Supreme Court Narrows Criminal Tax Obstruction of Justice Statute

The Supreme Court ruled in a criminal tax case, Marinello v. United States, that a criminal tax obstruction of justice was overly broad.  In a 7-2 decision, the Supreme Court ruled that the Government must prove that the defendant was aware of a pending tax-related proceeding, such as an investigation or audit, or could reasonably foresee that such a proceeding would commence.  The Supreme Court’s decision impacts other criminal obstruction of justice statutes, including 18 USC 1503, which has broad application in criminal investigations.

During the period 2004 to 2009, the IRS investigated Marinello’s tax compliance activities.  In 2012, Marinello was indicted for violating a number of tax statutes, including a provision in 26 USC Section 7212(a) referred to as the Omnibus Clause which prohibits “corruptly or by foerce or threats of force. . . obstruct[ing] or imped[ing], or endeavor[ing] to obstruct or impede, the due administration of [the Internal Revenue Code.”  The trial judge instructed the jury that it must find that the defendant “corruptly” engaged in at least one of eight specified activities, but the jury was not told that it needed to find that Marinello knew he was under investigation and intended corruptly to interfere with that investigation.  Marinello was convicted.  The trial judge rejected the defendant’s request that the jury be instructed that the government had to prove that the defendant tried to interfere with a pending IRS proceeding, such as a particular audit or investigation.

The Supreme Court emphasized the fact that it traditionally has exercised restraint in assessing the reach of a criminal statute, citing its desire to defer to Congress and the importance of providing actors “fair warning” of the reach of criminal statutes.  In rejecting a broad application of the criminal tax statute at issue, the Supreme Court noted that a broad reading of the statute could lead to criminal obstruction of justice charges to relatively minor tax violations, such as failing to record cash payments to a babysitter and other daily activities with tax implications.

Interestingly, the Supreme Court referred to its prior decision in United States v. Aguilar, 515 U.S. 593, in which the Court held that a similarly worded criminal statute, which made it a felony “corruptly” or by threats or force. . . [to] influenc[e], obstruc[t], or imped[e] or endeavo[r] to influence, obstruct, or impede, the due administration of justice, 18 USC Section 1503(a), in which the Court ruled that the Government had to show there was a “nexus” between the defendant’s obstructive conduct and a judicial proceeding.  Specifically, the Supreme Court ruled in Aguilar, that the defendant’s “act must have a relationship in time, causation, or logic with the judicial proceedings.” 515 US at 599.

Just like the interpretation in the Aguilar case, the Supreme Court ruled here with regard to the criminal tax obstruction of justice statute that the Government has to show 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.  In particular, the Supreme Court noted that the criminal tax obstruction statute does not apply to every act carried out by IRS employees in the course of their administration of the Tax Code.  The Supreme Court noted that just because a taxpayer knows that his/her annual tax return will be reviewed by the IRS does not transform every Tax Code violation into an obstruction charge.

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