Today the Supreme Court heard argument in Marinello v. United States No. 16-1144.  As we’ve noted before here and at the Federalist Society blog this case considers what level of knowledge a tax payer has to have to be subject to the omnibus felony penalties of 26 U.S.C. § 7212(a) .  Petitioner (Marinello) was represented by Matthew S. Hellman, Esq. and the government by Robert Parker.  From my perch, the Court showed enormous skepticism towards the Government’s position that virtually any act or omission, no matter how slight, could subject one to felony conviction, even though the particular tax code penalties for those actions are misdemeanors.  Justice Sottomayor, an active questioner in this case, seemed open to the view that the Government’s case was overcriminalizing acts that Congress had set out lesser penalties for but she seemed equally hesitant to adopt Petitioner’s solution-there can be no “corrupt” obstruction without knowledge by the Defendant that there is an IRS investigation.  She and Justice Gorsuch teamed up to offer Petitioner another way out, that there must be some affirmative interaction with the IRS.  Mr. Hellman appeared to resist this at first but, upon reflection, and most clearly in rebuttal, stated such a ruling would be acceptable (while continuing to press Petitioner’s view).

The Justices, including Justice Kagan, seemed troubled by the Petitioner’s proposed “fix” of the Government’s overreach on the statute because they could not square it with the text of Section 7212(a).  Even so, Justice Kagan, unprompted, called the statute “ungodly borad.”  Justices Breyer, Alito and Roberts, pressed the Government on the danger of common behaviors, such as using cash, that could become felonies under the Government’s construction.  Justice Breyer was concerned that paying a gardener or snow shoveler in cash could be felonious.  Justice Alito posited that a lower price for services if cash was paid is “known” to be for the purposes of not reporting income, and Justice Kagan agreed.  (This universal interpretation among the Justices is belied by what a small business owner once told me “Cash don’t bounce.”).  Justice Gorsuch took issue with the IRS position that it is a “brooding omnipresence” always collecting taxes and so a taxpayer should know throwing out receipts or keeping sloppy records will, as Justice Alito noted “impede” the IRS in administering the tax code.

Mr. Parker for the Government attempted to convince the Justices that the IRS and the Government were circumspect in the use of the omnibus provision.  Justice Kagan pounced.  Attorney General Sessions has famously issued a directive that the Justice Department charge the highest crime, with the most penalties possible in every case.  Mr. Parker’s attempt to lean on prosecutorial discretion was undermined as he had to admit the Justice Department policy to both Justices Kagan and Roberts who were concerned about it and obviously eager to make sure that policy was in the record and admitted by the Government.  Justice Ginsberg, whose late husband, Martin was a tax Professor at Georgetown, worried that any code violation could be charged as being done corruptly and thus subject to the extra three-year penalty and felony conviction.  Justices Gorsuch posited that the statutory language seemed to point to having to “corruptly” impede something other than just make the IRS’s job harder somewhere someday.  Justice Breyer insisted the Government agree with his definition of the mens rea requirement, which Mr. Parker eventually gamely did.

Upon rebuttal Petitioner made clear his position that any cabining of the statute the Court arrived at that recognized Mr. Marinello’s actions did not fall within the statute would be acceptable to Petitioner.  He and Justice Gorsuch agreed that “a win’s a win.”  Having picked up the signal from the Chief and Justice Kagan, Mr. Hellman finished noting that whether not giving everything to your accountant, using cash or keeping meticulous records would be criminalized rested on prosecutorial discretion that was obviated by the Justice Department’s “charge the highest crime” mandate.

At least from oral argument it appears the Government’s overbroad interpretation of the statute and its play for unrestrained prosecutorial power regarding it, is likely to doom its case despite a well-argued defense of that policy.  It also appears that the bright line rule that Marinello sought (and that we also pressed in our amicus) does not have the full support of the Court.  Nonetheless, today in this case it was a good day to be the Petitioner.

To learn more about this case, watch the short SCOTUSbrief video below, via The Federalist Society

John J. Vecchione is president and CEO at Cause of Action Institute, amicus