Two recent cases have evoked memories of criminal prosecutions for promoters of abusive tax shelters:  United States v. Daugerdas, 2022 U.S. App. LEXIS 2776 (2d Cir. 1/31/22), Summary Order, CA2 hereand G.S. here; and Larson v. Commissioner, T.C. Memo. 2022-3, G.S. here.

I have discussed Daugerdas’ criminal prosecution and conviction in many blog entries. See here. Daugerdas was a lawyer promoter of Son of Boss tax shelters. He made a lot of money in the fraudulent shelters and, as one consequence, brought down his law firm, Jenkens & Gilchrist. At his sentencing, the Court imposed a sentence of 180 month period of incarceration and major financial penalties in the form of forfeiture of $164,737,500 and restitution of $371,006,397. Daugerdas had previously exhausted his direct appeal and 18 U.S.C. § 2255 remedies. This time, while still incarcerated, he sought relief for the monetary penalties by a writ of audita querela, a writ in criminal cases used to cover matters that could not be addressed in the other remedies he pursued. The Court held that the writ querela was not available because “Daugerdas could have sought relief through other legal avenues.”  As to both of the other remedies—direct appeal and § 2255—even though it was not certain that he could obtain relief, he had the opportunity to pursue relief.

One interesting argument Daugerdas raised was the potential for relief under the holding of Honeycutt v. United States, ___ U.S. ___, 137 S. Ct. 1626 (2017), G.S. here. Honeycutt held that, because of the language of the criminal forfeiture statute, a criminal defendant could not have forfeiture imposed for conduct for which the financial benefit went to other co-conspirators rather than Honeycutt. However, the principle of Honeycutt does not apply to restitution. (See 137 S.Ct. at 1634-1635.)  Co-conspirators can be held jointly and severally liable for restitution for losses within the reasonable scope of the conspiracy. See e.g., United States v. Veasey, (5th Cir. 1/28/21) Unpublished, CA5 here, and G.S. here(where the defendant raised the possibility for relief from restitution based on Honeycutt protectively in the event Honeycutt was applied to restitution during the appeal, see Slip Op. 27); and DOJ CTM, 44.03[2][b] Scheme, Conspiracy, or Pattern, here, pp. 14-16.

In Larson v. Commissioner, T.C. Memo. 2022-3, G.S. here, Larson had been convicted of promoting abusive tax shelters. The Larson saga has played prominently in earlier blogs. See here. At the time of filing the petition, he was incarcerated in El Paso. (Slip Op. 2-3.)  The shelter involved in this case was not one he promoted to others but one devised to help the related promoters of the schemes defer the inclusion of some of the substantial income from the transactions through an ESOP. Larson claimed the income could be deferred because he has a substantial risk of forfeiture. The Court held that he did not have a substantial risk of forfeiture and sustained the I.R.S. inclusion in income rather than deferring. The only interesting thing is the following (Slip Op. 9 n.  8): “At trial respondent conceded the fraud penalty for all years at issue.”