Does a conviction under 26 U.S.C. § 7212(a) for corruptly endeavoring to obstruct the due administration of the Tax Code require proof that the defendant knew of a pending IRS investigation?
In this case, the Supreme Court will determine what mental state an individual must possess to be guilty of obstructing an IRS investigation. The case arises out of business owner Carlo J. Marinello’s decisions to avoid paying taxes, destroy business records, and pay his employees under the table. The IRS charged Marinello for these business practices, claiming they obstructed the due administration of the Tax Code. Marinello argues, however, that an individual is guilty of obstructing the IRS only if the IRS can show that the individual knew of an ongoing IRS investigation; Marinello analogizes to other criminal statutes and cites court precedent and later statutory amendments to argue that the government’s contrary conclusion is unconstitutional. The government counters that the ordinary meaning of the relevant statutory clause is unambiguous––due administration of the Tax Code includes all IRS duties––and it is therefore unnecessary to draw analogies or look to legislative history to interpret the clause. Marinello claims that if the government prevails, then the IRS could recast innocent tax planning as a felony and give prosecutors impermissibly broad discretion in charging taxpayers with crimes—a claim the government vehemently denies. Thus, the scope of liability for tax crimes is at stake.
Questions as Framed for the Court by the Parties
Section 7212(a) of the Internal Revenue Code includes the following provision:
Whoever corruptly or by force … endeavors to intimidate or impede any officer … of the United States acting in an official capacity under this title, or in any other way corruptly or by force … endeavors to obstruct or impede the due administration of this title, shall, upon conviction thereof, be fined not more than $5,000, or imprisoned not more than 3 years, or both ….
26 U.S.C. § 7212(a) (emphasis added).
The question presented is whether § 7212(a)’s residual clause, italicized above, requires that there was a pending IRS action or proceeding, such as an investigation or audit, of which the defendant was aware when he engaged in the purportedly obstructive conduct.
Between 1992 and 2010, Carlo J. Marinello operated a freight service, Express Courier, in western New York and chose to destroy business records, avoid keeping books, pay his employees in cash, use business income for personal expenses, and avoid filing personal or corporate income tax returns. See United States v. Marinello, 839 F.3d 209, 211–13 (2d Cir. 2016). In 2004, unbeknownst to Marinello, the IRS received an anonymous tip about his business practices and investigated him for tax evasion. See id. at 213. The IRS quickly closed this investigation because it could not determine if Marinello’s unreported income was significant. See id. at 213.
In 2005, Marinello consulted with an attorney who advised Marinello that he needed to gather business records and maintain books for Express Courier in order to file tax returns. See Marinello, 839 F.3d at 214. Despite his attorney’s counseling, Marinello later informed his attorney that he had made no progress in heeding this advice. See id. at 214.
In 2009, the IRS reopened its investigation of Marinello. See Marinello, 839 F.3d at 215–16. During this investigation, an IRS investigator met with Marinello. See id. Marinello told the investigator that he had not filed income tax returns, had used business income for personal expenses, had shredded business records, had not kept books for Express Courier, and had told an accountant about his practice of shredding business records. See id. at 215–16. After this IRS investigation, Marinello was indicted in the U.S. District Court for the Western District of New York on tax-related offenses occurring between 2005 and 2009. See id. at 211.
In 2015, Marinello was convicted of several counts of tax-related offenses, including a felony charge for violation of 26 U.S.C. § 7212(a)’s residual clause, which creates a criminal penalty for “in any . . . way corruptly . . . obstruct[ing] or imped[ing], or endeavor[ing] to obstruct or impede, the due administration of [the Internal Revenue Code].” See Marinello, 839 F.3d at 209. Marinello then petitioned the court for acquittal or a new trial, arguing that, because he was not aware of any IRS proceeding against him until his 2009 meeting with the IRS investigator, his conviction was improper. Id. at 220. In support of his argument, he cited an opinion by the U.S. Court of Appeals for the Sixth Circuit in United States v. Kassouf, which held that the phrase “due administration of this title” refers only to pending IRS proceedings, and that a defendant can be convicted under § 7212’s clause only if he knowingly interferes with such proceeding. See id. at 220.
The District Court disagreed, noting that subsequent Sixth Circuit decisions had limited Kassouf to its facts and held that § 7212’s residual clause does not require proof of a pending IRS proceeding, nor does it require the defendant’s knowledge of such a proceeding. See Marinello, 839 F.3d at 220–21. Marinello appealed to the U.S. Court of Appeals for the Second Circuit, similarly arguing that an individual is only guilty of obstructing the IRS if the individual knows of an ongoing IRS proceeding. See id. at 212. The Court of Appeals disagreed, and affirmed Marinello’s conviction. Id. at 227. Marinello then petitioned the Supreme Court for a writ of certiorari, which the Court granted.
