United States District Court, D. Nevada
ORDER ADOPTING REPORTS AND RECOMMENDATION [ECF NOS.
22, 57, 76]
JENNIFER A. DORSEY, U S. DISTRICT JUDGE.
Defendant
Craig P. Orrock was indicted for tax evasion after allegedly
using an LLC as a nominee to sell one of his properties and
hide the profits from the IRS.[1] Orrock moves to dismiss count 2,
which charges him with “evasion of assessment of
tax.”[2] He argues that count 2 fails to state an
offense and that the statute-of-limitations period has
expired.[3] Magistrate Judge Hoffman recommends that I
deny the motion.[4] After considering Orrock's objection
to Judge Hoffman's recommendation and reviewing his
original motion de novo, I overrule the objection, accept and
adopt the recommendation, and deny the motion.
Background[5]
The
Government alleges that, in 2001, Orrock used a nominee to
purchase real property that it refers to as the Arville
Property.[6] The nominee then deeded the Arville
Property to Arville Properties, LLC.[7] Although the LLC was not
organized under Orrock's name, the Government alleges
that Orrock is the true owner because he “controlled
the company and was the sole signor of the company's bank
account.”[8] Then in 2007, Arville Properties, LLC sold
the Arville Property for $1.5 million, and Orrock made
approximately $810, 000 in profits from the
sale.[9]Orrock filed his personal
federal-income-tax return for 2007 in 2009, but he did not
report any income earned from the sale of the Arville
Property.[10] The IRS notified Orrock in February 2011
that his 2007 federal-income-tax return was being audited,
and three months later, Orrock filed a false 2007 tax return
for Arville Properties LLC that did not report the sale
either.[11]
A grand
jury indicted Orrock on April 12, 2016, on three counts: (1)
evasion of payment of tax; (2) evasion of assessment of tax;
and (3) attempts to interfere with administration of internal
revenue laws.[12] Orrock moves to dismiss count 2,
[13]
Magistrate Judge Hoffman recommends that I deny the motion,
[14]
and Orrock specifically objects to the recommendation,
reiterating his motion-to-dismiss arguments that count 2
fails to state an offense and that it's barred by the
statute of limitations.[15]
Discussion
A.
Specific-objection standard
A
district court reviews objections to a magistrate judge's
proposed findings and recommendations de novo.[16]
“[R]eview de novo means that the court should make an
independent determination of the issues and should not give
any special weight to the prior determination of the
[magistrate judge].”[17] “Normally, the judge . .
. will consider the record which has been developed before
the magistrate and make [her] own determination on the basis
of that record, without being bound to adopt the findings and
conclusions of the magistrate.”[18]“The
district judge may accept, reject, or modify the
recommendation, receive further evidence, or resubmit the
matter to the magistrate judge with
instructions.”[19]
B.
Motion-to-dismiss standard
“Federal
Rule of Criminal Procedure 12(b) allows a defendant to file a
pretrial motion to dismiss an indictment for failure to state
an offense if the motion ‘can be determined without a
trial on the merits.'”[20] “A motion to
dismiss is generally capable of determination before trial if
it involves questions of law rather than
fact.”[21] “In determining whether an
indictment charges a cognizable offense, [I am] bound by the
four corners of the indictment, must accept the truth of the
allegations in the indictment, and cannot consider evidence
that does not appear on the face of the
indictment.”[22] An indictment need only be a
“plain, concise, and definite written statement of the
essential facts constituting the offense
charged.”[23] “An indictment returned by a
legally constituted and unbiased grand jury, like an
information drawn by the prosecutor, if valid on its face, is
enough to call for trial of the charge on the
merits.”[24] “Dismissal of an indictment is
considered a ‘drastic step' and is generally
disfavored as a remedy.”[25]
C.
Count 2 sufficiently alleges each element of the crime of
tax-assessment evasion.
