Criminal Tax Statute of Limitations (18 USC 3292) Vacated

18 USC 3292 Criminal Tax Statute of Limitations Vacated

Recently, a Tax Attorney in Texas was convicted in an offshore tax evasion scheme involving income that alluded US tax as it was re-routed through different foreign countries – including the Isle of Man. The US government aggressively pursued the attorney, which led to a Jury convicting him of Tax Evasion – and he was sentenced to 24 months in prison. During the trial, the defendant made some strong arguments about why the Statute of Limitations (SOL) had already expired — in addition to his position that the jury instructions were not accurate. The government contended that under 18 USC section 3292, the SOL should have been tolled, and thus it was not expired. The trial court agreed, but the Court of Appeals in the Fifth Circuit did not — and vacated the ruling. Let’s dive into what happened by referring to key sections of the ruling:

18 U.S.C. 3292

• • • (a) (1) Upon application of the United States, filed before return of an indictment, indicating that evidence of an offense is in a foreign country, the district court before which a grand jury is impaneled to investigate the offense shall suspend the running of the statute of limitations for the offense if the court finds by a preponderance of the evidence that an official request has been made for such evidence and that it reasonably appears, or reasonably appeared at the time the request was made, that such evidence is, or was, in such foreign country.

    • (2) The court shall rule upon such application not later than thirty days after the filing of the application.

    • (b) Except as provided in subsection (c) of this section, a period of suspension under this section shall begin on the date on which the official request is made and end on the date on which the foreign court or authority takes final action on the request.

    • (c) The total of all periods of suspension under this section with respect to an offense—

      • (1) shall not exceed three years; and

      • (2) shall not extend a period within which a criminal case must be initiated for more than six months if all foreign authorities take final action before such period would expire without regard to this section.

    • (d) As used in this section, the term “official request” means a letter rogatory, a request under a treaty or convention, or any other request for evidence made by a court of the United States or an authority of the United States having criminal law enforcement responsibility, to a court or other authority of a foreign country.

Holding in Pursley

• • • This criminal case concerns an intricate tax-fraud scheme, involving various offshore accounts, a myriad of transactions, and millions in untaxed funds. The focus of this appeal concerns a complex question of fact and law, involving various foreign governments, a host of ambiguous letters, and a thicket of precedent. Jack Pursley raised this complex question as part of his statute of limitations defense several times in motions to dismiss and in proposed jury charges.

    • The law and facts are difficult, but we conclude that Pursley was deprived of his statute of limitations defense. Because Pursley timely raised this defense, he was entitled to have it considered and to have the jury instructed on it.

The Pursley Investigation was Lengthy

• • • At some point in the past decade, a grand jury began investigating Pursley for his part in a significant tax fraud scheme. The extensive details of the conspiracy are laid out in the indictment and are mostly irrelevant to the precise issue before us. Relevant here is that the scheme involved the use of several offshore accounts, including certain accounts in the Isle of Man. On February 18, 2016, the U.S. Government sent a first “Request for Assistance in the Investigation of Jack Stephen Pursley and Charles Gillis” to the Isle of Man (the “First Request”).

    • According to a representation from the U.S. Government, the First Request sought “business records from Isle of Man Financial Trust Limited, bank records from the Royal Bank of Scotland, Isle of Man branch, and official incorporation records for Southeastern Shipping Company Limited and Pelhambridge Limited.” The First Request also sought “the assistance of the Isle of Man to interview six witnesses who are current or former employees of the [Isle of Man Financial Trust Limited]: Andrew Thomas, Nigel Tebay, Andrew Mellor, Kerry Smith, and Christine James and Tracy Duncan.”

18 USC 3292 Statutory Suspension

• • • On August 23, 2016, with both Requests pending, the Government moved for a suspension of the statute of limitations under 18 U.S.C. § 3292, which allows for a suspension of the limitations period when the Government seeks evidence from a foreign country.

    • District Court Judge Sim Lake granted the ex parte application the next day. The district court’s order stated that “the running of the statute of limitations for the offenses set forth in the Government’s Ex Parte Application is hereby SUSPENDED for the period authorized by 18 U.S.C. § 3292(b), (c).” The order did not specify the length of the extension.

Pursley Gets Indicted in 2018

• • • The grand jury returned a four-count indictment against Pursley on September 20, 2018. Count One charged Pursley with conspiracy to defraud the United States. Counts Two and Three charged Pursley with tax evasion for his 2009 and 2010 tax returns, respectively.

