Under IRC §7212(a) it is a felony for an individual to “corruptly or by force” to “endeavo[r] to obstruct or imped[e] the due administration of this title.” The United States Supreme Court in the case of Marinello v. United States, Docket No. 16-1144 was to rule on how broadly the “due administration” of the IRC applied—did such administration cover all acts of the government, or was it only applicable to a more limited set of acts.
The facts of the case were summarized by Justice Thomas in his dissent as follows:
Petitioner Carlo J. Marinello, II, owned and managed a company that provided courier services. Marinello, however, kept almost no records of the company's earnings or expenditures. He shredded or discarded most business records. He paid his employees in cash and did not give them tax documents. And he took tens of thousands of dollars from the company each year to pay his personal expenses.
Unbeknownst to Marinello, the IRS began investigating him in 2004. The IRS learned that he had not filed a tax return — corporate or individual — since at least 1992. But the investigation came to a standstill because the IRS did not have enough information about Marinello's earnings. This was not surprising given his diligent efforts to avoid creating a paper trail. After the investigation ended, Marinello consulted a lawyer and an accountant, both of whom advised him that he needed to file tax returns and keep business records. Despite these warnings, Marinello did neither for another four years.
In 2009, the IRS decided to investigate Marinello again. In an interview with an IRS agent, Marinello initially claimed he was exempt from filing tax returns because he made less than $1,000 per year. Upon further questioning, however, Marinello changed his story. He admitted that he earned more than $1,000 per year, but said he “'never got around'” to paying taxes. 839 F.3d 209, 212 (CA2 2016). He also admitted that he shredded documents, did not keep track of the company's income or expenses, and used the company's income for personal bills. His only excuse was that he “took the easy way out.” Ibid. After just a few hours of deliberation, a jury convicted Marinello of corruptly endeavoring to obstruct or impede the due administration of the Tax Code, § 7212(a).
Mr. Marinello argued that this provision should only apply if he knew he was under investigation and acted with intent to disrupt that investigation. The trial court had not accepted Mr. Marinello’s request that the jurors be instructed about the need to find a connection with such a proceeding.
The government disagreed, arguing no knowledge was necessary of any particular IRS action or investigation. As Justice Breyer wrote in the majority opinion “[t]he Government contends the processing of tax returns is part of the administration of the Internal Revenue Code and any corrupt effort to interfere with that task can therefore serve as the basis of an obstruction conviction.”
The Second Circuit Court of Appeals agreed with the government and sustained Mr. Marinello’s conviction. In doing so, it agreed with positions taken on the same issue by the First, Fifth, Ninth, and Tenth Circuits. However, the Sixth Circuit had taken the position espoused by Mr. Marinello in the case United States v. Kassouf, 81 AFTR2d Par. 98-737 (1998).
IRC §7212(a) specifically provides:
(a) Corrupt or forcible interference
Whoever corruptly or by force or threats of force (including any threatening letter or communication) endeavors to intimidate or impede any officer or employee of the United States acting in an official capacity under this title, or in any other way corruptly or by force or threats of force (including any threatening letter or communication) obstructs or impedes, or endeavors to obstruct or impede, the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both, except that if the offense is committed only by threats of force, the person convicted thereof shall be fined not more than $3,000, or imprisoned not more than 1 year, or both. The term “threats of force”, as used in this subsection, means threats of bodily harm to the officer or employee of the United States or to a member of his family.
In a 7-2 decision the Supreme Court sided with Mr. Marinello and the Sixth Circuit, finding that the government must demonstrate interference with an existing or reasonably foreseeable proceeding. The Court reversed the holding of Second Circuit and returned the case for further proceedings.
