Filing False Tax Return Leads to Deportation Charge 

    TAX TRENDS 
    by James A. Beavers, J.D., LL.M., CPA, CGMA 
    Published May 01, 2012

    Procedure & Administration

    The Supreme Court held that filing a false tax return or aiding and abetting in the preparation of a false tax return are offenses that can subject permanent resident aliens to deportation as aliens who have been convicted of an aggravated felony.

    Background

    Akio and Fusako Kawashima are natives and citizens of Japan who have been lawful permanent residents of the United States since June 21, 1984. In 1997, Mr. Kawashima pleaded guilty to one count of willfully making and subscribing a false tax return (Sec. 7206(1)). Mrs. Kawashima pleaded guilty to one count of aiding and assisting in the preparation of a false tax return (Sec. 7206(2)).

    Following their convictions, the Immigration and Naturalization Service charged the Kawashimas with being deportable from the United States as aliens who had been convicted under the Immigration and Nationality Act of an aggravated felony (8 U.S.C. §1227(a)(2)(A)(iii)). The categories of offenses that qualify as “aggravated felonies” for the purpose of deportation are found in 8 U.S.C. Section 1101(a)(43). The government charged the Kawashimas with being deportable for committing offenses under Section 1101(a)(43)(M), which classifies as an aggravated felony an offense that either: (1) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000 (clause (i)); or (2) is described in Sec. 7201 (“Attempt to Evade or Defeat Tax”) in which the revenue loss to the government exceeds $10,000 (clause (ii)).

    The Kawashimas argued at their deportation hearing that their Sec. 7206 convictions were not aggravated felonies under Section 1101(a)(43)(M), but the judge found that they were aggravated felonies under clause (i) and ordered the Kawashimas be removed. After losing their administrative appeal, the Kawashimas appealed their case to the Ninth Circuit.

    The Ninth Circuit held that the crime for which Mr. Kawashima was convicted was an aggravated felony under clause (i) because it involved fraud and deceit and had resulted in a loss of more than $10,000 to the government. It likewise found that Mrs. Kawashima’s crime involved fraud and deceit, but remanded her case to the Board of Immigration Appeals to determine the amount of loss because her plea agreement was not in the administrative record. The Kawashimas appealed the issue of whether their convictions for violating Sec. 7206 qualified under clause (i) as aggravated felonies to the Supreme Court, which agreed to hear the case.

    The Supreme Court’s Decision

    The Supreme Court affirmed that the Kawashimas’ crimes were aggravated felonies under clause (i) for which they could be deported. The Kawashimas advanced two arguments before the Supreme Court. First, they asserted that they could not be deported for commission of an “aggravated felony” because crimes under Secs. 7206(1) and (2) do not “involv[e] fraud or deceit” as required by clause (i). Second, they claimed that their convictions under Sec. 7206 are not “aggravated felonies” because tax crimes are not offenses covered by clause (i).

    With respect to the first argument, the court found that, although the words “fraud” and “deceit” are not in the text of Sec. 7206(1) and are not themselves formal elements of the crime, it did not mean that the Kawashimas’ offenses fell outside of clause (i). The Court found that the scope of that clause is not limited to offenses that include fraud or deceit as formal elements. Rather, the Court explained, clause (i) refers more broadly to offenses that involve fraud or deceit—meaning offenses with elements that necessarily entail fraudulent or deceitful conduct. Looking at the dictionary definition of deceit, the Court concluded that Mr. Kawashima’s conviction established that he had engaged in conduct (knowingly and willfully submitting a tax return that was false as to a material matter) that involved deceit. Applying the same analysis, the Court found that Mrs. Kawashima’s offense also involved deceit.

    With respect to their second argument, that clause (i) was inapplicable to tax crimes, the Kawashimas contended that subparagraph 1101(a)(43)(M), when considered in its entirety, demonstrates that Congress was addressing two mutually exclusive categories of crimes in its two clauses: general, nontax crimes involving fraud or deceit that cause actual losses to real victims in clause (i), and tax crimes involving revenue losses to the government in clause (ii). The Kawashimas took the position that, because clause (i) refers to a “loss to the victim” and clause (ii) refers to “revenue loss to the Government,” clause (i) must not include tax crimes. The Court rejected this position, concluding that the fact that Congress had tailored the language of clause (ii) to fit the one offense (tax evasion) that it applied to did not indicate that it was Congress’s intent to limit the scope of crimes to which clause (i) applied.

    The Kawashimas also maintained that clause (i) should not be interpreted to include tax crimes because this would violate the presumption against superfluities. Under this presumption, a court is required to interpret a law in such a way that no part of the law is superfluous or inoperative. According to the Kawashimas, tax evasion, the crime addressed in clause (ii), always involves fraud or deceit, so if clause (i) covers tax crimes, clause (ii) would be rendered unnecessary because tax evasion would always be a clause (i) offense.

    The Court disagreed, finding that, rather than attempting to limit the scope of clause (i) by mentioning a single crime in clause (ii), it was more likely that Congress specifically included tax evasion in clause (ii) to remove any doubt that tax evasion qualified as an aggravated felony. In support of this conclusion, the Court noted that, on its face, Sec. 7201, the tax evasion statute, does not mention fraud or deceit, and they are not among the elements of a conviction under Sec. 7201, which include (1) willfulness; (2) the existence of a tax deficiency; and (3) an affirmative act constituting an evasion or attempted evasion of tax. Thus, the Court concluded that tax evasion would be an aggravated felony under clause (i) only if a willful, affirmative attempt to evade a tax entailed fraud or deceit.

    The Court stated that there was good reason that Congress would have doubted that a conviction under Sec. 7201 would be considered to entail fraud or deceit because the Court had held in Scharton, 285 U.S. 518 (1932), that fraud was not implicit in the concept of evading tax. The Court further noted that, under Sec. 7201, it was also a crime to evade or defeat payment of a tax. The government had conceded that cases involving evasion of payment almost always involve some affirmative acts of fraud or deceit, but the Court emphasized that, nonetheless, it was still true that the elements of tax evasion do not necessarily involve fraud or deceit. Therefore it found that Congress included tax evasion in clause (ii) to ensure that it was a deportable offense and not to remove all other tax crimes from the scope of clause (i).

    Reflections

    Undoubtedly, when the Kawashimas filed the false return that gave rise to this case, they had no idea how great the collateral damage could be. Although it is not possible to tell from this opinion how often and for what specific tax offenses the government might try to have a permanent resident deported, tax practitioners who have permanent resident clients should make them aware that it is a very real possibility that the commission of a tax offense could lead to deportation.

    Kawashima v. Holder, No. 10-577 (U.S. 2/21/12), aff’g 615 F.3d 1043 (9th Cir. 2010)




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