Willful Blindness Jury Instruction Upheld In Tax Conviction
On September 9, 2010, the United States Court of Appeals for the 3rd Circuit held that the use of a “willful blindness” jury instruction satisfies the willfulness element of a criminal tax offense. In finding the jury instruction appropriate, the court concluded that, where warranted by the trial evidence, a willful blindness instruction “properly appl[ies] to a defendants knowledge of his legal duties.”
The 3rd Circuit upheld the conviction of Richard Stadtmauer, an account and executive vice president of Kushner Companies, for conspiracy to defraud the United States and for willfully aiding in the filing of materially false or fraudulent tax returns. The charges against Stadtmauer grew out of an investigation of Charles Kushner, chairman of Kushner Companies. Prior to Stadtmauers charging and conviction, Charles Kushner pled guilty to assisting in the filing of false returns. While Kushner was under investigation Stadtmauer was charged with conspiracy to take $6 million in improper deductions for limited partnerships owned by Kushner.
Mr. Stadtmauers appeal centered on the District Courts instructions to the jury regarding Stadtmauers knowledge of the falsity of his companys tax returns. For the government to establish that Stadtmauer willfully aided in preparing false returns, it was required to prove that Stadtmauer intentionally violated a known legal duty. In his instructions to the jury, U.S. District Court Judge Jose Linares told the jury it could convict if it found that Stadtmauer knew about applicable IRS requirements or if Stadtmauer “deliberately closed hiseyes to what hehad every reason to believe.”
Stadtmauer argued on appeal that the jury instruction did not satisfy the requirement that the government establish that the law imposed a duty on the defendant and that the defendant knew of this duty. Stadtmauer relied heavily on Cheek v. United States, 498 U.S. 192 (1991), a 1991 U.S. Supreme Court case, which Stadtmauer argued prevented the use of willful blindness to satisfy the willfulness element in tax fraud cases. The 3rd Circuit rejected this argument finding that Stadtmauers case was clearly distinguishable stating “Stadtmauers attempt to equate a person who deliberately avoids learning of a legal duty with a personwho is ignorant of that duty by virtue of a good-faith belief or misunderstanding is not persuasive.” The decision of the 3rd Circuit falls in line with decisions of the 1st, 5th, 7th, and 11th Circuits which have also held that Cheek does not prevent a willful blindness instruction in tax fraud cases.
The appeals court also rejected arguments by Stadtmauer that willful blindness improperly applied to intent and that the government was required to provide direct evidence of conscious avoidance to satisfy a willful blindness instruction. A copy of the 3rd Circuits opinion can be read here: U.S. v. Stadtmauer.
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