Friday, October 01, 2010

Third Circuit holds that in criminal tax violations, willful blindness satisfies the legal knowledge component of the willfulness element.

United States v. Stadtmauer, No. 09-1575 (3d Cir. Sept. 9, 2010), involves several issues challenging the conviction, after a two-month trial, of Richard Stadtmauer, an executive in a promiment New Jersey real estate development firm. The Government charged that he had been involved in filing several fraudulent tax returns that claimed several categories of expenditures (such as charitable contributions) as fully deductible business expenses. The most significant legal challenge involved a willful blindness jury instruction.

Stadtmauer argued that the Supreme Court’s opinion in Cheek v. United States, 498 U.S. 192 (1991), precluded a willful blindness instruction. Cheek holds that criminal tax liability does not attach to a person who, in good faith, is ignorant of a legal duty, misunderstands that legal duty, or believes that such a legal duty does not exist. In accord with several other circuits, the Third Circuit concluded that a willful blindness instruction does not run afoul of Cheek, because where the evidence supports a finding that a defendant intentionally insulated himself from knowledge of his tax obligations, the defendant cannot claim good faith ignorance.

In addition, Stadtmauer also challenged as an abuse of discretion the District Court ‘s admitting lay testimony by his company’s accountant about Stadtmauer’s knowing that the tax returns were false. Specifically, this involved Staudtmauer asking the accountant “whether the returns were okay to sign”, which the accountant understood to mean whether the IRS would be likely to detect the problems with the returns. The Third Circuit held that while this was a close question under Federal Rule of Evidence 701, it was not an abuse of discretion, but even if it were, the error was harmless in the context of the record as a whole.

1 comment:

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