What must the government prove to secure a conviction for interfering with the administration of the Internal Revenue Code in violation of 26 U.S.C.A. § 7212(a), also known as the Omnibus Clause? Until recently, the government only needed to show that a defendant corruptly engaged in, or by force or threats of force, engaged in a prohibited activity. Following the U.S. Supreme Court decision in Marinello v. United States, 138 S. Ct. 1101 (2018), the government must now prove that the defendant was aware of a pending tax-related proceeding, such as an audit or investigation, or could reasonably foresee that such a proceeding would commence at the time the defendant corruptly engaged in, or by force or threats of force, engaged in a prohibited activity. All criminal practitioners, not just those who practice tax-related defense, should be aware of this holding as Marinello and its predecessor United States v. Aguilar, 515 U.S. 593 (1995), require the government to show a nexus between the defendant’s alleged prohibited conduct and knowledge of a governmental investigation.
Marinello v. United States is a case that originates out of the Western District of New York. To fully understand the holding in Marinello, it is helpful to have knowledge of the underlying facts. Between 1992 and 2010, Mr. Marinello operated a freight-service company. During that time, Marinello destroyed business records and did not keep any books for his company. In 2004, unbeknownst to Marinello, the IRS received an anonymous tip about Marinello’s business practices and began an investigation. The investigation was quickly closed as the IRS could not determine if Marinello’s unreported income was significant. In 2005, Marinello met with an attorney who advised that Marinello needed to gather business records and maintain books to file tax returns. Marinello did not heed his attorney’s advice. In 2009, the IRS reopened its investigation into Marinello. During this investigation, unlike the first investigation, Marinello was contacted by an IRS investigator. Marinello told the investigator that he had, among other things, shredded business records and had not kept books for his company. After the 2009 IRS investigation, Marinello was indicted for violating several tax-related statutes between 2005 and 2009.
One of those statutes is 26 U.S.C.A. § 7212(a). Section 7212(a) has two substantive clauses. This article will focus on the second clause, which is often referred to as the “Omnibus Clause.” This clause forbids an act that “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.” At trial, the judge instructed the jury that in order to convict Marinello of the Omnibus Clause, the jury must unanimously find that Marinello engaged in at least one of the eight practices (mentioned in the previous instruction), that the jurors need not agree on which one, and that Marinello did so “corruptly”—meaning “with the intent to secure an advantage or benefit, either for himself or another.” The judge did not instruct the jury that it must find that Marinello knew he was under investigation and intended corruptly to interfere with that investigation. Marinello was convicted on all counts, including a violation of the Omnibus Clause. Marinello appealed to the Second Circuit where he argued that a violation of the Omnibus Clause requires the government to show that the defendant had tried to interfere with a “pending IRS proceeding.” The Second Circuit did not agree with Marinello and held that a defendant need not possess “an awareness of a particular IRS action or investigation—quoting United States v. Wood, 384 Fed.Appx. 698, 704 (C.A.2 2010).
Justice Breyer wrote the opinion in Marinello and found in favor of Marinello. The opinion begins by comparing section 7212(a) to 18 U.S.C. § 1503(a) and the opinion in United States v. Aguilar, 515 U.S. 593 (1995). Section 1503(a) deals with the obstruction of justice. Justice Breyer points out that in section 1503(a) the court required the government show a “nexus requirement”—meaning that the defendant’s act “must have a relationship in time, causation or logic with the judicial proceeding.” Justice Breyer went on to explain that this nexus is important because it results in restraint in the reach of a criminal statute, which is important as it gives a fair warning to those reading it about what conduct will become criminal if a certain line is crossed. Justice Breyer expressed concern that a broader reading of section 7212(a) might apply to and criminalize everyday activities such as a parent that pays a babysitter in cash without withholding taxes, or to a person that leaves a large cash tip at a restaurant, or a person that donates to charity but fails to keep the receipt. Justice Breyer was not swayed by the government’s argument that prosecutorial discretion would narrow the statute’s scope. Justice Breyer ultimately held that to be convicted under the Omnibus Clause § 7212(a) there must be a nexus between the defendant’s conduct and a particular investigation, audit, or other targeted administrative action. The nexus requires a “relationship in time, causation and logic with the administrative proceeding.” Justice Breyer was clear that “particular administrative proceeding” does not mean every act carried out by an IRS employee in the course of the administration of the tax code but rather requires a more targeted investigation to the defendant. In sum, just because a taxpayer knows that the IRS will review his or her tax return every year does not transform every violation of the tax code into an obstruction charge. 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.
Why is Marinello v. United States so important for practitioners to be aware of? The decision resolved a split within the circuits about whether the government was required to prove a nexus between the defendant’s conduct and investigation. Further, it requires the government to prove the defendant’s conduct occurred when an investigation was pending or reasonably foreseeable. This adds two elements that the government must prove in a prosecution under section 7212(a) and provides new defenses for practitioners presenting clients in these types of cases.