Bill of Particulars, Dismissal Denied in Easement Scheme Case

UNITED STATES OF AMERICA
v.
JACK FISHER; HERBERT LEWIS; YEKATERINA LOPUHINA; WALTER DOUGLAS ROBERTS, II; JAMES SINNOTT; VICTOR SMITH; and CLAY MICHAEL WEIBEL,
Defendants.

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

CRIMINAL ACTION FILE

ORDER

This case comes before the Court on the motions [113, 117, 130] of Defendants Jack Fisher and James Sinnott for a bill of particulars.

Also before the Court is Fisher's motion [212, 213] to dismiss the indictment for uncertain law and unconstitutional vagueness. Defendants Sinnott [239], Herbert Lewis [244], Victor Smith [227, 235, 248] and Walker Douglas Roberts, II [233, 234, 247, 271, 272] adopted Fisher's motion.¹

I. Background

Defendants face various tax-related charges in the Northern District of Georgia. Defendants allegedly created illegal tax shelters whereby high-income taxpayers claimed unwarranted and inflated charitable-contribution tax deductions in connection with the donation of conservation easements.²

On February 24, 2022, a grand jury returned a 135-count first superseding indictment against seven Defendants for fraudulently inflating the valuation of syndicated conservation easements as a tax shelter tactic.³ Now before this Court are several motions relating to the indictment.

On April 8, 2022, Fisher and Sinnott filed motions [113, 117] for a bill of particulars, seeking additional information that they allege should have been included in the superseding indictment.

On August 1, Fisher moved to dismiss the superseding indictment. He alleges that the law cited in the indictment is too uncertain and vague to support criminal prosecution.

II. Analysis

A. Motions for a Bill of Particulars

Federal Rule of Criminal Procedure 7(c) requires that an indictment provide “a plain, concise, and definite written statement of the essential facts constituting the offense charged” and a citation to the statute that the defendant is alleged to have violated. FED. R. CRIM. P. 7(c)(1). Where an indictment does not conform to this standard, a defendant may “move for a bill of particulars before or within 14 days after arraignment or at a later time if the court permits.” FED. R. CRIM. P. 7(f).

A district court is vested with broad discretion in deciding whether a bill of particulars should be granted. United States v. Cole, 755 F.2d 748, 760 (11th Cir. 1985) (citations omitted).

The Eleventh Circuit has noted that a bill of particulars serves three purposes: “to inform the defendant of the charge against him with sufficient precision to allow him to prepare his defense, to minimize surprise at trial, and to enable him to plead double jeopardy in the event of a later prosecution for the same offense.” United States v. Warren, 772 F.2d 827, 837 (11th Cir. 1985) (citations omitted).

A defendant bears the burden of proving that the information requested in his motion for a bill of particulars is necessary and that he will be prejudiced without its production. United States v. Bickers, No. 1:18-cr-98-SCJ-LTW, 2019 WL 7559292, at *7 (N.D. Ga. Sept. 17, 2019), report and recommendation adopted, 2019 WL 5587050 (N.D. Ga. Oct. 30, 2019).

Defendants may not use a bill of particulars to obtain information that they already have through the indictment and discovery. United States v. Davis, 854 F.3d 1276, 1293 (11th Cir. 2017); see also United States v. Holzendorf, 576 F. App'x 932, 935 (11th Cir. 2014).

Moreover, a defendant cannot successfully move for a bill of particulars in order to “force the government into divulging its prosecution strategy.” United States v. Maurya, 25 F.4th 829, 838 (11th Cir. 2022).

Nor should a bill of particulars “be used to compel the government to provide the essential facts regarding the existence and formation of a conspiracy.” United States v. Rosenthal, 793 F.2d 1214, 1227 (11th Cir. 1986). In an indictment for conspiring to commit an offense in which the conspiracy is the “gist” of the crime, it is “not necessary to allege with technical precision all the elements essential to the commission of the offense which is the object of the conspiracy or to state such object with the detail which would be required in an indictment for committing the substantive offense.” Wong Tai v. United States, 273 U.S. 77, 81 (1927) (citations omitted).

