FILING CORRECTIVE AMENDED RETURNS HELD NOT EXCULPATORY WITH REGARD TO CRIME OF FILING FALSE RETURNS

The Department of Treasury publishes a Criminal Tax Bulletin that summarizes significant criminal tax cases. The April-September Bulletin, among other cases, discusses United States v. Ellefsen, 655 F.3d 769 (8th Cir.2011), The case deals with the so-called “Brady Rule’ named after the case Brady v. Maryland, 373 U.S. 83 (1963). The “Brady Rule” generally requires the prosecution to disclose to the defense any material evidence in its possession that would be favorable to the defense such as evidence that goes towards negating a defendant’s guilt, mitigating a defendant’s sentence or discrediting a government witness. Undisclosed Brady material generally will be suppressed even if the prosecution did not know it had the evidence and did not intentionally or inadvertently withheld the material. The defendant bears the burden of proving that the undisclosed evidence was material, and the defendant must show that there is a reasonable probability that there would be a difference in the outcome of the trial had the evidence been disclosed by the prosecutor. The facts and holding in Ellefsen as summarized in the Bulletin are as follows:

The Eighth Circuit held that the government’s failure to disclose IRS documents to the defense did not violate Brady v. Maryland, 373 U.S. 83 (1963), because the undisclosed information was not material. Southwest Missouri Bone & Joint, Inc. (“SMBJ”) was owned by Brian Ellefsen (“Brian”), an orthopedic surgeon, and managed by Mark Ellefsen (“Mark”). In 1997, the Ellefsens joined the Aegis Business Trust System, an offshore tax shelter. From 1997 to 2003, SMBJ transferred over $1 million to various Aegis created domestic and foreign entities and deducted the transfers as “management fees” on SMBJ’s tax returns. During the same period, Brian declared on his tax returns that he had no interest or authority over any foreign account. In 2005, after Brian’s and SMBJ’s records were subpoenaed, Brian amended his prior years’ individual tax returns, adding most of the “management fees” to his taxable income. In May 2009, a jury convicted the Ellefsens of conspiracy to defraud the United States, filing false income tax returns, and aiding and assisting in the preparation of false tax returns. The Ellefsens moved for acquittal or a new trial, arguing, among other things, that the government had withheld material exculpatory information regarding the IRS treatment of Brian’s amended individual tax returns, in violation of Brady. The district court denied the motion, holding that the withheld information did not contain any new evidence and was not material or exculpatory. On appeal, the Ellefsens argued that the withheld documents constituted Brady material because they showed the IRS had accepted the amended returns, had treated the earnings as regular income, and had deemed the amended returns a final civil assessment. The Eighth Circuit held that no Brady violation had occurred, because even if the withheld evidence was favorable, the Ellefsens had not shown it was material. The court noted that evidence is material for purposes of Brady if there is a reasonable probability that, had it been disclosed to the defense, the result of the proceeding would have been different. Applying this standard, the court concluded that the amended returns, which had been submitted years after the filing of the false original returns and months after the Ellefsens learned they were under investigation, were of minimal probative value as to the Ellefsens’ state of mind at the time of the alleged crimes and, therefore, were not material (emphasis added).

The case illustrates that amended returns do not erase the crime of filing a false return but may be treated as a mitigating circumstance in some cases. An amended return, filed close in time to the original return, depending on other exigencies at the time of filing, might be admitted into evidence to prove lack of wilfulness. In this case the trial court and Eighth Circuit ruled that the amended returns were too remote from the time of filing. The court likely felt the amended returns were an attempt to undo crimes already committed, one of which was filing false returns, and were not probative evidence that no crime had been committed. This case should give pause to CPAs or other return preparers who routinely rush to file amended returns. Return preparers, having no attorney-client privilege, in appropriate (amounts large, many years involved, patently false information reported) cases, should first have the client consult with a criminal tax lawyer to ascertain whether a crime was committed; and, whether filing an amended that admits elements of a tax crime, will be helpful.

© 2011 by Robert S. Steinberg, Esquire
All rights reserved

This entry was posted in AMENDED RETURNS, TAX, Uncategorized and tagged , , , . Bookmark the permalink.

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