BRYAN SCHRODER Acting United States Attorney RETTA-RAE RANDALL Assistant U.S. Attorney LORI A. HENDRICKSON TIMOTHY M. RUSSO Trial Attorneys, U.S. Department of Justice, Tax Division Federal Building & U.S. Courthouse 222 West Seventh Avenue, #9, Room 253 Anchorage, Alaska 99513-7567 Phone: (907 271-5071 Fax: (907 271-1500 Email: RettaRae.Randall@usdoj.gov Email: Lori.A.Hendrickson@usdoj.gov Email: Timothy.M.Russo@usdoj.gov Attorneys for Plaintiff IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ALASKA UNITED STATES OF AMERICA, Plaintiff, vs. LAWRENCE J. LAWSON, Jr., Defendant. No. 3:16-cr-00121-TMB-DMS RESPONSE TO DEFENDANT S MOTION TO DISMISS COUNT FIVE FOR FAILURE TO STATE A CRIMINAL OFFENSE Comes now, the United States of America, through its attorneys, Bryan Schroder, Acting United States Attorney, Retta-Rae Randall, Assistant United States Attorney, and Lori A. Hendrickson and Timothy M. Russo, Trial Attorneys, Department of Justice, Tax Division, and hereby files its Response to Defendant s Motion to Dismiss Count Five for Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 1 of 9
Failure to State a Criminal Offense. For the reasons discussed below, defendant s motion is without merit and should be denied. I. BACKGROUND On November 16, 2016, defendant LAWRENCE J. LAWSON, JR. (hereinafter defendant was charged in a Superseding Indictment with five crimes. Counts One, Two, Three and Four charged defendant with evasion of individual income taxes, in violation of Title 26, United States Code, Section 7201, for the calendar years 2009, 2010, 2011, and 2012, respectively. Count Five charged defendant with obstructing the due administration of the internal revenue laws, in violation of Title 26, United States Code, Section 7212(a. Specifically, Count Five alleges: From on or about January 1, 2009 through at least October 19, 2013, within the District of Alaska and elsewhere, the defendant, LAWRENCE J. LAWSON, JR., a resident of Alaska, did corruptly endeavor to obstruct and impede the administration of the internal revenue laws by committing acts, including but not limited to the following: A. Paying for personal expenses using funds drawn on Key Bank account x1222 in the name of Midnight Sun; B. Creating nominee FTV which was used primarily to acquire and maintain LAWSON s own personal collection of fossils, dinosaurs, maps, rare books, rare manuscripts, and related material; C. Filing false 2009, 2010, 2011 and 2012 Forms 1040; D. Filing false 2009, 2010 and 2012 Forms 1120S in the name of Midnight Sun; 3:16-cr-00121-TMB-DMS Page 2 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 2 of 9
E. Having an individual prepare a 2011 Form 1120S in the name of Midnight Sun which he never filed with the IRS; F. Filing false 2009, 2010 and 2011 Forms 990 PF in the name of FTV; G. Creating and using nominee entities Freeze Frame, Inc., an Alaska corporation, and Little Wing, Inc., an Alaska corporation, to conceal individual income; H. On or about August 17, 2012, during an audit of his 2009 and 2010 Forms 1040, by making a false statement to an IRS agent when he said that he did not receive any items or property in return for money paid to Entity #1. All of which is in violation of Title 26, United States Code, Section 7212(a. II. LEGAL AUTHORITY A. An existing IRS investigation or proceeding is not an element of Section 7212(a To establish a Section 7212(a omnibus clause violation, the government must prove beyond a reasonable doubt that the defendant, in any way: (1 corruptly (2 endeavored (3 to obstruct or impede the due administration of the Internal Revenue Code. United States v. Hanson, 2 F.3d 942, 946-47 (9th Cir. 1993; see also United States v. Massey, 419 F.3d 1008, 1010 (9th Cir. 2005. In Massey, a case emanating from the District of Alaska, the Ninth Circuit held that [t]he law of this circuit establishes that the government need not prove that the defendant was aware of an ongoing tax investigation to obtain a conviction under Section 7212(a; it is sufficient that the defendant hoped to benefit financially from threatening letters or other conduct. Massey, 419 F.3d at 1010, citing United States v. Kuball, 976 F.2d 529, 531 (9th Cir.1992. 3:16-cr-00121-TMB-DMS Page 3 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 3 of 9