1. Fisher's Motion for Bill of Particulars

Fisher's motion [113] asks several questions with respect to the counts against him, attempting to show the deficiencies in the indictment. The Government in its response [167] accurately summarizes Fisher's questions as follows:

[H]is questions with respect to the conspiracy counts focus on “what the agreement entailed, with whom he agreed, what they agreed to do, and with what intent.” His questions for the false tax return charges ask, “what is the false document, what allegedly makes it false, what is his alleged nexus to the document and/or the false statement, and . . . what is the allegation that makes venue proper.”

[167] at 6 (internal citations omitted) (quoting [113] at 7-9).

a. Conspiracy Counts

The superseding indictment charges Fisher with conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and wire fraud conspiracy, in violation of 18 U.S.C. § 1349. For each conspiracy charge, Fisher asks the Government to set forth the agreement and what specific law the conspirators intended to violate, as well as to detail who entered the agreement and when they entered and/or exited the conspiracy.

Fisher's arguments are without merit. The alleged agreements are thoroughly detailed in the superseding indictment. The indictment alleges that Fisher and his co-conspirators agreed to defraud the United States “by impeding, impairing, obstructing, and defeating the lawful government functions of the [IRS] in the ascertainment, computation, assessment, and collection of . . . income taxes.” [28] ¶ 36. The conspirators allegedly did so through the organization, design, marketing, implementation, and sale of tax shelters. Id. ¶ 37-38.

Even more specifically, the indictment alleges that the conspirators operated the tax shelters to “enable individuals and entities to claim charitable tax deductions to which the conspirators knew they were not entitled.” [167] at 8 (citing [28] ¶¶ 21-22, 30-33, 40-64).

The superseding indictment further alleges that Fisher and his co-conspirators “caused interstate wire communications to be made in furtherance of a scheme 'to obtain money and property, including fees and commissions, by means of materially false and fraudulent pretenses, representations, and promises' as part of a scheme to defraud the IRS.” Id. (quoting [28] ¶ 278).

The superseding indictment is very clear as to the underlying agreement for each conspiracy charge as well as the relevant intent of the conspiracy. The indictment is more than sufficient to inform Fisher of the charge against him, to minimize surprise at trial, and to enable him to plead double jeopardy in the event of a later prosecution for the same offense. See Warren, 772 F.2d at 837 (citations omitted).

Accordingly, Fisher is not entitled to a bill of particulars for the conspiracy charges.⁴

b. False Tax Returns Counts

Fisher is charged with aiding and assisting the filing of false tax returns (counts 33-48) in violation of 26 U.S.C. § 7206(2) and subscribing to false tax returns (counts 103-106) in violation of 26 U.S.C. § 7206(1).

Fisher asks for a bill of particulars outlining the false statement in each of the allegedly false returns. He also asks the Government to provide the correct deduction amount that should have been listed on each allegedly false return. Finally, he asks what allegation makes venue proper for each of the counts.

As an initial matter, the superseding indictment clearly lays out the exact line items that the Government alleges were materially false. See [28] ¶ 289. The indictment identifies the individual taxpayer, the date filed, the allegedly materially false item, and the associated count number. See id. Further, the indictment explains in several paragraphs why the deductions at issue were unlawful. It is evident that Fisher already has access to the information he seeks, and his request for a bill of particulars will be denied.

Second, the Government need not even prove at trial the correct deduction amount that Fisher should have listed on each return. See United States v. Kaiser, 893 F.2d 1300, 1305 (11th Cir. 1990). Fisher's request again seeks evidentiary information far outside the scope of a bill of particulars.

Finally, the superseding indictment alleges that each count of the crime was committed in the Northern District of Georgia. See [28] ¶ 289. Fisher has not explained why he needs this information in the form of a bill of particulars. Indeed, this appears to be another request to receive evidentiary information outside of the normal discovery process. Fisher and his co-Defendants have litigated the venue-related claims in other motions. A motion for a bill of particulars is not the proper vehicle to relitigate such claims, nor is it a proper method of obtaining detailed evidence from the Government that is otherwise available through discovery.

