Tax Fraud and Obstruction Convictions Affirmed: U.S. v. Sutherland, Fourth Circuit Court of Appeals, Decided April 19, 2019
In U.S. v. Sutherland, the Fourth Circuit affirmed the appellant’s convictions for tax fraud and obstruction, disagreeing with the appellant’s argument that there was an insufficient nexus between false documents he provided to the US Attorney and the grand jury proceedings that ultimately received the false documents.
Although there are many ways to commit tax fraud, below I’ll review what Sutherland was accused of doing and why his convictions were affirmed. We’ll also look at the requirements for proving obstruction of an official proceeding, including the “nexus requirement” of U.S. v. Aguilar, 515 U.S. 593 (1995) and Marinello v. U.S., 138 S. Ct. 1101 (2018).
If you are facing prosecution for tax fraud or if you need assistance with a federal criminal appeal, call or contact me through our website for a consultation.
How Does the Government Prove Tax Fraud?
Sutherland was convicted under 26 U.S. Code § 7206(2), which prohibits lying on your tax returns. What does Section 7206 say and what was the evidence against Sutherland?
26 U.S. Code § 7206(2) Aid or Assistance
26 U.S. Code § 7206(2) makes it a crime to provide a false return, affidavit, claim, or other document to the IRS:
Any person who…
Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document…
shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.
What Was the Evidence Against Sutherland?
Sutherland owned several insurance companies that did business in the US and in Bermuda and routed his international transactions through a Bermuda company called STS.
Although he claimed that his sister owned and controlled STS, the Court noted that Sutherland controlled STS while his sister worked at a Best Western hotel in Cody, Wyoming, making less than $10 an hour.
Over the course of five years, Sutherland sent more than $2.1 million from STS to himself, his wife, or companies that he owned, and labeled them as loans or capital contributions which are not taxable.
STS, on the other hand, reported the payments as expenses paid to Sutherland, also not taxable. To summarize, Sutherland’s reporting was inconsistent and calculated to avoid paying taxes on over $2 million of income, and he ultimately “reported just $88,979 of income in 2008; $16,669 in 2009; and $72,415 in 2010.”
The Court found that there was ample evidence for the jurors to convict Sutherland of the tax fraud counts and the obstruction count, stating that “the jury had little trouble seeing through Sutherland’s manipulations of his accounting records and attempts to fabricate loan documents to cover his tracks.”
What is Obstruction of an Official Proceeding?
The Court also found that there was sufficient evidence that Sutherland had provided fake loan documents to the US Attorney’s Office, citing evidence that:
- The documents pledged 120% of the sale of any of Sutherland’s businesses;
- Sutherland had signed his sister’s name to the documents;
- The documents conflicted with STS’s records; and
- Some documents were clearly backdated, as in the case of a loan document signed in 2011 that referenced loans made in 2011, 2012, and 2013.
What is the Federal Obstruction Statute?
18 U.S. Code § 1512 covers a wide range of conduct, including providing fake documents in an attempt to influence an official proceeding:
(c) Whoever corruptly—
(1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding; or
(2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so,
shall be fined under this title or imprisoned not more than 20 years, or both.
It is not enough to just provide fake documents to the US Attorney’s Office, although that may still be a crime under other statutes. To convict a person under 1512(c), the government must prove that the conduct was intended to influence an official proceeding…
What is “the Nexus Requirement” for Obstruction Charges?
U.S. v. Aguilar, 515 U.S. 593 (1995) and Marinello v. U.S., 138 S. Ct. 1101 (2018) established a requirement that the government prove a nexus between the defendant’s conduct and an official proceeding that the defendant sought to influence.
Although it may still be a crime to provide false documents or information to the US Attorney or the FBI, it is not a violation of Section 1512(c). A grand jury investigation, however, does qualify as an official proceeding.
In this case, the Court found that Sutherland was aware of the grand jury proceedings and that the US Attorney would be presenting evidence to the grand jury. It was reasonably foreseeable that the US Attorney would present the false documents to the grand jury, and therefore the jury was entitled to conclude that Sutherland intended to influence the grand jury proceedings.
The convictions, and Sutherland’s 33-month sentence, were affirmed.
White Collar Criminal Defense and Tax Fraud Attorney in Columbia, SC
Elizabeth Franklin-Best is a federal white collar criminal defense and federal appeals lawyer located in Columbia, SC.
For more information, call us at (803) 331-3421 or send us an email to set up a consultation about your case.