The Department of Justice goes about the business of prosecuting tax defiers as one of its principal activities. I suspect that there is a long list of possible targets. A recent tax evasion case out of the 8th Circuit, US v West, caught my attention. In West, the court struck down conditions of supervised release relating to computer and internet use that the government sought to impose to limit a tax defier from spreading his ideas after his 51 month jail sentence ended.
I will describe the case and the court’s reason for its failing to allow those conditions below.read more...
West was a computer technician. West informed his employer that he was exempt from taxes and withholding and his employer complied with West’s request to withhold nothing. West deposited his pay into corporate bank accounts he formed to assist in concealing his income. IRS eventually contacted his employer and served a levy. West resigned as an employee and set up an LLC that performed services for his former employer as an independent contractor, continuing to receive funds free of withholding.
In addition to not paying taxes or fling tax returns, West actively spread his tax ideas to others. The opinion notes that he “proselytized his beliefs in an e-book self-published and sold through Amazon.com, entitled Are You a Taxpayer? Really? Prove It! In addition, the presentence investigation report (PSIR) identified West as “the owner/manager of several websites and/or online blogs which promote his fraudulent tax scheme and contain non-taxpayer propaganda, among other information.”
West was indicted and convicted on three counts of evasion for the years 2007 2008 and 2009. He was sentenced to fifty-one months’ imprisonment and three years’ supervised release. The government requested and the district court granted the following conditions associated with the supervised release:
- The defendant shall not engage in the creation of or establish any new websites, and he is required to remove any websites, past or present, which are currently active. (Condition 13)
- The defendant is prohibited from using or possessing any computer(s) (including any handheld computing device, any electronic device capable of connecting to any online service, or any data storage media) without the prior written approval of the U.S. Probation Officer. This includes, but is not limited to, computers at public libraries, Internet cafes, or the defendant’s place of employment or education. Furthermore, he shall consent to the search of his computer for content related to criminal activity, at the request of his probation officer. (Condition 14)
West appealed the special conditions of supervised release, claiming that they were an abuse of discretion and violated his First Amendment rights. (he also appealed an evidentiary issue, which I skip).
Background on Special Conditions
The court set out the context for the district court’s imposition of the special conditions as well as the appellate court’s review of conditions that the trial court imposed:
The district court’s broad discretion to impose special conditions if they comport with the strictures of 18 U.S.C. § 3583(d) that the condition is: (1) reasonably related to the nature and circumstances of the offense, the history and characteristics of the defendant, adequate deterrence, public protection, and the needs of the defendant; (2) involves no greater deprivation of liberty than reasonably necessary for the sentencing purposes of adequate deterrence, public protection, and the needs of the defendant; and (3) is consistent with applicable policy statements by the United States Sentencing Commission.
The opinion describes the appellate court’s review of the district court’s imposition of special conditions is based on an abuse of discretion though also noted that a closer review than generally associated with abuse of discretion accompanies conditions that may impinge on constitutional rights.
The 8th Circuit first addressed the condition that prohibited West’s creation of any new websites. West argued that it was overbroad and also violated his First Amendment rights, though he conceded that if the condition were restricted to not setting up websites that related to disseminating tax advice it might be legitimate. The government argued that it was not overbroad and consistent with 18 USC 3583(d) and that the speech was commercial speech not within First Amendment protection.
In resolving this in favor of West, the 8th Circuit noted that most of the cases where such a condition has been imposed relate to those convicted of criminal sex offenses. After going through the cases in the sex offense context, the opinion concluded that the restriction imposed on West was too broad, even assuming that the government’s “questionable” position that he was only engaged in commercial speech. It noted that given that West did engage and assist others in violating tax laws “there may be a plainly legitimate sweep of restrictions the district court could have placed on West’s ability to promote his ideas through the Internet.”
Despite the possible legitimate restrictions, the 8th Circuit noted that the district court’s special condition “prohibits West from creating and maintaining any website irrespective of its content.” It noted the importance of the web and the reluctance to impose such a broad restriction on the right to speech:
Although West misused his access to the Internet, websites present an important mode of communicative and commercial intercourse in our society through which West can exercise his right to speak. Because “[t]his court is ‘particularly reluctant to uphold sweeping restrictions on important constitutional rights,’ … such [absolute] bans are disfavored.” Bender, 566 F.3d at 753 (quoting Crume, 422 F.3d at 733). We agree with West that Special Condition #13 deprives him of a greater amount of liberty than necessary to achieve the sentencing purposes.
The 8th Circuit similarly struck down the condition limiting his use or possession of any computer without Probation Officer approval. First, it noted that while there were no individualized findings that West used a computer to promote tax evasion schemes, “[t]his likely can be inferred from his Internet activity. The use of a computer could also arguably be inferred from West’s two-level enhancement for sophisticated means in the creation of multiple accounts for different businesses and complex transactions made between them in an effort to conceal income.”
That computer usage in furtherance of the tax offense was insufficient to justify the broad ban on computer usage:
But if these activities comprise the full extent of findings justifying the ban on computers, then clearly the restriction is broader than necessary, as computers may be used in myriad ways not related to promoting tax evasion online or concealing funds. We are convinced the district court could have crafted a narrower restriction that would have adequately achieved the sentencing purposes of deterrence and public protection without hindering West in continuing his career as a computer technician
Peter Hardy, a partner at Ballard Spahr, former federal prosecutor for over a decade and expert on criminal tax law, offers some interesting thoughts on the opinion. Peter notes that it is “good to see a court put some teeth into the substantive limits of Section 3583(d) (“no greater deprivation of liberty than reasonably necessary . . . “), particularly given the deferential standard on appeal.” In addition, Peter believes that “the court appropriately distinguishes the cases involving child pornography. Putting aside the general exception to the Constitution for drug and child porn offenses (I am joking, sort of), in those cases the electronic transmissions/images are themselves contraband – i.e., it’s actually illegal to possess any electronic device containing the images. Perhaps a similar distinction could be made as well with cases involving hacking, in which it is literally impossible to commit the crime without using an electronic device.”
Peter offers more on why he thinks the 8th Circuit’s approach was correct:
I am sure that the defendant’s websites were obnoxious, but his use of the Internet to facilitate his offenses (and there was no doubt an aspect of opinion and advocacy in his anti-tax railings) hardly distinguishes him from other federal felons. Most fraud offenses – as the use of the wire fraud statute can attest – are facilitated one way or another through the Internet or e-mail, given the ubiquity of that form of communication. Even drug schemes are often facilitated through texting. However, you don’t really see courts prohibiting the average fraudster (health care fraud/securities fraud/consumer fraud/mortgage fraud/whatever) or drug dealer from using computers. I am not raising an Equal Protection point so much as noting that such prohibitions don’t happen in other cases because I think it is implicitly understood that such a prohibition would be overkill. Here, the district court just seemed to be annoyed with the content of the defendant’s beliefs, and reacting on that basis.
Peter’s thoughts are sensible. I understand the frustration that judges must feel when confronted with cases such as this. Yet, sharing a vacation house with teenagers this week where the internet is spotty brings home how important computer and internet usage is to everyday life. Today’s technology obviously facilitates a greater spreading of ideas; that carries heavy risk when the ideas are bad and encourage others to likewise break the law. Yet this opinion I think rightfully limits broad restrictions on computer usage for general tax evasion offenses.
UPDATE: 8/4 For a discussion of the part of the opinion I did not discuss, West’s argument that the trial court erred in not allowing to present his Cheek defense properly, see Jack Townsend’s Federal Tax Crimes post here