Because Fisher is not entitled — or already has access — to the information in his request, his motion for a bill of particulars will be denied as to the False Tax Returns counts.

c. Forfeiture

Fisher also asks for a bill of particulars detailing (1) the total amount of the forfeiture judgment sought by the Government, and (2) a calculation of how the Government arrived at that figure.

Rule 32.2 of the Federal Rules of Criminal Procedure governs criminal forfeiture. Rule 32.2(a) requires the Government to provide “notice to the defendant that the government will seek the forfeiture of property as part of any sentence” in the indictment or information. Notably, “[t]he indictment or information need not identify the property subject to forfeiture or specify the amount of any forfeiture money judgment that the government seeks.” FED. R. CRIM. P. 32.2(a). Only “after a verdict or finding of guilty, or after a plea of guilty or nolo contendere is accepted” must “the court . . . determine what property is subject to forfeiture under the applicable statute.” FED. R. CRIM. P. 32.2(b)(1)(A).

The superseding indictment contains forfeiture language spanning five pages. The forfeiture counts detail at length the specific real and personal property for which the Government seeks forfeiture, and it notes that the Government will seek a money judgment representing the proceeds of the alleged offenses.

Fisher has already been provided ample — and legally sufficient — forfeiture information in the indictment. His request for additional detailed information is at odds with the plain language of the Federal Rules. Accordingly, it will be denied.⁵

2. Sinnott's Motion for Bill of Particulars

Sinnott's motion [117] for a bill of particulars makes many of the same arguments as Fisher's motion. First, he asks the Government to provide the specific dates and members of the conspiracies alleged in counts one and two of the superseding indictment. As discussed above, Sinnott is not entitled to this information in a bill of particulars and his request will be denied.⁶

Additionally, Sinnott asks for specifics regarding the money and property implicated by the conspiracy. To that end, he requests more detailed information regarding the forfeiture counts. As with Fisher's similar request, Sinnott is not entitled to this information. The Government has provided sufficient notice to Defendants of its theory of forfeiture and provided Defendants with a list of the property for which the Government intends to seek forfeiture. Accordingly, his request for additional forfeiture information and for specifics regarding the money and property implicated by the conspiracy will be denied.

Sinnott makes four additional requests in his motion.

First, he asks for details regarding the IRS's procedures for computing, assessing, and collecting revenue and income taxes. This is a general request for information that is either already known to Sinnott or easily accessible to him through publicly available resources, including the IRS's website. To the extent Sinnott's request is one for specific information regarding the IRS's computation, assessment, and collection procedures in this case, he is not entitled at this stage to such detailed information of what evidence the Government will present at trial.

Second, Sinnott asks the Government to specify how any member of the conspiracy actually obstructed the IRS as alleged in count one. That information is detailed fully in the superseding indictment. Count one of the superseding indictment consists of over three hundred paragraphs detailing the alleged conspiracy and how the Defendants allegedly conspired to defraud the IRS. A request for any further such information is plainly an attempt to argue that the Government has failed to state a claim — not properly the subject of a motion for bill of particulars.

Third, Sinnott asks for details regarding each donated conservation easement allegedly appraised for inflated amounts. Specifically, he asks for a list of each property at issue, the manner in which the appraisal value was allegedly inflated, and the highest and best use value of the property as calculated by the Government.

The request for a list of properties at issue is akin to a request for a detailed listing of the Government's evidence — something to which Sinnott is not entitled, Maurya, 25 F.4th at 838 — and will be denied.⁷

Sinnott asks the Government to identify the manner in which each appraisal was allegedly fraudulently inflated. Once again, this is a request for information clearly detailed in the indictment. Sinnott is using his bill of particulars motion to assert his position that the Government has failed to state a claim against him. This is not the proper forum for such arguments. To the extent that Sinnott seeks details of how and what the Government intends to present at trial, his request will be denied.⁸

Finally, Sinnott asks the Government for a list of each allegedly “oversubscribed” or “undersubscribed” tax shelter. He is in possession of this information. The indictment adequately describes the type of tax shelters implicated, and extensive discovery has been conducted that provides him with the information he seeks. His request is another attempt at obtaining a detailed list of the evidence against him and that the Government intends to use at trial — information to which he is not entitled in a bill of particulars. See id.

