing to do with the Enron case, long before Andersen was ever convicted.  Moreover, even though the DOJ won at trial, the Supreme Court last term overturned Andersen’s conviction and, in so doing, strongly hinted that Andersen likely was not guilty of the crime for which it was indicted.

More recently, another top accounting firm, KPMG, came under scrutiny for its tax shelter promotion activities.  Under threat of criminal indictment, KPMG decided to save itself from Andersen’s fate.  KPMG admitted criminal culpability, paid a hefty fine, and agreed to implement a compliance and ethics program and submit to several years of government monitoring in exchange for deferred prosecution.  Yet, as I understand it, many people believe that the tax shelters promoted by KPMG were at least arguably within the boundaries of the tax laws and not abusive at all.  (Vic Fleischer thinks otherwise.)

The federal tax laws are enormously complex and often ambiguous.  Reasonable people disagree all the time over their meaning.  The IRS’s win/loss record before the courts in recent civil tax shelter cases is less than stellar.  And the courts did not have the chance to consider whether the IRS’s interpretation of the relevant tax laws was correct with respect to KPMG’s tax shelter activities.  Even if the IRS’s interpretation was correct, if reasonable people can disagree over the law’s meaning, shouldn’t the rule of lenity apply to preclude criminal sanctions?  The tax laws contain extensive civil penalties for failure to adhere to tax rules and regulations and for improper behavior in representing clients before the IRS.

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The Myth of the Trial Penalty?

(Dan Markel) Every now and then, I like to spotlight some articles that unsettle the conventional wisdom, particularly in criminal law. Add this oneto the file. Almost every teacher of criminal procedure is aware of the idea of the “trial penalty,” which conveys the sense that defendants who exercise their right to a trial will invariably get a worse result if convicted than if they plea bargain. The leverage prosecutors have in exploiting the trial penalty dynamic was described by my friend Rich Oppel in a front page NYT story he wrote a few years back.

 

Comes now (or relatively recently at least) David Abrams from Penn with an article that slays the sacred cow of the trial penalty by providing, you know, data. And the data is the best kind of data because inasmuch as it’s true, it is SURPRISING data. Specifically, Abrams argues that based on the study he performed (which originally appeared in JELS and now appears in a more accessible form in Duquesne Law Review), the data supports the view that in fact there’s a trial discount not a trial penalty. Fascinating stuff. Abrams offers some suggestions for what might explain this surprise: possibly a salience/availability bias on the part of the lawyers who remember the long penalties imposed after dramatic trials. Regardless of what explains the conventional wisdom, the competing claims should be ventilated in virtually every crim pro adjudication course.

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