    • Count Four charged Purlsey with tax evasion in violation of 26 U.S.C. § 7201. The case was assigned to United States District Judge Lynn Hughes.

How Long Was the IRC 3292 Suspension?

• • • Pursley moved to dismiss all counts as barred by the statute of limitations. Relying on the suspension ordered by the district court, the Government opposed the motion. The district court denied the motion to dismiss without written reasons in a case management order. Pursley again moved to dismiss the indictment as untimely based on new evidence in May 2019.

    • The district court again denied the motion. At a pretrial hearing, the district court seemed to base the dismissal on the order suspending the limitations period without analysis of how long the suspension lasted.

Court Rejects Jury Instruction

• • • Pursley was tried in September 2019. Pursley proposed a jury instruction that read: “For you to find the defendant guilty, the government must prove beyond a reasonable doubt that the offense charged was committed within 6 years of the indictment.” Defense counsel raised this jury instruction at the charge conference.

    • The Government objected to the instruction for a variety of reasons, including because it failed to account for tolling under 18 U.S.C. § 3292. The Government “acknowledged that it could be appropriate to instruct the jury that it needed to find an overt or affirmative act within the correctly defined limitations period” but “noted that . . . the request was ‘awfully late’ and that ‘we could have dealt with this earlier.’”

    • The district court denied the limitations instruction requested by Pursley, and the final jury instructions did not include any instruction regarding the statute of limitations. The jury convicted Pursley on all counts.

The Key Issue is Whether the Statute of Limitations Already Expired

• • • To determine the merit of Pursley’s statute of limitations defense, it is necessary to determine exactly when the statute of limitations commenced and ran. Without a suspension, the statute of limitations for each count of the indictment ran for six years. See 26 U.S.C. § 6531.

    • As to Count One, “this court has held that the overt acts alleged in the indictment and proved at trial mark the duration of the conspiracy.” United States v. Loe, 248 F.3d 449, 457 (5th Cir. 2001). For Counts Two through Four, the statute of limitations begins to run at the latest affirmative act to evade tax liability. See United States v. Irby, 703 F.3d 280, 284 (5th Cir. 2012).

    • The parties agree that there was at least some suspension of the statute of limitations, but they dispute how long that suspension lasted.

What does Final Action Under 3292 Mean?

• • • On appeal, Pursley asks us to hold that the Isle of Man’s May 18, 2017 letter demonstrated that “the foreign government believe[ed] it ha[d] completed its engagement and communicate[d] that belief to our government” and was therefore a final action within the meaning of § 3292(b). Meador, 138 F.3d at 992.

    • The Government asks us to find that the May 18 letter did not include “a dispositive response to each item set out in the official request, including a request for certification” and therefore cannot be a “final action” under Bischel or Meador. Bischel, 61 F.3d at 1433.

Remanded to Determine Length of 3292 Suspension & SOL Defense

• • • The district court denied Pursley’s motions to dismiss summarily, referring to Judge Lake’s order pursuant to § 3292. But no district judge has Case: 20-20454 Document: 00516164175 Page: 8 Date Filed: 01/12/2022 No. 20-20454 9 yet calculated the length of the suspension under § 3292. On remand, the district court should consider the record1 and the applicable law to determine whether the Isle of Man’s May 18, 2017 letter was a “final action” on these facts. It should then calculate the relevant suspension of the statute of limitations. If the last overt act or affirmative act of any count falls outside of the statute of limitations, as suspended, that count is subject to dismissal.

    • Once a statute of limitations defense was raised, the Government was required to prove that at least one overt act or affirmative act took place within the limitations period as to each count. See United States v. Mann, 161 F.3d 840, 865–66 (5th Cir. 1998); see also United States v. Williams, 928 F.2d 145, 149 (5th Cir. 1991). The jury never made any such finding in this case, on the jury form or elsewhere, as it was never instructed that it was required to do so. On remand, the district court is hereby directed to calculate the length of the suspension, as detailed above. Pursley is entitled to a new trial, in which a jury must find that an overt or affirmative act was committed in the proper limitations period as to each count.

Court Rules in Favor of Pursley

• • • Pursley was entitled to have the district court fully consider his statute of limitations defense, to have the district court calculate the exact time the statute of limitations ran under existing precedent, to dismissal of any charge that was untimely under that calculation, and to a jury instruction on the statute of limitations defense. Accordingly, we VACATE Pursley’s conviction, and REMAND for proceedings consistent with this opinion.

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