Accordingly, Defendant Fisher's motion [113] for a bill of particulars, as adopted [126] by Defendant Sinnott, will be denied. Sinnott's motions [117, 130] for a bill of particulars will also be denied.

B. Motion to Dismiss the Indictment for Uncertain Law

Federal Rule of Criminal Procedure 12(b)(3)(B)(v) permits a criminal defendant to bring a motion before trial that alleges a defect in the prosecution, including the Government's “failure to state an offense.” The Court must dismiss an indictment only where there is “an infirmity of law in the prosecution; a court may not dismiss an indictment, however, on a determination of facts that should have been developed at trial.” United States v. de Vegter, 198 F.3d 1324, 1326-27 (11th Cir. 1999) (quoting United States v. Torkington, 812 F.2d 1347, 1354 (11th Cir. 1987)). In this analysis the Court must look only to “the facial sufficiency of the allegations of the indictment for purposes of the Rule 12(b)(3)(B) analysis.” United States v. Sharpe, 438 F.3d 1257, 1259 (11th Cir. 2006). “A motion to dismiss an indictment targeted at the substance of the offense may therefore only be granted if there is a legal infirmity in the indictment.” United States v. Ferguson, 142 F. Supp. 2d 1350, 1353 (S.D. Fla. 2000) (citation omitted).

Fisher's argument to dismiss the indictment for a failure to state a claim focuses on two general issues. First, he argues that the Government is precluded from bringing the prosecution. Second, he argues that the indictment includes legal allegations that cannot result in criminal liability.

1. Whether the Government Is Precluded from Prosecuting Fisher

Fisher offers two reasons that the Government cannot bring prosecution against him: (1) a successful civil case must precede the criminal prosecution; and (2) Congress explicitly approved the transactions at issue as lawful.

a. Civil Cases and Sufficient Notice

Fisher argues that “the government must first bring a civil action or civil audit — and win — to provide notice that the alleged actions can be criminal.” [212] at 4. He supports this argument by accurately stating that the Due Process clause requires reasonable notice of what conduct is subject to criminal prosecution. See, e.g., United States v. McClain, 593 F.2d 658, 665 (5th Cir. 1979) (“It is elementary that criminal statutes must give notice of the acts they prohibit before valid penalties may be imposed thereunder.”).

Fisher then argues from this generality that a civil case or audit must first prevail before criminal prosecution can occur. He contends that the Government has not yet done so; instead, two civil examinations involving the tax shelters at issue settled, and a civil case pending in this Court is still pending.

However, as the Government notes, the Eleventh Circuit in United States v. Heller, 866 F.2d 1336 (11th Cir. 1989), rejected Fisher's argument. In Heller, the court considered the same argument in a similar tax prosecution case after individuals used partnerships to generate inflated deductions. As here, the defendants were prosecuted for mail fraud and making false statements on income tax returns. The defendants argued that the indictment should be dismissed for a want of an official statement prohibiting their behavior. The court refuted the argument that the Government must first show that a “particular sham . . . be ruled illegal” because otherwise “[c]lever swindlers [w]ould rarely be prosecuted. . . .” Id. at 1343 n.15. Thus, the “absence of an official statement prohibiting behavior identical to theirs . . . [does not] establish legal uncertainty.” Id. at 1343.⁹

The Government does not need to first sue Fisher civilly. Therefore, the Court will not dismiss the indictment on this basis.

b. Congress's Approval of Charitable Deductions

Fisher argues that “[t]he IRS does not favor syndicated conservation easements and is seeking to outlaw them through enforcement, rather than through legislation. But the IRS cannot criminalize actions that Congress has expressly authorized.” [212] at 10. Stated otherwise, he contends that Congress has explicitly blessed the transactions at issue here, making the indictment improper.

