In civil and in criminal cases, the Government must generally act within a certain prescribed time to take action against taxpayers. In legal parlance, this period of time is known as the “statute of limitations.” The statute of limitations generally forces the Government to show its hand and file suit more quickly to avoid prejudice to taxpayers, which may occur through stale evidence or faded memories.
The statute of limitations for many criminal tax cases is located in I.R.C. § 6531. For example, that provision states that the Government must generally bring a criminal action against a taxpayer within 6 years after the commission of the offense. But there are exceptions to this general rule. Indeed, the recent Fifth Circuit Court of Appeals decision in U.S. v. Pursley discusses one notable exception potentially applicable to taxpayers with foreign activities and foreign accounts: 18 U.S.C. § 3292.
Jack Pursley (“Pursley”) was a licensed attorney in the State of Texas. He was college friends with Shaun Mooney (“Mooney”). Mooney had interests in several businesses overseas including in the Isle of Man.
The Alleged Tax Evasion and Conspiracy Scheme.
At some point, Mooney approached Pursley and informed him that he had over $18 million of untaxed funds in foreign accounts associated with his business ventures overseas. He planned to bring those funds back and was concerned that the repatriation may bring the attention of the Government. He asked Pursley to help him.
Pursley and Mooney later set up various domestic entities and, among other things, moved funds from IOLTA accounts to the domestic entities. In exchange for Pursley’s help, Mooney gave Pursley ownership interests in the domestic entities. Neither Mooney nor Pursley reported income from the transactions on their federal income tax returns.
Mooney Makes an OVDP Submission.
Although not stated in the indictment, discussed infra, Mooney eventually had second thoughts about the transactions and submitted a disclosure under the now-closed IRS’s Offshore Voluntary Disclosure Program (“OVDP”). As part of the OVDP, Mooney would have been required to identify any help he received in avoiding federal income taxes. Presumably, based on these questions, Mooney identified Pursley as an accomplice.
The Government Investigates Pursley.
Armed with this information, the Government sent several requests to the Isle of Man government. First, on February 18, 2016, the Government sent a first “Request for Assistance in the Investigation of Jack Stephen Pursley and Charles Gillis” to the Isle of Man (the “First Request”).[ii] Later, on March 15, 2016, the Government sent the Isle of Man a “First Supplemental Request for Assistance in the Investigation of Jack Stephen Pursley and Charles Gillis (the “Second Request”).[iii]
The Isle of Man cooperated with the Government and sent requested documentation to the Government as early as May 26, 2016. In a series of subsequent communications, the Isle of Man continued to send information to the Government in response to the First Request and the Second Request. On May 18, 2017, the Isle of Man government communicated to the Government that it believed it had complied with the First Request and the Second Request.
The Government’s Ex Parte 18 U.S.C. § 3292 Motion.
Recognizing that it may need additional time to charge Pursley, the Government moved, on August 23, 2016, for a suspension of the statute of limitations under 18 U.S.C. § 3292. The district court granted the ex parte application the next day. The district court’s order stated that “the running of the statute of limitations for the offenses set forth in the Government’s Ex Parte Application is hereby SUSPENDED for the period authorized by 18 U.S.C. § 3292(b), (c).” The order did not specify the length of the extension.
Pursley’s Indictment, Conviction and Appeal.
On September 20, 2018, the United States filed a grand jury indictment against Pursley. The indictment alleged four counts—one for conspiracy to defraud the United States under 18 U.S.C. § 371 and three for tax evasion under 26 U.S.C. § 7201.
Pursley moved to dismiss all counts as barred by the statute of limitations. The government opposed the motion to dismiss on the grounds that the lower court had entered a suspension order. The district court denied the motion to dismiss without written reasons in a case management order. Pursley later moved again to dismiss due to the statute of limitations when he discovered new evidence in May 2019—however, the district court denied the second motion to dismiss.
Pursley was tried in September 2019. He proposed a jury instruction that read: “For you to find the defendant guilty, the government must prove beyond a reasonable doubt that the offense charged was committed within 6 years of the indictment.” The Government objected to the instruction for various reasons, including because it failed to account for tolling under 18 U.S.C. § 3292. The district court denied the limitations instruction requested by Pursley, and the final jury instruction did not include any instruction regarding the statute of limitations. The jury convicted Pursley on all counts, and he appealed.
The Fifth Circuit Decision.
The General Statute of Limitations.