Additionally, four other courts of appeal have expressly held that Section 7212(a does not require proof of a pending IRS action. See United States v. Floyd, 740 F.3d 22, 32 (1st Cir. 2014 ( A conviction for violation of section 7212(a does not require proof of either a tax deficiency... or an ongoing audit.... ; United States v. Marinello, 839 F.3d 209, 222 (2d Cir. 2016 ( [S]ection 7212(a s omnibus clause criminalizes corrupt interference with an official effort to administer the tax code, and not merely a known IRS investigation. ; United States v. Sorensen, 801 F.3d 1217, 1232 (10th Cir. 2015 (holding that Section 7212(a does not require an ongoing proceeding. The U.S. Supreme Court has repeatedly declined to take up the issue on appeal. 1 Indeed, on May 24, 2017 a mere two days after defendant filed this motion the Fifth Circuit rejected the exact arguments that defendant makes here. See United States v. Westbrooks, No. 16-20409, 2017 WL 2269512, at *2-4 (5th Cir. May 24, 2017 (addressing the differences in the text of Section 7212(a and Title 18, United States Code, Section 1503, as well as the history and the underlying purposes of those statues and holding that the indictment did not fail to allege an essential element of the obstruction charge where it did not assert that [the defendant] acted with knowledge of a pending IRS action such as an investigation or proceeding. B. The corruptly element of Section 7212(a defined In United States v. Massey, the Ninth Circuit held that the district court correctly instructed the jury that corruptly with respect to Section 7212(a means performed with 1 United States v. Massey, 547 U.S. 1132 (2006; United States v. Sorensen, 136 S.Ct. 1163 (2016; United States v. Wood, 131 S.Ct. 1476 (2011. 3:16-cr-00121-TMB-DMS Page 4 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 4 of 9
the intent to secure an unlawful benefit for oneself or another. Massey, 419 F.3d at 1010, citing United States v. Workinger, 90 F.3d 1409, 1414 (9th Cir. 1996. III. ARGUMENT A. Defendant s arguments regarding the need for existing IRS investigation or proceeding in a Section 7212(a prosecution are baseless. Defendant blithely rejects Massey, binding authority in the Ninth Circuit, and declares that cases interpreting the obstruction of justice statute, Title 18, United States Code, Section 1503, are more persuasive and should be relied upon as a basis to dismiss a count under Title 26. This analogy has been soundly rejected multiple times because Section 1503 necessarily requires a judicial or grand jury proceeding for someone to obstruct. In contrast, the IRS conducts tax administration every day, and the omnibus clause of Section 7212(a serves an important purpose that is not addressed by the tax evasion statute. The Eleventh Circuit in United States v. Popkin explained: In a system of taxation such as ours which relies principally upon selfreporting, it is necessary to have in place a comprehensive statute in order to prevent taxpayers and their helpers from gaining unlawful benefits by employing that variety of corrupt methods that is limited only by the imagination of the criminally inclined. United States v. Popkin, 943 F.2d 1535, 1540 (11th Cir. 1991 (citation and internal quotation marks omitted. Defendant s tortured reasoning to reject Massey leads to the conclusion that Massey did not address whether a defendant can be convicted based on doing nothing more than filing tax returns, forming business entities, spending money, and answering a revenue agent s audit questions. Def. s Mot. at 10. With this statement, the defendant completely 3:16-cr-00121-TMB-DMS Page 5 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 5 of 9
