Wednesday, January 9, 2019

Not Automatic

The New York Appellate Division for the First Judicial Department has held that automatic disbarment did not attach to an attorney's federal tax conviction.

The crime

On June 12, 2017, respondent was convicted, upon his plea of guilty, in the United States District Court for the Southern District of New York, of corruptly endeavoring to obstruct and impede the due administration of the Internal Revenue laws in violation of 26 USC § 7212(a) and tax evasion in violation of 26 USC § 7201, both federal felonies.

On October 11, 2017, respondent was sentenced to two years in prison, followed by three years of supervised release, and ordered to pay $1.5 million in restitution to the Internal Revenue Service (IRS) for his unpaid tax debt.

Respondent's convictions stemmed from his alleged participation in a tax evasion scheme involving his diversion of millions of dollars of tax shelter fee income from his law firm to himself, and his failure to declare these fees as income to the IRS.

The law

We find that automatic disbarment is not warranted in the present case as respondent's plea admissions, when read in conjunction with the indictment and other testimony, do not establish "essential similarity" between the federal felonies of which respondent was convicted and the New York State felony of scheme to defraud in the first degree. Respondent never admitted that he engaged in any scheme to defraud. His plea admissions were limited to his acknowledgment that he failed to report in excess of $10,000 in income for each of the six years at issue. Respondent did not admit to engaging in a "systematic ongoing course of conduct" by which he wrongfully obtained property "with a value in excess of one thousand dollars" from a defrauded party. Moreover, in his written plea agreement, respondent reserved his right to argue that his receipt of the unreported income did not warrant an upward adjustment in his sentence under the federal sentencing guidelines because, contrary to the government's position, it was not "income . . . from [a] criminal activity" and the court declined to make such an upward adjustment when it calculated respondent's sentence.

The Committee takes the position that there is an essential similarity between the federal felonies of which respondent was convicted and the New York State felony of scheme to defraud in the first degree based on the allegations in the indictment that respondent "secretly and unlawfully diverted from a major law firm" over $3 million in fraudulently obtained fee income from tax shelter and related transactions that he worked on while serving as a partner of the law firm, that respondent caused false statements to be made to the IRS, and that respondent evaded a substantial part of his income tax due and owing to the IRS by filing a false tax return which did not include the unlawfully diverted income. Additionally, the Committee relies on the statements made by the prosecutor at respondent's sentencing in which the prosecutor emphasized that respondent's crimes encompassed deceiving his law partners by hiding substantial fee income in blatant contravention of the terms of their partnership agreement, as well as the statements of the sentencing court when it highlighted the protracted and dishonest nature of respondent's actions, which deprived the federal government of significant tax revenue. Further, the Committee points to the fact that when the sentencing court gave respondent a chance to be heard in response to those statements, he did not dispute the prosecutor's recitation of respondent's deceit of his partners.

However, respondent never admitted to any of the allegations in the indictment that he engaged in a scheme to defraud his law partners. All that he admitted to was that he failed to report income to the IRS. Respondent reserved his right to argue that he should not receive an upward adjustment because he did not receive any income from a criminal activity, thereby disputing any statements made by the prosecution and sentencing court that he engaged in a scheme to defraud.

The attorney is directed to show cause why final discipline should not be imposed. (Mike Frisch)

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