Marinello v. U.S.: Tax obstruction requires intent by taxpayer to obstruct a particular IRS investigation or audit
An Internal Revenue Code provision, which makes it a felony to “corruptly or by force” “obstruct or imped[e] the due administration of this title,” requires intent by a taxpayer to obstruct a particular investigation or audit, the Supreme Court held March 21 in Marinello v. United States.
The Court rejected a broader interpretation of the provision by the Government, which would have made it a felony for taxpayers to engage in almost any conduct which improperly avoided a tax.
Carlo Marinello was charged under 26 U.S.C. Sec. 7212(a) – known as the Omnibus Clause — with obstructing the due administration of the Internal Revenue Code by failing to provide his accountant with complete tax information; failing to maintain proper tax records; hiding income; and paying employees with cash.
The trial court instructed the jury that it had to find that Marinello “corruptly” engaged in one of those activities with an intent to secure an unlawful benefit for himself.
Marinello contended the trial court should have instructed the jury that he knew he was under investigation and intended to corruptly interfere with that investigation.
The trial court – and later Second Circuit – disagreed. They held that a defendant need not have an awareness of any particular IRS action or investigation.
The Supreme Court granted cert. to resolve a conflict among the circuits.
In a 7-2 opinion, the Court held that the statute requires the Government to prove that the defendant knew of and intended to obstruct a particular IRS investigation or audit.
The Government’s broad interpretation of the “due administration of this title” language “would potentially transform many, if not all,” of the misdemeanor provisions of the Internal Revenue Code into felonies, the Court said. Conduct ranging from an employer’s failure to furnish a required statement to employees, to misrepresenting the number of allowable exemptions, to failure to pay any tax owed no matter how small the amount, would all become felonies chargeable under the Omnibus Clause.
In U.S. v. Aguilar (1995), the Court had previously given a narrow construction to a similarly-worded obstruction-of-justice statute. The Court required an intent to obstruct a particular judicial proceeding so that defendants would have fair notice of what conduct was prohibited by the statute.
“A broad interpretation [of the Omnibus Clause] would also risk the lack of fair warning and related kinds of unfairness that led this Court in Aguilar to ‘exercise’ interpretive ‘restraint,’” the Court said.
“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,” the Court concluded. “By ‘particular administrative proceeding’ we do not mean every act carried out by [the] IRS,” such as routine “review of tax returns.”
“In addition to satisfying the nexus requirement, the Government 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,” the Court said. “It is not enough for the Government to claim that the defendant knew the IRS may catch on to his unlawful scheme eventually.”
Justice Thomas, joined by Justice Alito, dissented.
“I would hold that the Omnibus Clause does what it says: forbid corrupt efforts to impede the IRS from performing any of [its] activities,” Thomas said.
“The Court, however, reads ‘this title’ to mean a ‘particular [IRS] proceeding’” and that proceeding “must be either ‘pending’ or ‘in the offing,’’ Thomas said. “The Court may well prefer a statute written that way, but that is not what Congress enacted.”