ignores the corruptly mens rea element of Section 7212(a. Finally, dismissal is an inappropriate remedy because the majority of defendant s motion focuses on what must be proved to convict him of Section 7212(a. That is for the finder of fact, the trial jury, to determine. In contrast, the sufficiency of an indictment is governed by two preliminary criteria: first, whether the indictment sufficiently sets forth all the elements of the offense and apprizes the defendant of the charges so that he can prepare a defense; and second, whether it is sufficiently specific to protect the defendant against double jeopardy in a subsequent proceeding if charged with the same crime based on the same facts. Hamling v. United States, 418 U.S. 87, 117 (1974. Count Five sets forth all of the elements of Section 7212(a, and the eight corrupt endeavors charged are sufficiently specific to protect defendant against double jeopardy. B. Defendant s vagueness arguments have no merit A statute is impermissibly vague if it fails to provide a person of ordinary intelligence fair notice of what is prohibited, or is so standardless that it authorizes or encourages seriously discriminatory enforcement. Holder v. Humanitarian Law Project, 561 U.S. 1, 18 (2010. A statute must give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly. Grayned v. City of Rockford, 408 U.S. 104, 108 (1972. Only if people of common intelligence must necessarily guess at the statute s meaning and differ as to its application will a statute be invalidated. United States v. Ayala, 35 F.3d 423, 425 (9th Cir. 1994 (citation and internal quotation marks omitted. 3:16-cr-00121-TMB-DMS Page 6 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 6 of 9
[E]very circuit to consider a vagueness challenge to Section 7212(a has found the statue constitutional on its face. United States v. Taylor, 13CR1390-MMA, 2017 WL 1321307, at *2 (S.D.C.A. Apr. 17, 2017; see also United States v. Kahre, No. 2:05-CR- 121, 2009 WL 1067294, at *5 (D. Nev. April 20, 2009 (rejecting defendant s vagueness challenge to 7212(a, aff d, 737 F.3d 554 (9th Cir. 2013. In this case, defendant makes no real attempt to show that Section 7212(a is vague as applied to him, other than by making a general claim that the only constitutional way to interpret the statute that is to require the government to prove that defendant s actions were undertaken to obstruct or impede a pending investigation or proceeding of which he is aware.... Def. s Mot. at 12; see Humanitarian Law Project, 561 U.S. at 18-19 (stating that [a] person whose conduct is clearly proscribed by a statute cannot... complain that the law is vague as applied to the conduct of others. In any event, such an attempt would fail because defendant s alleged conduct falls squarely within the statute s prohibition on corrupt endeavors to obstruct the IRS. Specifically, the Superseding Indictment alleges that, in an effort to corruptly obstruct or impede the IRS, defendant: used his business s bank account to pay for personal expenses; created a nominee foundation primarily to hold his own personal collection of fossils, dinosaurs, maps, rare books, rare manuscripts, and related material; repeatedly filed false tax returns on behalf of himself, his business and the nominee foundation; failed to file a tax return for his business in 2011; created two other nominee entities to conceal 3:16-cr-00121-TMB-DMS Page 7 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 7 of 9
individual income; and made a false statement to an IRS agent when he said that he did not receive any items or property in return for money he paid to a non-profit corporation. An ordinary person would recognize this alleged conduct as an endeavor to obstruct or impede the IRS s administration of the tax laws, which defendant committed corruptly in order to secure an unlawful benefit for himself (i.e., a fraudulently reduced tax liability. See Section 7212(a; Massey, 419 F.3d at 1010. It follows that the language of Section 7212(a gave defendant fair notice that his conduct was prohibited. See Humanitarian Law Project, 561 U.S. at 18. IV. CONCLUSION For all of the foregoing reasons, defendant s motion should be denied. RESPECTFULLY SUBMITTED June 2, 2017 at Anchorage, Alaska. BRYAN SCHRODER Acting United States Attorney s/ Timothy M. Russo TIMOTHY M. RUSSO Trial Attorney U.S. Department of Justice, Tax Division 3:16-cr-00121-TMB-DMS Page 8 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 8 of 9
CERTIFICATE OF SERVICE I hereby certify that on June 2, 2017, a true and correct copy of the foregoing was served electronically on the following: All Counsel of Record s/ Timothy M. Russo U.S. Department of Justice, Tax Division 3:16-cr-00121-TMB-DMS Page 9 of 9 Case 3:16-cr-00121-TMB-DMS Document 57 Filed 06/02/17 Page 9 of 9