The opinion of the court was delivered by: Gerard E. Lynch, District Judge
A grand jury indicted defendant Harry Willner on five counts of endeavoring to obstruct the administration of the Internal Revenue Service (Count One) and filing false corporate tax returns (Counts Two through Five). Willner moves to dismiss all counts of the indictment on the ground that they fail to charge offenses, and to dismiss Count One on the ground that it is duplicitous. He also moves to strike alleged surplusage from the indictment. All the motions will be denied.
Willner, while employed as an IRS agent, engaged in various outside activities. With the permission of his superiors, he taught business courses at graduate schools in Manhattan and had some affiliation with a magazine publisher, Royal Magazine, Inc. ("Royal"). In addition, he apparently operated a purported advertising business called NIA Advertising, Inc., ("NIA").
It is unclear from the indictment what if any business NIA ever did or what income it produced. Its tax returns reflect, however, that in the year 2002 it suffered a substantial net operating loss ("NOL") as a result of a reported unrepaid loan to Royal. Under the tax code, such an NOL, as a general rule, may be carried backward 2 years or forward 20 years to offset income earned by the taxpayer in other years. See 26 U.S.C. § 172(b)(1)(A).
The indictment charges that Willner devised a fraudulent scheme to utilize the NOL to shelter income earned not by NIA but by others, including himself. For example, as charged substantively in Counts Two through Five, Willner is charged with "assigning" his income earned by teaching during the years 2002 to 2005 to NIA, instructing his academic employers to make checks for his salary payable to NIA rather than to him. The income was thus reported on NIA's return rather than on his personal income tax return. Since NIA made no other income in the relevant tax years, its large NOL carry-forward meant that NIA paid no tax on this purported "income," while of course the income went unreported on Willner's own returns, where it would have resulted in increased tax liability.
According to the indictment, Willner sought to enlist others in this scheme, asking his accountant to identify other taxpayers who could similarly channel income through NIA. Willner's proposal, outlined in detail in a tape-recorded conversation with the accountant, was that he would accept payments due to the putative tax evader through NIA, report them to the IRS as income of NIA (where they would incur no liability because of NIA's continuing NOL), and then return 80% of the payments to the party that had earned them, retaining 20% as a fee for his services.
The indictment charges in Count One that Willner's alleged scheme for misusing the NOL constituted an endeavor to corruptly obstruct and impede the due administration of the internal revenue laws, in violation of 26 U.S.C. § 7212(a), and in Counts Two through Five that his reporting of his own income as NIA's income on NIA's tax returns constituted the filing of false and fraudulent corporate tax returns for the relevant tax years, in violation of 26 U.S.C. § 7206(2).
Willner moves to dismiss Count One for failure to state a crime and for duplicity, to dismiss Counts Two through Five for failure to state a crime, and to strike alleged surplusage from the indictment.
A. Failure to Charge a Crime
Willner argues that Count One fails to charge a crime, citing United States v. Kassouf, 144 F.3d 952 (6th Cir. 1998), for the proposition that the crime of endeavoring to obstruct the administration of the internal revenue laws requires more than mere efforts to evade taxes, but the additional element of interference with an on-going proceeding or investigation of the Internal Revenue Service.
The Government first argues that the Court should not consider Willner's argument, contending that it is nothing more than a premature effort to test the sufficiency of the Government's evidence before trial, and that the facial sufficiency of an indictment that recites the statutory elements defeats Willner's claim. (G. Br. 7-9.) Willner counters that this case comes within the exception to that principle cited in United States v. Alfonso, 143 F.3d 772, 776-77 (2d Cir. 1998), which suggested that the sufficiency of the evidence can be tested ...