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Supreme Court justices sympathize with Buffalo man's appeal of tax felony

WASHINGTON — A Buffalo man's fight with the IRS made it all the way to the U.S. Supreme Court on Wednesday, and several justices seemed sympathetic to his lawyer's argument that the agency went way too far in branding him a felon.

Carl J. Marinello II, who ran a courier service in Buffalo, went to prison after a 2014 conviction on a series of tax misdemeanor charges, as well as a felony charge that he obstructed an IRS investigation in part by keeping sloppy business records.

Now that case could end up changing the way tax law is interpreted, as several justices seemed to think that the IRS is reading the law so broadly that countless Americans could be considered tax felons.

"I share your concern that if this statute is read in its broadest possible literal sense, it has a really staggering sweep," Justice Samuel Alito, a conservative, told Marinello's lawyer.

Justice Stephen Breyer, a liberal, agreed, saying that under the federal government's interpretation of tax law, "maybe everybody in the country is a law breaker."

At issue in the case is a provision of federal tax law that prescribes a felony conviction, fines of up to $5,000 and a prison term of up to three years to anyone who "endeavors to obstruct or impede the due administration" of the tax code.

To hear Marinello's lawyer tell it, that's a catch-all provision that could turn routine business decisions into felonies.

"An aggressive prosecutor could use almost any act or omission — the failure to keep a receipt, the decision to be paid in cash, the choice to use a particular method of bookkeeping — as the basis of an obstruction charge under this interpretation,” Marinello's lawyer asked in his petition to the high court.

A federal jury found that Marinello was a tax evader. Court records show that he operated his courier service for years without keeping business records and without regularly filing tax returns. As a result, a jury in Buffalo convicted him of eight tax-related misdemeanors as well as the felony that landed him in prison — and before the Supreme Court.

The U.S. Court of Appeals for the Second Circuit rejected his appeal of that felony conviction, but the Supreme Court decided to take a look at the case, too.

Wednesday's oral argument showed why: an overwhelming concern that the IRS was interpreting the statute in question too broadly.

Noting that the statute was written broadly, too, several justices questioned whether it was fair. Justice Neil Gorsuch, for example, noted that paying cash for a business service could be looked at as a felony under that statute, as could failing to keep business records.

"How is somebody supposed to know when they're going to be in trouble here?" Gorsuch asked.

Meantime, Justice Elena Kagan said: "This statute, taken on its face, is just ungodly broad."

That being the case, Marinello's lawyer, Matthew S. Hellman, said the high court ought to try to clarify just what is and isn't legal under the tax law provision.

"Before this Court will assume that Congress meant to felonize every immoral act under the sun, we're going to want them to say that a little bit more clearly than they did in the statute," Hellman said.

Several justices said, though, that they were struggling to find the legal basis by which to narrow the interpretation of the statute.

Kagan said Hellman's argument "doesn't have any grounding in the text of the statute," and Justice Sonya Sotomayor told Hellman: "You haven't, as Justice Kagan pointed out, given us anything in the language to anchor this in."

Arguing the case on behalf of the federal government, assistant solicitor general Robert A. Parker stressed that the language of the law is the law, and said the IRS isn't abusing it. He said the IRS is adding that felony obstruction of justice charge in only 4 percent of its criminal tax cases.

That's because the obstruction charge is hard to prove even if the legal language sounds overly broad.

"You ... have to determine that on the overall facts of this case there was a natural tendency of that act to obstruct," Parker said. "You also have to show that the individual intended, specifically intended to obstruct the administration of the code."

Hellman noted, though, that the IRS has pursued the felony obstruction charge more frequently since the 1990s after refusing to enforce it for nearly 30 years after the law was enacted.

The high court will decide Marinello's case before its current term ends in late June, but the very fact that the justices heard the case proved to be a boon for the Buffalo man.

This summer, U.S. District Judge William M. Skretny — who presided over Marinello's 2014 trial — freed him from prison more than a year early, citing the pending Supreme Court review of his case.

And now, the high court may reverse the only felony charge against him.

But Parker, the government lawyer, argued the justices shouldn't do that. He said that doing so would be to subvert the intent of Congress in writing a law that aimed to catch people who intended to cheat on their taxes.

"Congress has specifically provided an interlocking web of criminal penalties in this area," Parker said. "And it has done so precisely because we have a self-reporting system of taxation."

Hearing that, Justice Samuel Alito seemed to sum up the concerns of several of the justices who questioned whether the law gives prosecutors too much leeway.

"Why should we be comforted by the fact that prosecutorial discretion can be used in applying a statute if this is a statute with a really broad reach so that it reaches a lot of rather trivial conduct?" Alito asked. "Doesn't that make the situation worse rather than better?"

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