Pursley was indicted for one count of conspiracy under 18 U.S.C. § 371 and three counts of tax evasion under 26 U.S.C. § 7201. The Fifth Circuit recognized that, without any suspension of the statute of limitations, the general 6-year statute of limitations applied to both of these criminal offenses. For the count of conspiracy, the Fifth Circuit indicated that the Government would have been required to file the criminal indictment within 6 years of the “overt acts alleged . . . and proved at trial.” U.S. v. Loe, 248 F.3d 449, 457 (5th Cir. 2001). And for the counts of tax evasion, the Government would have to prove that the latest affirmative act to evade tax liability was within 6 years of the indictment. U.S. v. Irby, 703 F.3d 280, 284 (5th Cir. 2012).
18 U.S.C. § 3292.
18 U.S.C. § 3292 provides that, upon application by the Government, a district court shall suspend the running of the statute of limitations for an offense if the court finds that an official request has been made to a foreign government for evidence of the offense and it reasonably appears that such evidence was in the foreign country. The statute further states: “a period of suspension under this section shall begin on the date on which the official request is made and end on the date on which the foreign court or authority takes final action on the request.” Id. at § 3292(b). Finally, the statute limits the length of time the limitations period may be suspended. It states that “[t]he total of all periods of suspension . . . shall not extend a period within which a criminal case must be initiated for more than six months if all foreign authorities take final action before such period would expire without regard to this section.” Id. § 3292(c)(2).
On appeal, the parties agreed that there had been at least some suspension of the general 6-year statute of limitations. However, they disagreed as to how long that suspension had lasted under 18 U.S.C. § 3292. Pursley and his counsel contended that “final action” under 18 U.S.C. § 3292(b) had occurred as of May 18, 2017, or the date of the Isle of Man letter indicating that the Isle of Man had believed it had complied with the First and Second Request. Conversely, the Government believed that the suspension had run through the date of the indictment.
The Fifth Circuit recognized that it had previously decided the scope of the term “final action” in 18 U.S.C. § 3292 in a prior decision. See U.S. v. Meador, 138 F.3d 986 (5th Cir. 1998). In explaining its prior decision in Meador, the Pursley court stated:
We held . . . [in Meador] that a determination of when a ‘final action’ has been taken by a foreign government ‘must turn on whether a dispositive response to an official request for evidence from our government has been obtained. We explained that ‘when the foreign government believes that it has completed its engagement and communicates that belief to our government, that foreign government has taken a ‘final action’ for the purposes of § 3292(b). We further emphasized that ‘[t]here must be a certain and definitive end to the suspension period, a point at which ‘final action’ can be plainly located. If the period is suspended retroactively whenever another relevant document comes in, there will be no certain end.’
Regarding the case presently before it, the Pursley court noted that, given its prior decision in Meador, the determination of whether the Isle of Man letter constituted a “final action” under 18 U.S.C. § 3292(b) represented a “fact-bound question.” And because it was a factual and disputable issue, the Fifth Circuit concluded that it should remand the case back the lower court to “determine whether the Isle of Man’s May 18, 2017 letter was a ‘final action’ on these facts.” To the extent the lower court concluded that the last overt act or affirmative act of any count fell outside of the statute of limitations, as suspended, the lower court was instructed to dismiss those counts.
The Fifth Circuit went further in also holding that the lower court erred in failing to instruct the jury on a proper statute of limitations defense. Thus, in addition to remanding the case to the lower court for its determination of the length of the suspension under 18 U.S.C. § 3292, the district court was further instructed to provide an instruction “in which a jury must find that an overt act or affirmative act was committed in the proper limitations period as to each count.”
The Government commonly investigates foreign accounts and foreign activities of United States taxpayers through the use of requests for information from other governments. As the decision in Pursley shows, this often provides the Government with additional time to bring criminal actions against the taxpayer. Taxpayers with foreign accounts and foreign activities should not rest so assured that the general statute of limitations period applicable to any tax crime has passed—rather, taxpayers should recognize that the period may be suspended in instances where the Government has utilized investigatory techniques such as those used in Pursley.
[i] The background facts are only as alleged in the indictment and in other court filings.
[ii] The First Request sought certain business records from an Isle of Man trust company, bank records from the Royal Bank of Scotland, Isle of Man branch, and official incorporation records for the foreign companies owned by Mooney. The First Request also sought “the assistance of the Isle of Man to interview six witnesses who are current or former employees” of the Isle of Man trust company.
[iii] The Second Request sought certain business records from a company that had represented the companies owned by Mooney.