ESSENTIALS FOR PROSECUTION OF FEDERAL TAX CRIMES
Mar. 16, 2003
Comments on "Essentials for Prosecution of Federal Tax Crimes"
Early this year Peter Kay Stern of North Carolina, who is now serving time in a federal prison located in Kentucky, sent a brief on the necessity for implementing regulations being cited for prosecution of 7212 criminal tax cases. According to Pete, the regulations attack has been successful in several tax cases.
As many other things, I've had Pete's memorandum for several months but haven't had time to give it attention it needs. Last week I had Carol, my secretary, type it up. Friday I went through it and did some major reorganization and renovation. It isn't complete; I haven't written a conclusion or addressed use, but I want to post the in-process work as I have other things that need attention.
Where Pete's original memorandum was limited to consideration of 26 U.S.C. 7212, I expanded the scope to 7201-7212, which includes most criminal sections in the Internal Revenue Code. Pete also limited consideration to the need for indictments to cite regulations in order to be legitimate; I moved focus to the complaint required by the Fourth Amendment and took the opportunity to expand my own work on proper indictment process. Also, I added Richard Cornforth research on subject matter jurisdiction of inferior courts and the need for a competent witness.
Pete is responsible for case cites in the first part. I'm familiar with most of the cases but haven't looked them up to make certain they are cited properly. That will be done as time permits; anyone using the material should verify cites and quotes. I haven't verified Richard's cites, either, but I assume they are correct as they are from his workshop book, Secrets of the Legal Industry. I'm responsible for most of the actual Code sections and regulations reproduced in text and all the information on proper indictment process.
It is common for U.S. Attorneys and Department of Justice attorneys to argue that penalty statutes are self-executing they don't need implementing regulations. That isn't what the U.S. Supreme Court says, and it isn't what the law says. I fleshed out Pete's position, which was based on ruling case law, by adding U.S. Code sections and regulations that verify the Supreme Court position.
In the past I've pretty well limited consideration of proper indictment process to Rules 3-6 of the Federal Rules of Criminal Procedure, but I've expanded consideration in this incomplete memorandum by emphasizing key clauses in the Fourth, Fifth and Sixth Amendments and using portions of Title 28 sections that govern grand and petit jury selection.
With an amount of revision, this memorandum can also apply to civil forums as the only implementing regulations for liens (6321, et seq.) and levies ( 6331, et seq.) are also in Title 27 of the Code of Federal Regulations there are no Title 26 regulations that are within IRS subject matter jurisdiction.
Pete used the Parallel Table of Authorities and Rules to support the conclusion that there are no Title 26 regulations for 7212. As a rule, judges ignore pleadings that cite the PTAR. I added the applicable statutory authority and cited Federal Rules of Evidence that require judicial notice. This is an area that needs to be supported by case law mandatory judicial notice. The PTAR and other finding aids published in the Index volume of the Code of Federal Regulations are there because of chronic encroachment by FDR and his successors. After revision of the Federal Register Act, the Office of the Federal Register began publishing a table of contents rather than a comprehensive index. It was ineffective and incomplete so an attorney sued via mandamus to compel the Director of the Office of the Federal Register to produce a comprehensive index with ancillaries required by 44 U.S.C. 1510. I incorporated this information to support the PTAR as prima facie correct, but still need case law to support mandatory judicial notice.
Subject matter jurisdiction of inferior courts can be challenged at any time.
If someone is fortunate enough to know what's happening before the train gets too far down the track, Civil & Criminal Rule 12 motions accommodate subject matter jurisdiction attacks; post-judgment relief from void judgments is available for both civil & criminal under Rule 60(b) Federal Rules of Civil Procedure motions. Habeas corpus should also be available, assuming judges will comply with law.
I'm posting this incomplete memorandum as-is so people who need the information will have it available and other researchers can help flesh it out.
Essentials for Prosecution of Federal Tax Crimes
STATEMENT OF POSITION: There must be an implementing regulation, in harmony with the statute and Code section allegedly violated, in order for the court to have subject matter jurisdiction to prosecute criminal offenses classified in Part I, Chapter 75 of the Internal Revenue Code, and prosecution must preserve substantive rights secured by the Fourth, Fifth and Sixth Amendments.
RESTATEMENT: Absent an implementing regulation in harmony with the statute and Code section allegedly violated, and in the event procedure does not preserve substantive rights secured by the Fourth, Fifth, and Sixth Amendments, the court lacks subject matter jurisdiction to prosecute criminal offenses classified in Part I, Chapter 75 of the Internal Revenue Code.