TEXT, STRUCTURE, AND HISTORY OF 26 U.S.C. § 7212(A)
Marinello argues that the text, structure, and legislative history of 26 U.S.C. § 7212(a) (“7212”) show that Congress meant for § 7212’s clause to apply only to conduct undertaken with intent to obstruct or impede a known pending IRS proceeding. See Brief for Petitioner, Carlo J. Marinello, II at 16. First, Marinello asserts that in United States v. Aguilar the Supreme Court interpreted “due administration” of government functions in 18 U.S.C. § 1503’s clause to mean intentional obstruction of known government proceedings. Id. at 23–24, 26–27. Marinello contends that, because Congress is presumed to know judicial interpretations of existing law when it enacts legislation, Congress’s decision to repeat this language from § 1503’s clause in § 7212’s clause shows intent to incorporate that interpretation into the latter statute. Id. at 23.
Marinello next contends that the structure of § 7212 shows that Congress intended § 7212’s clause to be limited to obstruction of a known IRS proceeding. Brief for Petitioner at 28. Marinello argues that the Court looks to the structure of statutes to avoid giving statutes unintended breadth and to avoid making other terms superfluous. Id. at 31–32. Because § 7212’s clause follows one criminalizing intentional “corrupt” or “forcible” acts against “any officer or employee of the United States acting in an official capacity,” Marinello asserts that § 7212’s clause likewise requires proof that the defendant knew he was impeding an IRS agent in the course of his duties. Id. at 29. Marinello further argues that applying § 7212’s clause to every act or omission that could hinder the IRS would render the first part of the statute unnecessary. Id. at 28–29. Marinello draws a comparison to § 1503’s clause, arguing that “obstruct” and “impede,” taken from § 1503’s clause, are limited to proceedings, and that the repetition of “impede” in both clauses of § 7212 indicates that § 7212’s clause is also limited in this way. Id. at 30.
Marinello then argues that the legislative history of the 1954 revision to the Internal Revenue Code (the “Tax Code”) shows that Congress understood and intended the residual clause to be only a slight expansion of existing law, meant to combat corruption and other obstruction of IRS officers. Brief for Petitioner at 37–38. Marinello explains that before the revision, tax obstruction statutes prohibited only “forcible” interference with IRS officers. Id. at 38. Marinello maintains that the only legislative history directly referring to the new “due administration” provision explains that the new § 7212 provision was to be a “similar and amplified” version of the old law, meant to better protect officers by covering interferences other than force. Id. at 38. According to Marinello, if Congress also intended the new provision to reach otherwise lawful conduct, it would have said so. Id. at 39.
In response, the government contends that the ordinary meaning of “due administration of this title” applies to all IRS rights and responsibilities in administering the Tax Code. See Brief for Respondent, the United State of America at 13. The government argues that when interpreting statutes, the Court first looks to the language’s ordinary meaning and, if it is plain and unambiguous, the Court adopts the plain meaning. Id. at 14. The government asserts that the ordinary meaning of the language in question is unambiguous: “due” means “rightful, proper, or just” and “administration” means “act or process of administering [and] perform[ing] executive duties.” Id. at 17. Because many IRS administrative actions occur regularly and apply broadly, the government maintains that this ordinary meaning supports the contention that this language was meant to unambiguously indicate that the statute applies to all IRS actions, not only pending proceedings. Id. at 17–18. In addition, the government argues that Marinello’s analogy to § 1503’s clause is flawed because that clause applies to “due administration of justice,” which arises only when triggered by specific actions (e.g. judicial proceedings); whereas, “due administration of [the Tax Code]” occurs independent of any action. Id. at 17–18.
In response to Marinello’s structural argument, the government contends that § 7212’s structure reinforces the conclusion that the statute applies to all IRS actions. See Brief for Respondent at 22, 26–27. First, the government argues that nothing in the first clause of § 7212 indicates that it applies only to pending IRS proceedings; thus, it applies to all acts or omissions obstructing or impeding IRS employees in the exercise of their duties, without limitation to known, pending proceedings. Id. at 31. Second, the government asserts that even if the first clause applied only to pending proceedings, courts extend meaning from one clause to the next only when doing so is necessary to preserve the meaning of unambiguous terms in relation to ambiguous ones where the terms are grouped in a way showing they should be given related meaning. Id. at 32. The government argues that Marinello has not identified any ambiguities in the ordinary meaning of § 7212 that support the need to apply this method of interpretation. Id. at 25. Finally, the government contends that Marinello’s analogy to the structure of § 1503’s clause is flawed because administrations of justice are discrete events, of which a defendant must be aware in order to culpably impede; whereas, the Tax Code is known to be administered in a constant, general manner and, thus, any act or omission impeding these general functions may be corrupt. Id. at 26–27.
