SCOTUS: Fed false tax return crimes are fraud or deceit aggravated felonies

A divided Supreme Court held that two federal crimes relating to filing a false tax return are aggravated felonies. Kawashima v. Holder, 565 U.S. –, No. 10-577, slip op. (Feb. 21, 2012). Justice Thomas wrote the majority opinion and was joined by Roberts, Scalia, Kennedy, Alito, and Sotomayor. Justice Ginsburg’s dissent was joined by Breyer and Kagan.

This case involved two LPRs, Akio Kawashima and Fusako Kawashima. Mr. Kawashima was convicted of willfully making and subscribing a false tax return, 26 U.S.C. § 7206(1), and Mrs. Kawashima was convicted of aiding and abetting in the preparation of a false tax return, 26 U.S.C. § 7206(2). The majority determined that both are crimes involving fraud or deceit and, because the “loss to the victim” exceeded $10,000, constitute aggravated felonies under INA § 101(a)(43)(M)(i).

The fraud or deceit category of aggravated felony provides: “(M) an offense that–(i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or  (ii) is described in section 7201 of title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000” is an aggravated felony.

The majority first addressed the Kawashimas’ argument that their convictions lacked an element of fraud or deceit. Turning to the language of (i) as it applies to Mr. Kawashima’s conviction for § 7201(1), the majority explained that it is not necessary that the statute involve fraud or deceit as “formal elements” of the crime. Kawashima, No. 10-577, slip op. at 5. Rather, “Clause (i) refers more broadly to offenses that “involv[e]” fraud or deceit—meaning offenses with ele­ments that necessarily entail fraudulent or deceitful conduct.” Kawashima, No. 10-577, slip op. at 5.

Webster’s Dictionary, the Court added in the next sentence, defined “deceit” as “‘the act or process of deceiving (as by falsification, concealment, or cheating)’” at the time that Congress added this provision to the INA. Kawashima, No. 10-577, slip op. at 5 (quoting Webster’s Third New International Dictionary 584 (1993)). Using this definition, Mr. Kawashima’s conviction under § 7206(1) for willfully making and subscribing a false tax return establishes that he “committed a felony that involved ‘deceit.’” Kawashima, No. 10-577, slip op. at 5.

The majority had even less difficulty concluding that § 7206(2) was also an aggravated felony. Because Mrs. Kawashima “does not dispute that the elements of a violation of § 7206(2) include, inter alia, that the document in question was false as to a material matter and that the defendant acted willfully,” her “conviction establishes that, by knowingly and willfully assisting her husband’s filing of a materially false tax return, [she] also committed a felony that involved ‘deceit.’” Kawashima, No. 10-577, slip op. at 5-6.

The majority then turned to the Kawashima’s argument that (i) doesn’t apply to tax crimes because, if it did, then (ii) would be superfluous since it specifically refers to tax evasion under 21 U.S.C. § 7201. Kawashima, No. 10-577, slip op. at 6. They also argued that (i) doesn’t apply to tax crimes because it refers to a “loss to the victim,” whereas (ii), which clearly includes tax crimes, refers to a “revenue loss to the Government.” Kawashima, No. 10-577, slip op. at 7.

The majority was not sympathetic. “Congress’ decision to tailor Clause (ii)’s language to match the sole type of offense covered by Clause (ii) does not demonstrate that Congress also in­tended to implicitly circumscribe the broad scope of Clause (i)’s plain language,” it explained. Kawashima, No. 10-577, slip op. at 7.

In other words, an explicit mention of one type of tax crime in (ii) doesn’t mean that Congress meant to exclude that type of tax crime from (i). Kawashima, No. 10-577, slip op. at 8. On the contrary, “We think it more likely that Congress specifically included tax evasion offenses under 26 U. S. C. § 7201 in Clause (ii) to remove any doubt that tax evasion qualifies as an aggravated felony.” Kawashima, No. 10-577, slip op. at 8.