CODE SECTIONS AT ISSUE: 26 U.S.C. 7201-7212
Memorandum of Points & Authorities
FIRST QUESTION: Does ruling case law support the conclusion that there must be implementing regulations for penalty statutes classified in Chapter 75 of the Internal Revenue Code?
To support the assertion that it is mandatory for implementing regulations to be promulgated by the Secretary (Commissioner in past times), we look to California Bankers Assn. v. Schultz, 39 L.Ed. 2d 812 at 820:
In U.S. v. Murphy, 809 F.2d 1427 at 1430 (9th Cir. 1987), following California Bankers Association rationale, the court said:
In U.S. v. Reinis, 794 F.2d 506 at 508 (9th Cir. 1986) the court said:
U.S. v. Mersky, 361 U.S. 431, 4 L.Ed. 2d 423, 80 S.Ct. 459 (1960), agreed with in Leyeth v. Hoey, supra, U.S. v. $200,00 in U.S. Currency, 590 F.Supp. 866; U.S. v. Palzer, 745 F.2d 1350 (1984); U.S. v. Cook, 745 F.2d 1311 (1984); U.S. v. Gertner, 65 F.3d 963 (1st Cir. 1995); Diamond Ring Ranch v. Morton, 531 F.2d 1397, 1401 (1976); U.S. v. Omega Chemical Corp., 156 F.3d 994 (9th Cir. 1998); U.S. v. Corona, 849 F.2d 562, 565 (11th Cir. 1988); U.S. v. Esposito, 754 F.2d 521, 523-24 (1985); U.S. v. Goldfarb, 643 F.2d. 422, 429-30 (1981).
Ruling case law dictates that there must be implementing regulations supporting penalty statutes, and that the requirement applies to numerous titles of the United States Code including the Internal Revenue Code. As will be shown in the next section, implementing regulations for taxing, liability and penalty statutes must be in evidence to support criminal prosecution of tax-related offenses.
SECOND QUESTION: What authorities require promulgation of implementing regulations?
The Federal Register Act, particularly 44 U.S.C. 1505(a), infra, the Administrative Procedures Act (5 U.S.C. 552 & 553) and the Internal Revenue Code (26 U.S.C. 6001 & 7805(a)) all require the Secretary of the Treasury to promulgate regulations for Internal Revenue Code sections that materially affect anybody liable for or liable for collecting taxes imposed by internal revenue laws of the United States. The core requirement to promulgate regulations, or provide direct written notice of liability under internal revenue laws, is codified at 26 U.S.C. 6001:
Absent direct written notice that includes findings of fact and conclusions of law, the Secretary of the Treasury must promulgate regulations for both taxing and liability statutes in order to provide notice of duties imposed by internal revenue laws of the United States. As is the case for sales taxes, the person responsible for collecting income and employment taxes may be liable for the taxes whether or not they are collected. That is the case for both withholding agents (26 U.S.C. 1441 et seq.) and disbursement officers (26 U.S.C. 3403 & 3404).
An example from the Code of Federal Regulations clarifies the liability issue. Per 26 CFR 31.6001-1(c) & (d), an employee other than a disbursement officer isn't required to keep books and records and file returns unless he wishes to submit refund claims:
In the event an employer withholds more income and employment taxes from wages than the employee owes, the employee may recover overpayments from the employer, per 26 CFR 31.6413(a)-2:
Regulations in 26 CFR Part 31 also require employers to recover
additional income and employment taxes from employees in the event sums
previously withheld aren't adequate to cover liabilities imposed by
Subtitle A and Chapters 21-23 of the Internal Revenue Code.
Liability and procedure prescribed by 26 CFR 31.6001-1(c) & (d) and
31.6413(a)-2 is contrary to "everybody knows doctrine," which assumes
that any individual within jurisdiction of the United States who earns
wages or otherwise receives in excess of minimum amounts of income of
any nature is required to file a Form 1040 federal income tax return.
Particularly see United States v. Menk, 260 F. Supp.
784. The complex federal tax scheme works somewhat like a milk
stool. In order to sustain prosecution of a criminal case, taxing,
liability and penalty statutes must all be disclosed as they work
together. More particularly, implementing regulations for each
must be in evidence to prove application. The mandate for
implementing regulations is recited in Internal Revenue Service
procedural regulations at 26 CFR
Pursuant to the foregoing requirements, the Commissioner publishes in the Federal Register from time to time a statement, which is not codified in this chapter, on the organization and functions of the Internal Revenue Service, and such amendments as are needed to keep the statement on a current basis. In addition, there are published in the Federal Register the rules set forth in this part (Statement of Procedural Rules), such as those in Subpart E of this part, relating to conference and practice requirements of the Internal Revenue Service; the regulations in Part 301 of this chapter (Procedure and Administration Regulations); and the various substantive regulations under the Internal Revenue Code of 1986, such as the regulations in Part 1 of this chapter (Income Tax Regulations), in Part 20 of this chapter (Estate Tax Regulations) and, in Part 31 of this chapter (Employment Tax Regulations).
