Not So Fast, IRS…My Client Wasn’t Aware: Marinello v. United States

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In Marinello v. United States,[1] the Supreme Court recently addressed the scope of section 7212(a) of the Internal Revenue Code. This section describes the conviction and punishment of taxpayers who engage in corrupt or forcible interference with the administration of the internal revenue laws.[2] In its opinion, the Supreme Court restricted the scope of the statute, holding that in order “[t]o convict a defendant under the Omnibus Clause, the Government must prove the defendant was aware of a pending tax-related proceeding, such as a particular investigation or audit, or could reasonably foresee that such a proceeding would commence.”[3] Marinello v. United States resolves the split between the Second Circuit and Sixth Circuit on this issue.[4]

Section 7212(a)

Section 7212(a) of the Internal Revenue Code has two pertinent clauses for purposes of the case at issue—the Officer Clause and the Omnibus Clause. The Officer Clause states that “[w]hoever 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 [the Internal Revenue Code]” shall be fined and/or imprisoned upon conviction.[5] On the other hand, the Omnibus Clause prohibits anyone who “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 [the Internal Revenue Code].”[6]

Marinello v. United States

In Marinello, the taxpayer, Mr. Marinello, owned and operated a courier service company. Marinello engaged in certain activities that were the focus of the government’s prosecution: shredding business records, paying his employees in cash, and using company funds to pay his personal expenses. Further, Marinello had not filed tax returns since 1992. In 2004, the IRS opened its initial investigation into Marinello, which ultimately ended due to a lack of information regarding Marinello’s financials. In 2009, the IRS reopened its investigation, and Marinello admitted that he did not track his financials, shredded business documents, and stole company funds. In 2012, the Government indicted Marinello for violating the Omnibus Clause of § 7212(a).

During trial before a federal district court, the judge instructed the jury that in order to convict Marinello under the Omnibus Clause of § 7212(a), it was required to find that Marinello “corruptly” engaged in at least one of eight specified activities.[7] However, the jury was not instructed that it needed to find that Marinello knew he was under investigation and intended corruptly to interfere with that investigation.[8] Marinello was ultimately convicted, and on appeal, the Second Circuit Court of Appeals affirmed.

The Supreme Court ultimately concluded that in order to secure a conviction under the Omnibus Clause, the Government must satisfy two prongs. First, citing United States v. Aguilar,[9] the Government must show that there is a “nexus” between the defendant’s conduct and a particular administrative proceeding.[10] Although the Omnibus Clause references the due administration of the Internal Revenue Code, the Supreme Court interpreted this reference as a particular administrative proceeding (i.e., an audit, investigation, etc.). Second, the Government must show that the proceeding was pending at the time the defendant engaged in the obstructive conduct or was reasonably foreseeable by the defendant.[11] Because the Government could not satisfy these requirements of the Omnibus Clause, the Second Circuit’s judgment was reversed.

Conclusion

Under Marinello, a conviction under the Omnibus Clause of § 7212(a) may only be secured if the Government shows (1) a relationship between the defendant’s conduct and a particular administrative proceeding, and (2) the proceeding was pending at the time the defendant engaged in the obstructive conduct (or was reasonably foreseeable by the defendant). The first prong thus greatly restricts the scope of the Omnibus Clause. Prior to this decision, the “due administration of the [Internal Revenue Code]” section of the clause may have been interpreted to include any administration of the Internal Revenue Code, including the processing of tax returns or any other general matter in the realm of taxation. At the same time, however, certain elements of the two prongs—“particular administrative proceeding” and “reasonably foreseeable”—remain ill-defined. Ultimately, as the Marinello dissent pointed out, the Supreme Court’s interpretation of the Omnibus Clause may continue to provide interpretive challenges.[12]

[1] Marinello v. United States, No. 16-1144, 2018 U.S. LEXIS 1914, at *1 (Mar. 21, 2018).

[2] I.R.C. § 7212(a) (2018).

[3] Marinello, 2018 U.S. LEXIS 1914, at *1-2.

[4] See United States v. Marinello, 839 F.3d 209 (2d Cir. 2016); United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998).

[5] I.R.C. § 7212(a) (2018).

[6] Id.

[7] Marinello, 2018 U.S. LEXIS 1914, at *1.

[8] Id.

[9] 515 U.S. 593 (1995).

[10] Marinello, 2018 U.S. LEXIS 1914, at *18-19 (nexus requires a relationship in time, causation, or logic with the administrative proceeding).

[11] Id., at *20.

[12] Id., at *37 (Thomas, J., dissenting).

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