In Marinello v. United States, 584 U.S. — (2018), the Supreme Court wrestled with whether the federal tax obstruction statute reaches conduct unrelated to an ongoing or contemplated IRS proceeding. Section 7212(a) states, in relevant part, that anyone who “corruptly or by force . . . obstructs or impedes, or endeavors to obstruct or impede the due administration” of the tax code has committed a criminal offense. The United States had argued that the defendant violated the statute through eight specific activities, including the destruction of business records. Marinello argued that because he was not aware of any audit or investigation when he committed the alleged acts, Section 7212(a) could not reach his conduct.
The Court, in a 7-2 decision, sided with Marinello. It examined other federal obstruction statutes and, drawing from them, concluded that Section 7212(a) applied only when the defendant was going through or reasonably expected an IRS proceeding, like an audit or investigation. Thus, the Court reversed the Second Circuit’s judgment and remanded the case to the lower court.
In reaching its conclusion, the Court warned that odd consequences would follow if it gave Section 7212(a) a broad interpretation. That is, the Court believed that absent an IRS proceeding requirement, taxpayers could commit tax obstruction through seemingly innocuous acts. For example, Section 7212(a) could apply to a taxpayer who “fails to keep donation receipts from every charity to which he or she contributes,” or to a taxpayer who “leaves a large cash tip in a restaurant.” Marinello, Slip Op. at 7.
The Court may very well have reached the correct holding regarding Section 7212(a), but the cited examples are odd. Even under an exceptionally broad reading of that statute, a taxpayer could not violate the law by failing to retain receipts for her charitable donations. That is, the tax code does not require that taxpayers retain charitable donation receipts. Rather, only if the taxpayer wishes to claim a deduction must she retain documentation. See Sections 170(a) & (f)(8). No one should fear prosecution for simply donating large amounts to charity and throwing away any receipts she is provided. Although the Court’s mischaracterization of Section 170 may seem immaterial, whether the statute imposes requirements on taxpayers will make a critical difference if and when the Court decides to resolve the conflict between Chevron deference and the rule of lenity for dual-enforcement statutes. See Grewal, Why Lenity Has No Place in the Income Tax Laws, 81 Mo. L. Rev. 1045 (2017).)
The example regarding cash tips also seems odd, given Section 7212(a)’s reference to behavior that “obstructs or impedes” the due administration of the tax code. That is, it’s hard to see how using a perfectly lawful medium for payment (cash) reflects an attempt to obstruct or impede the tax system. Some cash transactions may carry reporting requirements and may be structured in ways that violate the law, but cash payments to a restaurant server do not. Thus, even if Section 7212(a) lacks an IRS proceeding requirement, the statute will not reach cash tippers—the words “obstruct” or “impede” will keep them safe from prosecution.
None of this is to say that the Court decided Marinello incorrectly. However, it is a bit disappointing that the Court’s consequentialist arguments relied on a misunderstanding of how the tax code operates. One hopes that the Court will appreciate the tax code’s nuances when the stakes are higher.
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