The majority cites a prior decision of the Court interpreting similar language in 18 U.S.C. § 1503(a) that involved the “due administration of justice.” Justice Breyer, writing for the majority, outlines the holding in United States v. Aguilar, 515 U.S. 593 (1995) that the majority will lean on in interpreting IRC §7212(a):
In interpreting that statute we pointed to earlier cases in which courts had held that the Government must prove “an intent to influence judicial or grand jury proceedings.” Aguilar, supra, at 599 (citing United States v. Brown, 688 F.2d 596, 598 (CA9 1982)). We noted that some courts had imposed a “'nexus' requirement”: that the defendant's “act must have a relationship in time, causation, or logic with the judicial proceedings.” Aguilar, supra, at 599 (citing United States v. Wood, 6 F.3d 692, 696 (CA10 1993), and United States v. Walasek, 527 F.2d 676, 679, and n. 12 (CA3 1975)). And we adopted the same requirement.
We set forth two important reasons for doing so. We wrote that we “have 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.'” Aguilar, supra, at 600 (quoting McBoyle v. United States, 283 U.S. 25, 27 (1931); citation omitted).
The majority argues the same concepts apply in this case. Justice Breyer points out that the IRC provides for several misdemeanor offenses that would, using the government’s position, appear to automatically violate IRC §7212(a), which is a felony level offense
That is because the Code creates numerous misdemeanors, ranging from willful failure to furnish a required statement to employees, § 7204, to failure to keep required records, § 7203, to misrepresenting the number of exemptions to which an employee is entitled on IRS Form W-4, § 7205, to failure to pay any tax owed, however small the amount, § 7203. To interpret the Omnibus Clause as applying to all Code administration would potentially transform many, if not all, of these misdemeanor provisions into felonies, making the specific provisions redundant, or perhaps the subject matter of plea bargaining. Some overlap in criminal provisions is, of course, inevitable. See, e.g., Sansone v. United States, 380 U.S. 343, 349 (1965) (affirming conviction for tax evasion despite overlap with other provisions). Indeed, as the dissent notes, post, at 8 (opinion of THOMAS, J.), Marinello's preferred reading of § 7212 potentially overlaps with another provision of federal law that criminalizes the obstruction of the “due and proper administration of the law under which any pending proceeding is being had before any department or agency of the United States,” 18 U.S.C. § 1505. But we have not found any case from this Court interpreting a statutory provision that would create overlap and redundancy to the degree that would result from the Government's broad reading of § 7212 — particularly when it would “'render superfluous other provisions in the same enactment.'” Freytag v. Commissioner, 501 U.S. 868, 877 (1991) (quoting Pennsylvania Dept. of Public Welfare v. Davenport, 495 U.S. 552, 562 (1990); see also Yates v. United States, 574 U.S. ___, ___ (2015) (plurality opinion) (slip op., at 13).
The majority opinion argues that not restricting the breadth of this provision would create problems with a lack of fair warning of what actions would violate this provision. The opinion continues:
Interpreted broadly, the provision could apply to a person who pays a babysitter $41 per week in cash without withholding taxes, see 26 CFR § 31.3102–1(a)(2017); IRS, Publication 926, pp. 5–6 (2018), leaves a large cash tip in a restaurant, fails to keep donation receipts from every charity to which he or she contributes, or fails to provide every record to an accountant. Such an individual may sometimes believe that, in doing so, he is running the risk of having violated an IRS rule, but we sincerely doubt he would believe he is facing a potential felony prosecution for tax obstruction. Had Congress intended that outcome, it would have spoken with more clarity than it did in § 7212(a).
Thus, the majority opinion concludes:
We conclude 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. That nexus requires a “relationship in time, causation, or logic with the [administrative] proceeding.” Aguilar, 515 U.S., at 599 (citing Wood, 6 F.3d, at 696). By “particular administrative proceeding” we do not mean every act carried out by IRS employees in the course of their “continuous, ubiquitous, and universally known” administration of the Tax Code. Brief in Opposition 9. While we need not here exhaustively itemize the types of administrative conduct that fall within the scope of the statute, that conduct does not include routine, day-to-day work carried out in the ordinary course by the IRS, such as the review of tax returns.