In response to Marinello’s history argument, the government contends that the language of § 7212 provides a clear answer to the meaning of § 7212’s clause, and resorting to legislative history is thus unnecessary. Brief for Respondent at 35. Even if the court assessed the history of statute, the government asserts, the history provides no support for Marinello’s argument because the House and Senate reports only mention § 7212’s clause to say that acts falling within the meaning of the first clause also come within the meaning of the second. Id. at 35–36. The government further contends that the history of § 1503 demonstrates why § 7212’s legislative history does not support Marinello’s interpretation. See id. at 28. The government explains that § 1503’s original residual clause made obstruction of justice a crime only when it was directed at the “due administration of justice” in a “court of the United States.” Id. at 28–29. According to the government, this residual clause was amended in 1909 to include language specifying that obstruction of justice included attempts to influence or impede jurors or witnesses in proceedings. Id. at 28–29. Unlike § 1503’s clause, the government argues, § 7212’s clause has no similar history connecting “due administration of this title” to a pending IRS proceeding. Id. at 29.
DOES THE TAX CODE AS A WHOLE DEMONSTRATE HOW 26 U.S.C. § 7212(A) SHOULD BE INTERPRETED?
Marinello argues that the government’s interpretation of § 7212’s clause violates the mandate that statutes should be read to avoid superfluity and conflict between provisions. Brief for Petitioner, Carlo J. Marinello, II at 40–41. Marinello asserts that the government’s interpretation of § 7212’s clause would cause the clause to swallow other Tax Code provisions, transforming misdemeanors into felonies and eliminating elements of crimes. Id. at 40. Marinello contends that the Court has repeatedly refused to interpret the Tax Code in a way that creates overlap between provisions. Id. at 41. Marinello warns that under the government’s interpretation, actions that constitute misdemeanors, such as failure to make a return or to keep required records, may amount to felony impediment of the Tax Code. Id. at 43. Marinello contends that this is because applying § 7212’s clause to all IRS actions effectively blends the difference between the “willful” mens rea of misdemeanors (requiring proof that the law imposed a duty that the defendant knew of and voluntarily or intentionally violated) with the “corrupt” mens rea of felony provisions (requiring proof of intent to secure an unlawful advantage or benefit). Id. at 43, 45 –49.
In response to Marinello’s argument that a statute should be read to avoid conflict between provisions, the government argues that overlap in the scope or elements of criminal statutes is common, especially in the Tax Code, and that this does not warrant limiting prosecution to less serious offenses. Brief for Respondent, the United State of America at 38. In support of this contention, the government asserts that the Court has held that overlap between the Tax Code’s misdemeanor and felony provisions does not pose a prosecutorial issue. Id. at 40. The government further contends that Marinello’s argument that applying § 7212’s clause to all IRS proceedings blends the “willful” and “corrupt” mens rea overlooks the fact that the meaning of “corrupt” is more demanding than that of “willful.” Id. at 19, 41–42. The government argues that not all willful conduct necessarily involves a corrupt endeavor to intentionally obstruct the IRS’s ability to administer the Tax Code with intent to gain an unlawful advantage. Id. at 42. This heightened requirement of the “corrupt” mens rea, the government contends, ensures that § 7212’s clause is not a trap for the unaware. Id. at 19.
SHOULD THE RULE OF LENITY APPLY?
Marinello asserts that to the extent the Court finds § 7212’s clause ambiguous, the rule of lenity requires reversal. Brief for Petitioner, Carlo J. Marinello, II at 57. Marinello argues that, when a court interprets ambiguous criminal statutes, the court cannot choose the harsher interpretation unless Congress provides clear and definite clarification. Id. at 57. Thus, Marinello contends, the Court should require Congress to speak more clearly about the meaning of § 7212’s clause before assuming Congress intended to make a felony out of a broad swath of tax-related conduct. Id. at 58.
The government counters that the rule of lenity does not apply because the meaning of § 7212’s clause is clear. Brief for Respondent, the United State of America at 37. The government contends that the rule of lenity applies only when a criminal statute contains a grievous ambiguity and only if, after evaluating everything aiding in the interpretation, the Court can merely guess Congress’s intent. Id. at 37. The government asserts that because the text of § 7212 is straightforward and nothing in the structure or history overcome this meaning, the rule of lenity does not apply. Id. at 37
DOES A BROAD READING OF THE RESIDUAL CLAUSE OF 26 U.S.C. § 7212(A) CREATE THE RISK OF PROSECUTORIAL ABUSE?