Congress, it added, had “good reason to doubt that a conviction under § 7201” involves fraud or deceit because, in United States v. Scharton, 285 U.S. 518 (1932), the Court suggested that it might not. Kawashima, No. 10-577, slip op. at 9. It went on to explain that even though violation of § 7201 “almost invariably involve[s] some affirmative acts of fraud or deceit,” that is not necessarily so. Kawashima, No. 10-577, slip op. at 10. By including a special mention of § 7201 in INA § 101(a)(43)(M)(ii), Congress might have just been playing it safe.

In her dissent, Justice Ginsburg attacks each of the majority’s rationales. First, she argues, statutes “should be interpreted to avoid superfluity.” Kawashima, No. 10-577, slip op. at 3 (Ginsburg, J., dissenting). Basically, her point is that the majority’s interpretation of INA § 101(a)(43)(M)(i) to include tax crimes means that (ii) “add[s] nothing” to the aggravated felony list. Kawashima, No. 10-577, slip op. at 3 (Ginsburg, J., dissenting). Instead, it renders “Clause (ii) largely, but not totally, redundant.” Kawashima, No. 10-577, slip op. at 5 (Ginsburg, J., dissenting).

Plus, she goes on, the majority incorrectly conclusion that § 7201, the tax evasion offense explicitly listed in (ii), doesn’t involve fraud. Repeatedly, courts have determined that tax evasion is a crime of moral turpitude, because it necessarily involves fraud.” Kawashima, No. 10-577, slip op. at 4 (Ginsburg, J., dissenting). So too, she added, “courts have held that a conviction for tax evasion under 26 U.S.C. § 7201 ‘conclusively establishes fraud in a subsequent civil tax fraud proceeding.’” Kawashima, No. 10-577, slip op. at 4 (Ginsburg, J., dissenting) (quoting Gray v. Commissioner, 708 F.2d 243, 246 (6th Cir. 1983)).

Lastly, Ginsburg explains that she doesn’t buy the majority’s belief that Congress, when enacting INA § 101(a)(43)(M)(ii), was concerned that § 7201 didn’t involve fraud because of the Supreme Court’s 1932 decision in Scharton, the case that the majority cites for this proposition. Kawashima, No. 10-577, slip op. at 6 (Ginsburg, J., dissenting). “Scharton is a cryptic, thinly reasoned opinion, one that did not influence subsequent federal-court descriptions of the crime of tax evasion. The suggestion that Congress may have worried about Scharton when framing legislation over 60 years later is hardly credible.” Kawashima, No. 10-577, slip op. at 6 (Ginsburg, J., dissenting).

Though perhaps unnecessary, Ginsburg added a prudential reason for dissenting. The majority’s opinion, she says, converts “numerous offenses” into aggravated felonies because many local, state, and federal tax offenses involve false statements. Kawashima, No. 10-577, slip op. at 8 (Ginsburg, J., dissenting). My favorite (because I teach in Columbus, Ohio) is the Columbus municipal ordinance she cites that punishes knowingly making and filing an incomplete, false, or fraudulent municipal tax return as a fourth-degree misdemeanor. Kawashima, No. 10-577, slip op. at 8 (Ginsburg, J., dissenting) (citing Columbus, Ohio City Code §§ 361.31(a)(4), (b), (d)).

If this is an aggravated felony, as the majority determines it is, why would anyone plead guilty only to face all the draconian consequences that come with an aggravated felony conviction? Ginsburg suggests that no noncitizen will. This is problematic, she adds, because it is easier to get a conviction for making a false statement than for tax evasion. Because of this the federal government “has allowed taxpayers to plead guilty to a § 7206 charge in lieu of going to trial under § 7201 on an evasion charge.” Kawashima, No. 10-577, slip op. at 9 (Ginsburg, J., dissenting). “If a §7206 charge carries the same prospect of deportation as a §7201 charge, then an alien’s incentive to plead guilty to any tax offense is significantly reduced.” Kawashima, No. 10-577, slip op. at 9 (Ginsburg, J., dissenting).