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In United States v. Litwok, ___ F.3d ___, 2012 U.S. App. LEXIS 8727 (2d Cir. 2012), here, the Second Circuit upset convictions for wire fraud and tax evasion, applying seeming settled principles.
I address first the tax evasion convictions, although the Court addressed first the wire fraud conviction. The defendant's tax evasion convictions for 3 years arose from her failure to file income tax returns for those years where she omitted substantial income unrelated to the wire fraud. Normally, a failure to file income tax returns establishes only the crime of failure to file, Section 7203, a misdemeanor. In order to prove tax evasion in the context of failure to file, the Government has to prove some affirmative element other than just failure to file.
The wire fraud conviction related to the defendant's false claims for insurance reimbursement for damage to two properties. This was relatively petty theft (and would seem to me to be the stuff of state criminal charges). The Second Circuit held that evidence was sufficient to sustain the conviction, but vacated and remanded it anyway because the wire fraud charge had been improperly joined with the tax charges. Under Rule 8(a), FRCrP, criminal charges may be joined if "of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan." Here, there was no relation between the tax charges and the wire fraud charges, other than perhaps both involved fraud which permitted the prosecutor to blend the arguments. The Court found that the defendant was prejudiced by the improper joinder, reasoning.
In summary, the tax evasion convictions for the two years were reversed altogether. The evasion conviction for the third year was vacated and remanded, along with the conviction for wire fraud. The case can be retried, apparently with separate trials for the wire fraud and the remaining tax evasion charge. Note that the Government rarely would charge and try a single year evasion case, but the facts in the case seem fairly egregious so it might proceed to trial in the case.
View Jack Townsend's opinion in its entirety on the Federal Tax Crimes blog site.
Lexis.com subscribers can access the Lexis enhanced version of the decisions with summary, headnotes, and Shepard's, United States v. Litwok, 2012 U.S. App. LEXIS 8727 (2d Cir. 2012).
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