The New York Council of Defense Lawyers (“the Council”) argues in support of Marinello that many of the same actions that constitute misdemeanors under the Tax Code become felony obstruction under the government’s broad reading of § 7212’s clause. Brief of Amicus Curiae New York Council of Defense Lawyers, in Support of Petitioner at 10–11. The Council contends that the government’s reading of § 7212’s clause would allow the government to charge a taxpayer with a felony for misdemeanor conduct, thereby imposing greater penalties for conduct that is less serious than ordinarily felonious conduct. Id. at 11. The Council further maintains that it is all too easy for a prosecutor to allege a corrupt motive, instituting a federal criminal proceeding that can have devastating effects on a defendant. Id. at 6. Additionally, in their brief in support of Marinello, the Chamber of Commerce of the United States of America and the National Federation of Independent Business (“Chamber of Commerce”) argue that, because obstruction includes action and inaction, this felony can be used as a catchall even when the government would be unable to successfully convict a defendant on other charges. See Brief of Amici Curiae Chamber of Commerce of the United States of America and National Federal of Independent Business (Chamber of Commerce), in Support of Petitioner at 23. Marinello insists that such an outcome sidesteps the misdemeanor crimes that Congress defined in the Tax Code and authorizes the IRS to interpret the law in defiance of congressional intent. See id. at 31.
The government disagrees that the overlap between offenses in the Tax Code is legally impermissible or problematic. Brief for Respondent, United States of America at 41. First, the government contends, there is often overlap in criminal statutes, especially in the Tax Code; courts have held that the government can pursue a felony charge even when the same facts could also prove a misdemeanor. Id. at 40. The government argues that this overlap between the Tax Code criminal provisions does not invite prosecutorial abuse, but rather, coupled with the lack of minimum penalties, gives the courts discretion by providing a sentencing range. See id. at 44. Second, the government reasons that the commonalities between the criminal provisions reflect Congress’s intent to create a comprehensive criminal code that would capture all obstructive behavior. Id. at 45.
DOES A BROAD READING OF THE RESIDUAL CLAUSE OF 26 U.S.C. § 7212(A) CRIMINALIZE OTHERWISE LEGAL CONDUCT?
The American College of Tax Counsel (“the College”), supporting Marinello, states that the government’s broad reading of § 7212’s clause is so vague that ordinary taxpayers do not have fair notice of what constitutes illegal conduct under the section, which violates the constitutional right to due process. Brief of Amicus Curiae American College of Tax Counsel (College), in Support of Petitioner at 4. The College argues that, under the government’s interpretation of the Tax Code, it could find felony obstruction any time a taxpayer’s actions or inactions to gain an unlawful tax advantage make the IRS’s job more difficult––regardless of whether the taxpayer realized the benefit was unlawful or acted deceitfully. Id. at 5. Because the IRS has many different roles ranging from lawmaker to litigator, the College continues, a wide variety of otherwise legal activities could inadvertently impede the IRS. Id. at 6. The College contends that this is particularly problematic for tax lawyers, who must constantly balance the duties owed to the IRS with their duties to their clients; if the government believes these lawyers are hindering the IRS, they are vulnerable to felony obstruction charges. Id. at 8. Furthermore, the Chamber of Commerce adds that the government’s reading of § 7212’s clause could harm businesses as well. Brief for Chamber of Commerce at 7. The Chamber of Commerce asserts that many business decisions intended to lower a tax burden make IRS administration more difficult, such as establishing a complex corporate structure. Id. at 7–8. The government’s reading of § 7212’s clause, the Chamber of Commerce warns, would increase costs for American companies by necessitating large tax departments to ensure compliance, which would be especially hard on small businesses. Id. at 24.
The government rejects the contention that its reading of § 7212’s clause will criminalize innocent activity intended to minimize tax burdens. Brief for U.S. at 46. Marinello, the government argues, has not identified any otherwise clearly legal tax-minimization strategy that becomes unlawful under the government’s interpretation of the Tax Code or is now at risk of being penalized by federal courts. Id. at 46. The government adds that any dubious tax-minimization strategies are already scrutinized by other criminal tax provisions. Id. at 46–47. The government contends that the mental state requirement––that a defendant act corruptly––protects those who act innocently from those who perform the same acts to obstruct the IRS and gain an unlawful benefit. Id. at 19, 46. This culpable mental state distinction, the government continues, is not unique to § 7212(a), but is present in most obstruction statutes and many other criminal statutes as well. Id. at 46.
- Peter J. Henning, What Constitutes Obstruction? A Tax Case May Narrow the Definition, The New York Times (July 4, 2017).
- Joseph Martini, Challenging the Internal Revenue Code’s Omnibus Clause, Law360 (Mar. 17, 2017).
- Amy Lee Rosen, US Asks High Court to Keep Broad View of Tax Crime Clause, Law360 (Oct. 30, 2017).