Court Finds That the Criminal Offense for a U.S. Resident’s Willful Failure to File an FBAR was Not Unconstitutionally Vague

Have Tax Treaties Rendered Reporting Laws Unconstitutionally Vague?

The United States has entered tax treaties with selected individual countries. Certain taxpayers who are citizens of foreign countries also have green cards granting them resident status in the United States. Mr. Little argued that the tax laws and tax treaties created ambiguities in the law that were so vague that they did not give a person fair notice as to what conduct constituted a crime.

The Court considered this issue in the case of  United States v. Little, 2017 U.S. Dist. LEXIS 67580 (S.D. N.Y. 2017).

Void for Vagueness Standard.

The Court stated that the void-for-vagueness doctrine requires that a penal statute define the criminal offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary and discriminatory enforcement." United States v. Rybicki, 354 F.3d 124, 129 (2d Cir. 2003) (quoting Kolender v. Lawson, 461 U.S. 352, 357, 103 S. Ct. 1855, 75 L. Ed. 2d 903 (1983)).

The Court found that since the First Amendment was not implicated, the Court was required to  assess Little's challenge as applied, i.e., in light of the specific facts of the case at hand and not with regard to the statute's facial validity. (quoting United States v. Nadi, 996 F.2d 548, 550 (2d Cir. 1993)).

Courts examine “as-applied” vagueness claims in two steps: a court must first determine whether the statute gives the person of ordinary intelligence a reasonable opportunity to know what is prohibited and then consider whether the law provides explicit standards for those who apply it. See, Rubin v. Garvin, 544 F.3d 461, 468 (2d Cir. 2008) (quoting Farrell v. Burke, 449 F.3d 470, 486 (2d Cir. 2006)). The "novelty" of a prosecution does not bolster a vagueness challenge, for the lack of a prior litigated fact pattern that is precisely on point is immaterial. See, United States v. Kinzler, 55 F.3d 70, 74 (2d Cir. 1995).

The Effect of the Willfullness Requirement.

A scienter requirement may mitigate a law's vagueness, especially where the defendant alleges inadequate notice. See, Rubin, 544 F.3d at 467 (citing Vill. of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 499, 102 S. Ct. 1186, 71 L. Ed. 2d 362 (1982)). Where the punishment imposed is only for an act knowingly done with the purpose of doing that which the statute prohibits, the accused cannot be said to suffer from lack of warning or knowledge that the act which he does is a violation of law. See, United States v. Tannenbaum, 934 F.2d 8, 12 (2d Cir. 1991) (quoting Screws v. United States, 325 U.S. 91, 102, 65 S. Ct. 1031, 89 L. Ed. 1495 (1945) (plurality opinion)) (Bank Secrecy Act provision requiring reporting by financial institutions not void for vagueness when applied to an individual because the Act defined financial institutions to include "[a] person who engages as a business in dealing in or exchanging currency" and defendant knew he was "committing a wrongful act.")

The Court held that a reviewing court must conduct separate inquiries into the underlying statutes and regulations and then into the statutes imposing criminal penalties for certain types of violations of these statutes and regulations.

The Court found that the U.S. statutes and regulations that require alien lawful permanent residents (green card holders) to either (a) file a tax return and pay taxes on worldwide income, or (b) file a tax return reporting worldwide income and indicate that he or she is taking a particular protection under the Treaty, were not unconstitutionally vague as applied.

The Court also found that the statutes providing for criminal sanctions against individuals who violate these obligations are not vague as applied to alien lawful permanent residents.

Is there any set of facts in which a tax treaty could render existing criminal law unconstitutionally vague?

 

 

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