Minnesota Tax Crimes - Will the Court of Appeals Follow the Law?
The most common Minnesota Tax Crimes that we see are failing to file and failing to pay taxes, pursuant to Minn. Stat. 289A.63, subd. 1. The statute dictates that the severity level of the crime is either a gross misdemeanor or felony. The difference between the two is the level of intent by the defendant. To date, though, we have yet to see a case where the defendant is only charged with gross misdemeanor level offenses. Instead, no matter the facts, the State brings multiple felony charges – one for each year, which can often result in 10+ counts of failing to file and failing to pay. Unfortunately, there had been a dearth of case law on the distinction between gross misdemeanor and felony tax crimes, which has allowed the State to abuse it to its advantage. Thankfully, a case is pending before the Court of Appeals that addresses the importance of this distinction during pre-trial litigation, which will impact all Minnesota tax crimes once decided.
Tax Crimes Categories
To start, let’s go over the relevant statutory language that distinguishes gross misdemeanors and felony Minnesota tax crimes.
- Gross Misdemeanor Tax Crimes – A person required to file/pay a tax, who knowingly, rather than accidentally, inadvertently, or negligently, fails to do so is guilty of a gross misdemeanor.
- Felony Tax Crimes – A person required to file/pay a tax, who willfully attempts to evade or defeat a tax law by failing to file/pay, is guilty of a felony.
On the surface, the distinction appears to be simply knowingly versus willfully. But it’s more than that. The felony tax crime language includes this key phrase: an “attempt to evade or defeat” the tax obligation. So, the failing to file or pay taxes must be both willful and an attempt to evade or defeat the tax obligation. A fair reading of this full context should require something more than just a defendant who doesn’t fail or file their taxes for it to be a felony charge. But the State doesn’t believe that to be the case when it charges every one of these as felonies. Hopefully, that will change soon.
Recent Tax Crimes Cases
The Court of Appeals just heard oral arguments in a case that was dismissed by the Crow Wing District Court after it held that the facts were insufficient to establish felony level tax crimes. The facts: a taxpayer who previously paid taxes through 2014 suddenly stopped filing and paying, despite receiving income and knowing he should be filing and paying. That’s it. The defendant even admitted as much – all but admitting to a gross misdemeanor tax crime by knowingly failing to file/pay.
The Court’s analysis focused on the statutory language for the difference between gross misdemeanor and felony tax crimes. It found that the willful attempt language “indicate[d] a legislative intent that the statute would not be satisfied by someone merely failing to pay or file taxes alone….” Such an interpretation means the remainder of the statute – i.e. the willful attempt language – “would make little sense.”
Thus, the Court found that a felony violation occurs when a person “knows of a tax obligation, has failed to satisfy [it], and the failure is accompanied by a purpose to attempt evasion of the tax obligation both presently and in the future.” The Court then held that “something more” is required than just knowingly failing to file or pay. That was not satisfied by the State, resulting in the dismissal.
The State then asked the Court to reconsider its decision – as Jason Bateman once said, that’s a bold strategy, let’s see if it pays off for them. It did not and, frankly, it only made the record worse for the State in the pending appeal.
The Court doubled-down on the distinction between gross misdemeanor and felony tax crimes. The reading the State implored the Court to make essentially makes this distinction meaningless and would render the statute’s felony tax language “superfluous, void, or insignificant.” All of which is contrary to rules of statutory interpretation spelled out by statute and Supreme Court case law. As such, the Court held that it had a “judicial obligation” to make the distinction meaningful. The case remained dismissed.
The State appealed the District Court’s decision. It engaged in a nauseatingly meticulous analysis of the statutory language, claiming the Court’s order had logical fallacy in its interpretation, among other arguments. There’s a bit of Occam’s Razor in play – when you’re working that hard on an argument, usually the simplest explanation and reasoning is the best. The State then moved to the meat of the argument, claiming that the mere failing to file/pay after years of doing so could reasonably be inferred by a jury to be a willful attempt to evade or defeat the tax. Essentially, to the State – how dare the Court take the matter out of the juror’s hands. Unfortunately, based on our experience, this has uniformly been what courts do – they throw their hands up, exclaiming it is for the jury to decide. It’s far easier for a court to punt on the issue than make a tough legal decision. Thankfully, the Crow Wing District Court took the challenge head-on and made the right call – at least in our humble and objective (sort of) opinion.
Contact a Minnesota Criminal Defense Attorney Today
Now the question is, will the Court of Appeals make the right decision? We’ll update the site as soon as a decision is issued and explain the impact of it moving forward. Contact a member of our team for more information on tax crime cases.