Orrock
is charged with tax-payment evasion and tax-assessment
evasion, both in violation of 26 U.S.C. §
7201.[26] Section 7201 proscribes “the
offense of willfully attempting to evade or defeat the
assessment of tax as well as the offense of willfully
attempting to evade or defeat the payment of a
tax.”[27] “Evasion of assessment generally
involves efforts to prevent or deter the government from
determining tax liability prior to an assessment, for example
by ‘failing to file a return, filing a false return,
failing to keep records, concealing income or other
means.'”[28] “Evasion of payment, by
comparison, generally involves conduct designed to place
assets beyond the government's reach after a tax
liability has been assessed, such as by transferring assets
abroad, placing assets in the names of others, or using cash
transactions to conceal the existence of
assets.”[29] Regardless, tax-payment evasion and
tax-assessment evasion are two methods of committing the same
crime: tax evasion.[30]
Orrock
challenges only the tax-assessment-evasion
charge.[31] The elements of a § 7201 violation
are: (1) willfulness; (2) the existence of a tax deficiency;
and (3) an affirmative act constituting an evasion or
attempted evasion of the tax.[32] The elements are the same
whether the charge is for evading assessment or payment; the
only distinction is the timing of the affirmative
act.[33] An affirmative act before tax liability
is assessed is an assessment-evading act, while an act after
assessment and before payment is a payment-evading
act.[34] Orrock does not challenge count 2 on the
first two elements; he challenges only the affirmative-act
element.[35]
Count 2
for tax-assessment evasion alleges in its entirety:
That in or about February 2007, and continuing to at least on
or about May 9, 2011, in the District of Nevada, CRAIG P.
ORROCK did willfully attempt to evade and defeat the
assessment of a large part of the income tax due and owing by
him to the United States of America for the calendar year
2007, by concealing both ownership of property he held
through a nominee known as Arville Properties, LLC, and the
proceeds from the sale of such property from the Internal
Revenue Service, and thereby evading the proper assessment of
his 2007 federal income taxes.
All in violation of Title 26, United States Code, Section
7201.[36]
Count 2
sufficiently alleges that Orrock performed an affirmative act
that could constitute tax-assessment evasion. The federal
system's liberal pleading standard requires the
Government to allege that Orrock committed “one or more
affirmative acts of evasion of assessment,
”[37] but the Government went beyond that and
provided two specific affirmative-act theories: concealing
ownership and concealing profits.
Orrock
argues that concealing his ownership of the Arville Property
by using a nominee to sell it “by definition has no
effect on assessment of taxes”[38] because “[i]f
Arville was [Orrock's] nominee, Arville had no separate
existence from [Orrock] for tax purposes, and all reportable
taxes (whether they were actually reported or not) arising
from the Arville transaction could only have been reported on
[Orrock's] personal form 1040.”[39] Orrock cites
no authority for the proposition that using a nominee to own
and sell a property cannot, as a matter of law, constitute an
evasion or attempted evasion of tax-liability assessment. He
merely cites to two cases that hold a taxpayer liable for
profits and losses on a property held or sold by a
nominee.[40] These two cases do not support
Orrock's argument.
The
Government alleges that Orrock used a nominee to conceal his
ownership of a property and the income he earned when the
property sold. Regardless of how he did it, concealing
ownership of a property and the income gained from selling
that property can both be attempts to evade tax
assessment-that is for a jury to decide.
Orrock
also argues that his tax liability for 2007 was definitively
assessed on March 30, 2009, so “[a]ny affirmative acts
occurring after a tax liability for 2007 was determined to be
due and owing can only support an attempt to evade
payment, not assessment as count 2
alleges.”[41]This argument relies entirely on
Orrock's incorrect statement that any assessment on March
30, 2009, of his 2007 tax liability was final. As the
Government points out, “the IRS opened a civil audit on
Orrock for the 2007 tax year, ” and in April 2011, the
IRS notified Orrock that it was auditing his 2007 tax
liability.[42] When the IRS performs an audit, it
assesses the taxpayer's ...