Fisher cites a plethora of congressional materials and secondary sources that explain the purpose behind the allowance of a charitable deduction for certain qualified conservation contributions under 26 U.S.C. § 170(h). Summarized, Congress created the deduction to encourage land protection through conservation easements, and various attempts to eliminate or reduce the extent of the deduction have thus far failed.

No one disputes that Congress explicitly created deductions for qualified conservation contributions. But Congress did not permit taxpayers to commit fraud in connection with the deduction. Indeed, the Government's summary of why it issued the indictment makes this point clear: “[T]he defendants organized and sold an illegal tax shelter in the guise of a legitimate tax deduction.” [276] at 9 (emphasis added).

Thus, Fisher's arguments about the legality of the charitable deductions do not attack the indictment's true focus — fraud. This distinction is critical. It would contravene precedent and common sense to contend that the Government cannot prosecute taxpayers for fraud in connection with a tax deduction. See, e.g., United States v. Donaldson, 767 F. App'x 903, 908 (11th Cir. 2019) (“[A] transaction lacking an economic effect and functioning only to produce a tax deduction is a substantive sham.” (citations omitted)); Sparkman v. United States, No. 08-cv-87-DAE, 2009 WL 5103165, at *7 n.4 (D. Haw. Dec. 28, 2009) (“[T]he presence of an incentive alone does not add legitimacy to a program that in and of itself has no economic substance and is developed purely to take advantage of such an incentive.”). See generally Nancy A. McClaughlin, Extinguishing and Amending Tax-Deductible Conservation Easements: Protecting the Federal Investment After Carpenter, Simmons, and Kaufman, 13 FLA. TAX REV. 217, 218 n.1 (2012) (including examples of how conservation easement donations can be abused).

After all, fraudulent tax shelters that exceed legitimate congressional prerogatives form the basis of countless tax prosecutions. Therefore, the Court will not dismiss the indictment on this basis.

2. Whether the Indictment Alleges Criminal Conduct

Fisher offers three separate reasons in support of his argument that the indictment does not allege criminal conduct: (1) the sham transaction doctrine does not apply to charitable deductions; (2) the appraisals used to value the deductions were lawful; and (3) the backdated partnership documents cannot support prosecution.

a. Sham Transaction Doctrine

Fisher argues that the IRS does not require economic substance for taking a deduction; therefore, the indictment must be dismissed because it relies upon the fact that the transactions lacked economic substance and were therefore shams.¹⁰

Fisher's first argument that the sham transaction doctrine does not apply to deductions is without merit. Substance controls over form. See, e.g., Frank Lyon Co. v. United States, 435 U.S. 561, 573 (1978) (“[T]he Court has looked to the objective economic realities of a transaction rather than to the particular form the parties employed.”). In this case, the Government cites the sham transaction doctrine as reason to disregard the deductions taken to look at the true character of the transactions at issue — that is, a tax shelter scheme. Nothing is unclear about the Government's ability to use the sham transaction doctrine against defendants facing a tax prosecution related to tax deductions such as here.

Indeed, in Heller, 866 F.2d at 1336, the Eleventh Circuit affirmed a district court's denial of a Rule 12(b)(3)(B) motion to dismiss after interlocutory review with respect to a tax shelter prosecution. The court found the sham transaction rule was “quite well-settled,” which is why the court held that the defendants' argument was not about whether the rule was “vague” or unclear. Id. at 1342. Instead, the defendants' argument centered around whether the rule should apply to the transactions at issue. The court found that was a question reserved for the jury but noted that “[t]he government must prove that appellees evidenced an intent” to engage in the sham transactions. Id. at 1342. Whether the sham transaction doctrine could apply to a tax shelter exploiting a tax deduction was not in question.¹¹

Fisher's second contention is that the sham transaction doctrine cannot apply to the specific deduction at issue here. He argues that 26 U.S.C. § 7701(o), which defines the sham transaction doctrine, explicitly limits its application by including language that states the doctrine should apply to “any transaction to which the economic substance doctrine is relevant. . . .” From that general statute, he argues that tax court decisions have held that the doctrine does not apply to charitable deductions, and Congress intended to prevent its application to deductions such as those in this case.