Per the last sentence of Rule 6(c)(1) of the Federal Rules of Criminal Procedure, "The indictment or information shall state for each count the official or customary citation of the statute, rule, regulation or other provision of law which the defendant is alleged therein to have violated."
The Sixth Amendment to the Constitution of the United States secures the defendant's right " to be informed of the nature and cause of the accusation " Where Congress has imposed the duty of promulgating implementing regulations for taxing and liability statutes classified in the Internal Revenue Code in order to inform those subject to or responsible for collecting any given tax imposed by internal revenue laws of the United States (26 U.S.C. 6001 & 7805(a)), identification of applicable regulations is mandated to satisfy requirements of Rule 6(c)(1) of the Federal Rules of Criminal Procedure and the Sixth Amendment for an indictment or information to be valid.
Where tax crimes are concerned, the antecedent matter is whether or not an act or omission is contrary to obligations and duties imposed by law. For example, consider 26 U.S.C. 7212, attempts to interfere with administration of internal revenue laws. The Internal Revenue Service agent or officer responsible for submitting an affidavit of complaint in a probable cause hearing conducted by a magistrate (See 28 U.S.C. 3045, Rules 3 & 4 of the Federal Rules of Criminal Procedure and Fourth Amendment mandates, infra) would be required to affirmatively identify his regulatory authority for administering any given internal revenue law and demonstrating how the defendant failed to perform a duty prescribed by regulation or otherwise interfered with the officer or agent's duty. Per ruling case law cited supra, general allegations that reference a naked penalty statute, without also disclosing regulations that establish standing of the complaining party and obligations of the defendant, whether affirmative or prohibitive, are wholly inadequate. See Warth et al v. Seldin et al, 422 U.S. 490 at 498. Standing is the threshold issue to establish subject matter jurisdiction and must affirmatively appear in record.
Per 5 U.S.C. 553(d),
This mandatory statement is related back to 5 U.S.C. 552(a)(1)(D). See U.S. v. $200,000 in U.S. Currency, supra, at page 866. See also, Reporter's Note 2, Administrative Law and Procedure, Key 382, "For agency statement or requirement to be considered a valid 'rule', three conditions must be satisfied: 'rule must be within the agency's granted power, it must be issued pursuant to proper administrative procedures, and it must be reasonable as a matter of due process.'" Also see Rowell v. Andrus, 631 F.2d 699 (10th Cir. 1980), holding that 5 U.S.C. 552 & 553 specifically require, in explicit terms, "the publication of proposed rules as opposed to their mere filing in the Office of Federal Register."
The above conclusively demonstrates that for federal courts to have subject matter jurisdiction for prosecution of offenses prescribed by internal revenue laws of the United States, the information or indictment must recite or otherwise identify implementing regulations for taxing, liability and penalty statutes.
THIRD QUESTION: Are there implementing regulations under Internal Revenue Service subject matter jurisdiction, applicable to Subtitles A & C of the Internal Revenue Code, for penalty statutes classified as 26 U.S.C. 7201-7212?
To answer the question consult the Parallel Table of Authorities and Rules, published in the Index volume of the Code or Federal Regulations or available as a PDF document on the Government Printing Office web page. This finding aid, and its standing as prima facie evidence that warrants judicial notice (Rules 201(b) & (d) and Rule 902(5) & (10), Federal Rules of Evidence), is authorized by 44 U.S.C. 1510:
The Parallel Table of Authorities and Rules was one of the Index ancillary finding aids that resulted from an attorney filing a writ of mandamus to compel the Office of the Federal Register to comply with requirements of 44 U.S.C. 1510(b) by producing a comprehensive Index that is useful and reliable. See Cervase v. Office of the Federal Register, 580 F.2d 1166 (3rd Cir. 1978). The purpose of the Code of Federal Regulations, including a comprehensive index and ancillary finding aids such as the Parallel Table of Authorities and Rules, according to the Third Circuit ruling, is to prevent executive agencies from operating under "secret law" by providing clear and adequate notice to those subject to federal regulation of one kind or another.
