The Department of Justice Updates its Criminal Tax Memo In Light of Marinello v. United States

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The Department of Justice recently updated its Criminal Tax Manual (the “CTM”), available here, to reflect changes to case law resulting from the Supreme Court’s decision in Marinello v. United States, 138 S. Ct. 1101 (2018).  In Marinello, the Supreme Court analyzed the “breadth” of I.R.C.  § 7212—what is colloquially known as the “Omnibus Clause.”  Section 7212 makes it a federal crime to “[a]ttempt[] to interfere with administration of Internal Revenue Laws.”  Specifically, it provides that a crime is committed if “[a taxpayer,] corruptly or by force or threat of force (including any threatening letter or communication)[,] obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title.”  This is generally known as the omnibus clause because it outlaws a broad spectrum of conduct that is intended to interfere with the enforcement of the Internal Revenue Code.

Prior to Marinello, appellate courts had routinely held that § 7212 covered a broad category of taxpayer conduct.  But Marinello declined to follow the broad interpretation of the scope of § 7212 previously adopted by such courts.  The Supreme Court ultimately held that the statute outlawed only “specific interference with targeted governmental tax-related proceedings, such as a particular investigation or audit.”  Marinello v. United States, 138 S. Ct. 1101, 1104 (2018).  Specifically, the court held that “to secure a conviction under the Omnibus Clause, the Government must show (among other things) that there is a ‘nexus’ between the defendant’s conduct and a particular administrative proceeding, such as an investigation, an audit, or other targeted administrative action,” and also must “show that the proceeding was pending at the time the defendant engaged in the obstructive conduct or, at the least, was then reasonably foreseeable by the defendant.”  Id. at 1109–10.

As noted in the CTM, the Supreme Court reached this conclusion through its analysis of the phrase “due administration of Internal Revenue Laws,” as it appears in § 7212.  “The Court interpreted this language to refer only to ‘specific, targeted acts of administration,’ concluding that it did ‘not cover routine administrative procedures that are near universally applied to all taxpayers, such as the ordinary processing of income tax returns.’”  The update to the CTM provides an in-depth summary of the rationale used by the Court in reaching this conclusion.

But most importantly, the updates to the CTM explain that Marinello has significantly limited the scope of the Omnibus Clause.  Specifically, the DoJ has noted that, to secure a conviction under § 7212, the government must now demonstrate a “nexus” between the taxpayer’s acts and a particular “targeted administrative action.”  In other words, the government cannot secure a conviction under § 7212 for acts that may impede ordinary administrative procedures, such as processing tax returns.  Furthermore, the government has also noted that “it remains the policy of the Tax Division that a § 7212(a) Omnibus Clause prosecution should not be based upon an omission, including a failure to file a tax return, without the express authorization of the Tax Division.”  While other criminal statutes may outlaw this conduct, the Supreme Court has forced the government to concede that § 7212 only applies to a narrow scope of taxpayer conduct–as evidenced by the updates to the CTM.  However, the government has also noted that the Supreme Court “declined to ‘exhaustively itemize’ what falls outside the definition of “particular administrative proceeding” for the purpose of § 7212—signifying the government’s acknowledgement that the scope of § 7212, while limited, is still relatively undefined.

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