However, Fisher's authority does not stand for the proposition he advances. Instead, his cited cases hold that a tax-avoidance purpose alone does not negate the validity of the deduction. For example, he contends that the tax court's decision in RERI Holdings I, LLC v. Commissioner, 107 T.C.M. (CCH) 1488, 2014 WL 2136036 (T.C. May 22, 2014), stands for the proposition that the economic substance doctrine does not apply to charitable deductions. But RERI itself expressly stated that whether a partnership “was organized solely for tax avoidance purposes and lacked economic substance may be a relevant issue in determining whether its contribution . . . entitled its members to charitable contribution deductions. . . .” Id. at *8.¹²

More generally, Fisher's argument misconstrues how the Government is using the sham transaction doctrine. The indictment alleges that that the transactions were a sham used to fraudulently receive inflated, backdated deductions. The Government is not arguing, nor can it argue, that merely receiving a deduction that Congress allowed people to take is illegal; rather, the Government brings this prosecution because it believes Defendants illegally used an otherwise valid deduction.

In short, Fisher neither explains why the sham transaction doctrine is unclear nor convinces the Court that it cannot apply to the charitable deductions at issue here. The Court will accordingly deny his motion to dismiss the indictment based on this argument.

b. Value of Appraisals

The Government in its indictment alleges that Fisher (and others) grossly inflated land appraisals — meaning that the deductions were overinflated and therefore unlawful. He contends that the indictment cannot stand on this allegation for two reasons.

First, Fisher argues that Defendants' method of appraisal was approved by the IRS; therefore, Defendants had no fair notice that their method was illegal. He cites two audits made by the IRS in connection with his tax arrangement that were reviewed by the Tax Court, which purportedly approved that arrangement. He also states that the Tax Court found that he did not use grossly inflated appraisals, which he contends the indictment hinges on.

As the Government explains, Fisher's argument is meritless. First, the issue is whether the law is unclear from the “facial sufficiency of the allegations of the indictment,” Sharpe, 438 F.3d at 1259, not based on “facts that should have been developed at trial,” deVegter, 198 F.3d at 1326-27. Asking the Court to evaluate previous tax audits and compare the appraisals to those at issue here asks the Court to look well beyond the facial sufficiency of the indictment and instead act as a trier of fact.¹³

Second, Fisher alleges that based on IRS regulations, its appraisals at issue here were not overinflated. He includes extensive discussion about IRS-approved appraisal methods, land valuation, and the use of subdivisions in this calculation.

But the Government's allegations must be taken as true for the purposes of a motion to dismiss, and the Government alleges that Fisher's appraisals were inflated. Thus, even more so than the previous argument, this is precisely the type of argument required for a jury to consider. Indeed, as the Eleventh Circuit has made clear, district courts may not look “beyond the face of the indictment” and rule on “the merits of the charges” because that is de facto “summary judgment in favor of the defendant.” United States v. Salman, 378 F.3d 1266, 1267 (11th Cir. 2004) (per curiam). Rather, “[t]he sufficiency of a criminal indictment is determined from its face. The indictment is sufficient if it charges in the language of the statute.” United States v. Critzer, 951 F.2d 306, 307 (11th Cir. 1992) (per curiam).

The Government has done so here. It alleges that

the appraisals are overinflated and, thus, wrong because they, among other things, (i) disregarded recent comparable listings, (ii) disregarded prior sales, (iii) disregarded unsuccessful attempts to develop the land, and (iv) misrepresented the actual conditions of the land. Simply put, whether the appraisals are false is a question for the jury.

[276] at 21 (citation omitted). As explained in the indictment, the appraisal allegations directly support the Government's contention that Fisher engaged in a conspiracy to defraud the United States under 18 U.S.C. § 371, aided and assisted the fling of false tax returns under 26 U.S.C. § 7206(2), and subscribed to false tax returns under 26 U.S.C. § 7206(1) and 18 U.S.C. § 2.