Justice Thomas and Justice Alito dissented from this ruling, with Justice Thomas writing the dissent. The basic problem the dissenters have with the majority is that the statute refers to interfering with the administration of Title 26—not just specific parts of it.
As Justice Thomas writes at the beginning of the dissent:
The Omnibus Clause of 26 U.S.C. § 7212(a) of the Internal Revenue Code (Tax Code) makes it a felony to “corruptly . . . endeavo[r] to obstruct or imped[e] the due administration of this title.” “[T]his title” refers to Title 26, which contains the entire Tax Code and authorizes the Internal Revenue Service (IRS) to calculate, assess, and collect taxes. I would hold that the Omnibus Clause does what it says: forbid corrupt efforts to impede the IRS from performing any of these activities. The Court, however, reads “this title” to mean “a particular [IRS] proceeding.” Ante, at 10. And that proceeding must be either “pending” or “in the offing.” Ante, at 11. The Court may well prefer a statute written that way, but that is not what Congress enacted.
Justice Thomas continues:
But I part ways when the Court concludes that the whole phrase “due administration of the Tax Code” means “only some of ” the Tax Code — specifically “particular [IRS] proceeding[s], such as an investigation, an audit, or other targeted administrative action.” Ante, at 5, 10. That limitation has no basis in the text. In my view, the plain text of the Omnibus Clause prohibits obstructing the due administration of the Tax Code in its entirety, not just particular IRS proceedings.
Finally, the dissent argues that, to the extent the majority objected to a lack of “fair warning” if the provision applied to the entire Code, the decision of the majority itself provides a similar level of uncertainty about what conduct will violate this provision:
The Court outlines its atextual proceeding requirement in only the vaguest of terms. Under its interpretation, the prosecution must prove a “nexus” between the defendant's conduct and some “particular administrative proceeding.” Ante, at 10. “[P]articular administrative proceeding” is defined negatively as “not . . . every act carried out by IRS employees in the course of their 'continuous, ubiquitous, and universally known' administration of the Tax Code.” Ante, at 10–11. Further, the Government must prove that the proceeding was “reasonably foreseeable” to the defendant. Ante, at 11. “Reasonably foreseeable” is again defined negatively as “not . . . that the defendant knew the IRS may catch onto his unlawful scheme eventually.” Ibid. It is hard to see how the Court's statute is less vague than the one Congress drafted, which simply instructed individuals not to corruptly obstruct or impede the IRS' administration of the Tax Code.
The dissent concludes by complaining that the Court ignored the fact that Mr. Marinello was not a babysitter being paid $41 in cash (one of the hypothetical violations that concerned the majority), but rather was taking much more substantial action to avoid a much more substantial amount of tax:
The Court frets that the Omnibus Clause might apply to “a person who pays a babysitter $41 per week in cash without withholding taxes,” “leaves a large cash tip in a restaurant,” “fails to keep donation receipts from every charity,” or “fails to provide every record to an accountant.” Ante, at 7. Whether the Omnibus Clause would cover these hypotheticals — and whether the Government would waste its resources identifying and prosecuting them — is debatable. But what should not be debatable is that the statute covers Marinello, who systematically shredded documents and hid evidence about his company's earnings to avoid paying taxes even after warnings from his lawyer and accountant. It is not hard to find similar cases prosecuted under the Omnibus Clause. See, e.g., United States v. Sorenson, 801 F.3d 1217, 1221–1222 (CA10 2015) (defendant hid taxable income in elaborate system of trusts); Floyd, 740 F.3d, at 26–27, 31–32 (defendant created elaborate scheme to avoid paying payroll taxes).
The Court, in its effort to exclude hypotheticals, has constructed an opening in the Omnibus Clause large enough that even the worst offenders can escape liability. In doing so, it failed to heed what this Court recognized in a similar case: “[T]he authority vested in tax collectors may be abused, as all power is subject to abuse. However, the solution is not to restrict that authority so as to undermine the efficacy of the federal tax system.” Bisceglia, supra, at 146.