To assure accuracy of the Parallel Table of Authorities and Rules and other ancillary finding aids included in the Index of the Code of Federal Regulations, the Director of the Office of the Federal Register published general regulations for maintaining them at 1 CFR Part 6. Additionally, particulars concerning the Parallel Table of Authorities and Rules are specified at 1 CFR 8.5(a):
Through their respective representatives (liaison officers, certifying officers, etc.), each agency is responsible for maintaining accuracy of matter published in the Federal Register and the Code of Federal Regulations. See particularly 1 CFR Chapter 1, Subchapter E, concerning preparation, transmittal, and processing of documents. Given the responsibility of the agency, the agency bears the burden of proof in the event that the Parallel Table of Authorities and Rules and other ancillary finding aids included in the Code of Federal Regulations are in error.
The following citations, with captions for Internal Revenue Code sections added, appear in the current edition of the Parallel Table of Authorities and Rules. Code section citations followed by "no regulation" do not appear in the ancillary finding aid.
26 U.S.C. (1986 I.R.C.)
Per 1 CFR 8.5(a), supra, regulations promulgated under authority of 5 U.S.C. 301 do not have to be classified in the Parallel Table of Authorities and Rules. Regulations and other administrative rules promulgated under authority of 5 U.S.C. 301 are applicable exclusively to government agencies and personnel; they do not have general application. The only regulations listed in the Parallel Table of Authorities and Rules for criminal Code sections 26 U.S.C. 7201-7212 are from Title 27 of the Code of Federal Regulations.
Title 27 of the Code of Federal Regulations is under Bureau of Alcohol, Tobacco and Firearms (ATF) administration, not Internal Revenue Service administration. Per 5 U.S.C. 558(b), an agency may enforce only provisions for which it has administrative authority:
By way of Treasury Order #120-01 of June 6, 1972, the Secretary of the Treasury segregated ATF from the Internal Revenue Service, and thereafter ATF regulations were classified in Title 27 of the Code of Federal Regulations and have since been under exclusive ATF jurisdiction.
The requirement to publish implementing regulations for all statutes that have general effect, including penalty statutes, is affirmatively stated in 44 U.S.C. 1505(a):
Implementing regulations for the Internal Revenue Code are mandated by 5 U.S.C. 552(a) and 26 U.S.C. 6001 & 7805(a). The Parallel Table of Authorities and Rules, authorized by 44 U.S.C. 1510, creates the rebuttable presumption that the Internal Revenue Service does not have regulatory authority to prosecute penalty statutes classified as 26 U.S.C. 7201-7212. Per ruling case law previously cited, statutes and implementing regulations must both be in evidence to establish the basis of criminal conduct.
FOURTH QUESTION: When must authority governing criminal prosecution be established?
Substantive rights secured by the Constitution of the United States are cumulative; one does not cancel or substitute for another. Thus, the Fourth, Fifth and Sixth Amendments must be considered to answer this question:
When properly applied, Rules 3 through 6 of the Federal Rules of Criminal Procedure preserve original intent of the Fourth, Fifth and Sixth Amendments. Since 28 U.S.C. 2072(b) prohibits rules promulgated by the Supreme Court from abridging substantive rights, Federal Rules of Criminal Procedure must be understood in the context of the Fourth, Fifth and Sixth Amendments.
Per Rule 3:
Rule 4(a) then specifies:
Authorization for complaints arising under internal revenue laws is codified at 18 U.S.C. 3045:
Rule 6(b)(1) is useful for understanding proper process:
All elements of the offense, including applicable statutes and implementing regulations, must be affirmatively established in an original complaint submitted to a magistrate in a probable cause hearing, per the Fourth & Sixth Amendments, Rules 3 & 4 of the Federal Rules of Criminal Procedure, and 18 U.S.C. 3045. Per Rule 8, joinder of offenses and defendants, a grand jury may expand an original complaint to include additional offenses and/or defendants, but the original complaint a grand jury considers must be against " a defendant who has been held to answer in the district court " If this weren't the case, a defendant's attorney wouldn't be entitled to challenge grand jury array and qualifications of prospective jurors "before the administration of the oath to be jurors and shall be tried by the court." Except where there is already an indictment, as might be the case for a defendant joined to an action under Rule 8, the defendant is then entitled to a preliminary hearing (Rule 5(c)), at which the defendant may cross-examine adverse witnesses and introduce evidence (Rule 5.1(a)).