Therefore, the Court will deny Fisher's motion to dismiss the indictment based on this issue.

c. Backdated Partnership Documents

The Government in its indictment alleges that Fisher (and others) backdated partnership documents in order to receive tax deductions for years in which the clients were not in fact partners. He argues that this allegation cannot support the indictment for two reasons.

First, Fisher argues that the backdating led to no harm to the Government because the amount of deduction remained the same. In other words, whether ten or twenty partners split $1,000,000 ends in the same result to the Government; therefore, he contends, there is a lack of harm necessary to prove a Klein conspiracy.

But as the Government notes, backdating partnership documents does lead to harm. This is because Fisher's actions “caused clients to file false tax returns that claimed fraudulent deductions based upon backdated documents.” [276] at 23. The United States Code explicitly criminalizes this behavior in 26 U.S.C. § 7206, which forms the basis for many counts in the indictment. To argue that causing clients to file false tax returns is not a harm for purposes of the conspiracy charge, when the act itself is criminalized, is simply wrong. Accord, e.g., United States v. Daugerdas, 837 F.3d 212 (2d Cir. 2016) (affirming conviction for conspiracy in tax shelter case involving backdated documents).

Second, Fisher argues that backdating was lawful (and if not lawful, he contends the law was unclear on this issue). He cites various cases and 26 U.S.C. § 761 for the proposition that partnerships may modify the partnership agreement after the close of the taxable year.

But what Fisher omits is that modifications are permitted only with respect to already-existing partners. As the Government notes, the tax code permits reallocating partnership income and loss pursuant to the partnership agreement. See, e.g., 26 U.S.C. § 704(a) (allowing partnerships to allocate “income, gain, loss, deduction, or credit” by reference to the partnership agreement). Indeed, this is standard practice. But as the Ninth Circuit stated, backdating documents to add partners, and then allocating deductions to those partners, is illegal:

Case law and relevant legislative history made plain that the retroactive allocation to a new partner of partnership losses attributable to periods prior to the new partner's entry into the partnership was impermissible. Appellants had fair notice of the law and they could have conformed their conduct to the requirements of the law. Thus, they could have had the requisite intent to violate the law.

United States v. Little, 753 F.2d 1420, 1434 (9th Cir. 1984).¹⁴

Third, Fisher argues — notwithstanding case law to the contrary — that the Court must look only to 26 U.S.C. § 761(c), and its regulations, that purportedly allow a partnership agreement to add partners to past taxable years. He contends that this section makes clear that the entry of a new partner does not close the partnership's taxable year.

Fisher's arguments ask the Court to turn the tax code on its head. Section 761 sets forth the various definitions relevant to Subchapter K¹⁵ and it states that partnership agreements may include modifications. But to contend that this definition gives partnerships leeway to modify the agreement to any end lacks legal and logical support. Indeed, none of the cases discussing limitations to partnership modifications turns on this definition. While Fisher contends that this fact makes the plethora of case law inapposite, it instead proves the Government's point: backdating partnership agreements to give benefits to those non-existent during the taxable year is prohibited. Cf. Williams, 680 F.2d at 383 (“[T]axpayers would like to play a game of musical chairs with partnership interests and losses, but the movements of the game do not conform to our contemporary Codal choreography.”).

Therefore, the Court will deny Fisher's motion to dismiss the indictment based on this argument.¹⁶

III. Conclusion

For the foregoing reasons, the Court denies Defendant Jack Fisher's motion [113] for a bill of particulars, as adopted [126] by Defendant James Sinnott. It also denies Sinnott's motion [117] for a bill of particulars and his second motion [130] for a bill of particulars.

Further, the Court denies Fisher's motion [212 & 213] to dismiss the indictment. The Clerk is directed to also terminate the associated motions to adopt [227, 233, 234, 235, 239, 244, 247, 248, 271 & 272].

IT IS SO ORDERED this 13th day of October, 2022.

Timothy C. Batten, Sr.
Chief United States District Judge