Minnesota Felony Tax Crimes – Update – Court of Appeals Got it Wrong (In Our Opinion)
In a recent blog post, we questioned whether the court of appeals would follow the law when analyzing a Crow Wing district court order that dismissed a Minnesota felony tax crime case due to the lack of any evidence surrounding the requisite intent. The Minnesota Court of Appeals answered – and it got it wrong (at least in our humble opinion). We’ll scrutinize this opinion and update on what’s to come still with this case.
But first, let’s do a quick refresher of what the law is and what the primary issue is.
A Minnesota felony tax crime is based on a person who fails to file or pay their taxes and does so to willfully evade or defeat their tax obligation. This is different than a Minnesota gross misdemeanor tax crime, which simply requires a knowing failing to file or pay. This distinction in statutory language should mean that the State must provide facts showing that a defendant’s failure to file or pay, essentially, was done with malicious intent.
The Court of Appeals’ decision in State v. O’Day
The initial facts of State v. O’Day are straightforward: a taxpayer who had consistently paid taxes until 2014 suddenly stopped filing and paying, despite continuing to earn income and knowing he was required to do so. He admitted to this behavior, effectively acknowledging a gross misdemeanor offense for knowingly failing to file or pay taxes. The district court initially dismissed his felony tax charges, stating that the facts supported only a gross misdemeanor, as there must be “something more” than simply knowing he should pay, and then failing to do so.
On appeal, the Minnesota Court of Appeals analyzed the statutory language and reaffirmed that felony tax evasion requires more than just an awareness of failing to file. In so holding, the Court detailed the Minnesota felony tax crime to be broken down in the following manner: “the state must prove the defendant knew they were obligated to file a tax return or pay taxes due, did not satisfy their tax obligation, and failed to do so with the purpose to evade or defeat their tax obligation.” Great. That all makes sense. The problem is the very next sentence in the holding: “The state does not need to prove an additional evasive act.”
Previous examples of what would amount to the felony tax crime level of intent – having double set of books, moving money offshore, false entries, destroying documents, etc. – are great pieces of evidence, but far above what is needed now, according to the Court of Appeals. Instead, it reversed the district court’s dismissal on the meekest of fact patterns – the defendant had previously filed and paid, operated a successful business and, therefore, was a sophisticated businessman, earned substantial income and used it as his own, and he registered his business and then failed to re-register it. A benign set of facts, to say the least. In our objective (ok, maybe not entirely objective, but still…) opinion, these facts are the bare minimum for a knowing violation of the tax laws, not enough to justify a felony tax crime. But, to the Court of Appeals, reasonable inferences could be drawn from this in favor of the State, thereby presenting it as a case appropriate for a jury’s determination.
While an ‘an additional evasive act’ may be an appropriate conclusion, the facts still need something, anything to show that the defendant’s actions were more than just a knowing violation. And the facts before the Court were completely void of that. The result of this case is that all felony tax crime cases are nearly impenetrable in pre-trial litigation, unless the investigators majorly screwed up the investigation. And because of this, the State will continue to overly charge these felony tax crimes.
Contact A Criminal Defense Attorney Today
The good news is that the defendant is in the process of appealing this decision to the Minnesota Supreme Court. We will, of course, continue to keep you updated with the latest on this case. And, who knows, perhaps this firm may have some involvement in this further pursuit by the defendant. Contact a member of our team at North Star Criminal Defense for more information on felony tax crimes.