SCOTUS recently heard oral arguments on a case involving a New York businessman convicted of several counts of tax evasion for failing to pay personal or company taxes for a number of years. The government presented evidence that Carlo Marinello II purposely destroyed business records (including bank statements, receipts, employee time sheets and bills), paid his employees in cash to avoid tax issues, never issued tax documents like W-2 forms, and didn't fail tax returns for nearly 20 years.
Mr. Marinello was eventually, following a years-long investigation of his tax practices, charged with and convicted of nine counts of tax evasion-related crimes. This includes eight misdemeanors for willfully failing to pay taxes between 2005 and 2008. He was also convicted on a single felony charge for violating 26 U.S.C. § 7212(a), an anti-obstruction statute.
There was an abundant amount of evidence against him, and Marinello confessed to tax authorities that he had indeed failed to pay taxes. So why, you may ask, is the highest court in the land handling a seemingly straightforward tax case?
The issue of obstruction
The facts in this case are largely without dispute. The IRS investigation into Marinello's taxes began back in 2004, but eventually tapered off due to a lack of concrete evidence of whether unpaid taxes were significant in nature. Investigators took a second look into his finances in 2009, and, upon interviewing Marinello (who readily confessed to destroying business records and failing to keep personal and business books) brought charges.
Interestingly, Marinello does not dispute or appeal his convictions on any of the tax evasion charges. He admits that he failed to pay taxes. The dispute in this case turns on the felony charge, the alleged violation of § 7212 (a).
- That statute basically says that it is a crime to corruptly, forcibly or in a threatening manner, obstruct (or attempt to obstruct) a tax crimes investigation.
Marinello argued, in a failed appeal to the lower tax courts, that it is impossible for him to have obstructed the investigation into his financial dealings because he was unaware that he was under investigation. Logically, this makes sense. After all, how could you corruptly or forcibly impede the investigatory process if you didn't know about it?
The government takes the stance that Marinello's failures, including his admitted destruction of business and personal tax records and his not providing tax-related documentation to his employees, was in and of itself, an obstruction of the investigatory process. In essence, this argument says that evidence of a tax crime could seemingly be both a separate criminal matter and an attempt to obstruct investigation into that same matter. Under the government's interpretation, evading taxes and then destroying evidence of such evasion (as Marinello was convicted of doing) is obstructive.
Several amicus briefs have been filed in support of Marinello's position in this case, including by such prominent organizations as:
- The American College of Tax Counsel
- The Chamber of Commerce of the United States of America
- The New York Council of Defense Lawyers
Tax experts are eagerly awaiting the SCOTUS decision in this matter, as it could potentially revolutionize the way tax crimes are handled by the IRS moving forward. If you are dealing with a similar issue - or any other tax crimes allegations - seek the advice of an experienced tax attorney.