It is common for United States Attorneys to unilaterally seat grand juries for periods of up to eighteen months then submit case after case for consideration without there having been original complaints and probable cause hearings, as required by the Fourth Amendment and Rules 3 & 4 of the Federal Rules of Criminal Procedure. This practice effectively makes grand juries auxiliaries of the prosecution rather than the court. The practice has led numerous U.S. Attorneys to conclude that defacto grand juries under their control would indict ham sandwiches if asked to do so.
Chapter 121 of Title 28, 28 U.S.C. 1861-1878, governs selection and seating of both grand and petit juries. These Title 28 sections proper procedure for jury selection.
Each district court is supposed to develop a jury selection plan. The first step in the procedure is to develop a list of qualified jurors in the district, the list known as the master jury wheel. Periodically the court clerk or a district judge is supposed to make random selections from the master jury wheel. Those selected are then qualified as the jury pool for that particular term. Then per 28 U.S.C. 1866(a), "From time to time, the jury commission or the clerk shall publicly draw at random from the qualified jury wheel such number of names of persons may be required for assignment to grand and petit jury panels " Per 1866(b), "When the court orders a grand or petit jury to be drawn, the clerk or jury commission or their duly designated deputies shall issue summonses for the required number of jurors."
A jury panel not petit and grand juries may be established for eighteen months or whatever term is prescribed by the court plan. As Rule 6(b)(1) implies by specifying that attorneys for the government or the defendant may challenge grand jury array and individual juror qualifications "before the administration of the oath to the jurors," a new grand jury must be selected from the grand jury panel for each original complaint. Once selected and sworn in, the grand jury then begins its investigation based on the original complaint considered at the probable cause hearing and testimony and evidence introduced in the preliminary examination. The investigation may enlarge on original charges by adding new offenses and/or defendants, per Rule 8, but the work of that particular grand jury is complete when all elements of the original case have been exhausted. The same grand jury doesn't consider an infinite number of cases any more than a petit trial jury does.
Content of the complaint required by Rule 3 and the Fourth Amendment obviously corresponds with content of indictments required by Rule 7(e)(1):
Inferior courts, including district courts of the United States and United States District Courts, have no inherent jurisdiction. Jurisdiction of first-level courts is established by sufficiency of pleadings. A party seeking to invoke jurisdiction of inferior courts bears the burden of establishing that such jurisdiction exists. See Scott v. Sandord, 60 U.S. 383 (1856), Security Trust Company v. Black Riber National Bank, 187 U.S. 211, McNutt v. General Motors Acceptance Corp., 298 U.S. 178 (1936), Hague v. Committee for Industrial Organization, et al, 307 U.S. 496 (1939), United States v. New York Telephone Co., 434 U.S. 159 (1977), Chapman v. Houston Welfare Rights Organization, et al, 441 U.S. 600 (1979), Cannon v. University of Chicago, et al, 441 U.S. 677 (1979), Patsy v. Board of Regents of the State of Florida, 457 U.S. 496 (1982), Merrill Lynch v. Curran, et al 456 U.S. 353 (1982), Insurance Corporation Ireland v. Compagnie Des Bauxites De Guinee, 456 U.S. 694 (1982), and Matt T. Kokkonen v. Guardian Life Insurance Company of America, 128 L.Ed. 2d 492 (1994).
A complaint submitted to a magistrate at a probable cause hearing commences the criminal prosecution process the same as a complaint or petition filed in a civil case invokes jurisdiction of the court. The substance and content of civil and criminal complaints are essentially the same; the criminal complaint must be supported by testimony of one or more competent witnesses.
It is also useful to know that statements of attorneys, whether in pleadings or oral statements before a court, do not constitute testimony. See United States v. Lovasco 431 U.S. 783 (1977), Gonzales v. Buist, 224 U.S. 126, and Holt v. United States, 218 U.S. 245. Statements of counsel in brief or in argument are not sufficient for motion to dismiss or for summary judgment, Trinsley v. Pagliaro, 229 F.Supp. 647 (D.C. Pa. 1964).
To satisfy requirements of the Fourth Amendment, 18 U.S.C. 3045 and Rules 3 & 4 of the Federal Rules of Criminal Procedure, (1) there must be a complaint that sets forth facts and law sufficient to invoke jurisdiction of the court, which in the context of tax offenses requires citation if not actual recitation of statutes and implementing regulations, and (2) there must be a competent witness to verify the complaint with testimony given under oath or affirmation. State and federal law both require testimony under oath or affirmation via affidavit, deposition or direct oral examination. A stand-alone criminal complaint that isn't supported by testimony of a competent witness is of no consequence.
Copyright Chris Hansen
Chris Hansen, 858-538-6607, firstname.lastname@example.org
Last revision: August 14, 2009 08:07 AM
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