0326 Publ 5354 (PDF)

Official source: IRS Forms, Instructions & Publications (https://www.irs.gov/pub/irs-pdf/p5354.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).

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Ninth Circuit Holds Law Firm Could Not be Compelled to Produce Privilege Log of Attorney- Client Protected Documents, but District Court Could Require In Camera Review of Log and Documents

In In Re Grand Jury Subpoena, 127 F.4th 139 (9th Cir. 2024), the Ninth Circuit held that the Fifth Amendment prevented a district court from compelling a law firm to produce a privilege log of attorney-client protected documents withheld from production pursuant to a criminal subpoena, but that the district court could require in camera review of the privilege log and withheld documents for the court to make its own determination.

In the underlying case, the government served a grand jury subpoena on the target (Target) of a tax evasion investigation. Target declined to testify or produce any documents, invoking his Fifth Amendment privilege against self-incrimination. The government then subpoenaed the law firm (Firm) which previously represented Target in tax matters, requesting documents related to its representation of Target. The subpoena specifically instructed Firm to provide a privilege log if it withheld any documents from production.

Firm declined to produce the requested documents or provide a privilege log, asserting that those documents were protected by the attorney-client privilege and the work-product doctrine, and that providing such a log would violate Target's Fifth Amendment rights.

The government moved to compel Firm to provide a privilege log, arguing that Firm's privilege and workproduct claims could not otherwise be evaluated. Target intervened and argued that Firm had correctly invoked his Fifth Amendment rights. The district court ruled that Firm could not assert Target's Fifth Amendment rights and ordered Firm to provide the government with a privilege log.

On appeal, the Ninth Circuit considered the novel question presented: whether an attorney may be compelled to provide the government with a privilege log of documents that are asserted to be protected under the act-ofproduction privilege set forth in Fisher v. United States, 425 U.S. 391 (1976). There, the Supreme Court held that when the Fifth Amendment protects an individual from the compelled production of self-incriminating documents, and the individual shares those documents with his attorney to obtain legal advice, the attorney-client privilege shields the attorney from compelled production of those documents to the government.

Ultimately, the Ninth Circuit overruled the district court, agreeing with Target that Firm cannot be compelled to provide the government with a privilege log because doing so would imperil Target’s Fifth Amendment act-ofproduction privilege.

While acknowledging that a privilege log is ordinarily an appropriate method for protecting privileged material, the Ninth Circuit reasoned that if Firm were compelled to provide the government with a privilege log, that privilege log would violate Target’s Fifth Amendment rights as it would reveal the existence, authenticity, and Target’s custody of those documents. However, the Fifth Amendment does not protect against the production of a privilege log when the existence, authenticity, and custody of the documents are a foregone conclusion.

The Ninth Circuit further noted that if the government were to receive a privilege log from Firm and then subpoena Target for the same documents identified therein, the documents would be subject to the foregone-conclusion exception, and Target would lose any Fifth Amendment right to assert the act-of-production privilege with respect to the identified documents.

The court rejected the government’s arguments that the foregone-conclusion exception would not apply to a subsequent subpoena to Target in this case because: (1) the privilege log would not constitute the sort of “independent knowledge” required to establish the

This bulletin is for informational purposes. It is not a directive.

Publication 5354 (Rev. 3-2026) Catalog Number 72974R Department of the Treasury Internal Revenue Service www.irs.gov

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foregone-conclusion exception and (2) when determining whether the foregone-conclusion exception applies, courts look to the “quantum of information possessed by the government before it issued the relevant subpoena.”

After holding that the district court’s order violated Target's Fifth Amendment rights, as well as the attorney-client privilege, the Ninth Circuit ordered the district court to assess Firm’s claims of privilege, and suggested that the district court order Firm to provide a privilege log and associated documents for in camera review, so the district court can determine whether the documents are, in fact, privileged under Fisher .

District Court Dismisses Indictment with Prejudice for Speedy Trial Act Violations Finding “Extraordinary, Chronic, and Indefensible Delay” in Producing Discovery

In United States v. Masood, No. 22-CR-91, 2025 WL 606482 (D. Md. Feb. 25, 2025) (unpub.), the United States District Court dismissed an indictment with prejudice for violating the Speedy Trial Act (STA), 18 U.S.C. § 3161, et seq .

Akbar Masood was under investigation by the U.S. Army Criminal Investigation Division (ACID) for fraud. On April 6, 2022, Masood and two others were arrested and their homes and businesses were searched. ACID seized 30 electronic devices, a business server, and searched email accounts. Ultimately, the government charged eight defendants, including Masood, with, inter alia, conspiracy to defraud a military medical center, and related identity theft in violation of 18 U.S.C. §§ 1343, 1349, and 1028A.

On April 7, 2022, Masood and his co-defendants had their initial appearances. Over the course of two and a half years, the government sought at least five extensions to toll the STA, alleging that discovery, which included filter and Brady reviews, was progressing, and that data would be turned over to the defendants. A filter review was not conducted until November 2023, and none of the nonprivileged data was provided to Masood. The government did not provide Masood with data from his co-defendants’ devices; the email searches; or the business’s server.

In late 2024, Masood filed a motion to dismiss the indictment for violations of the STA and his Sixth Amendment right to a speedy trial. The STA generally requires the government to proceed to trial within the later of 70 days of the indictment or the defendant’s initial court appearance. The 70-day clock can be tolled pursuant to section 3161(h)(7) if the “ends of justice” would be served by delay. However, such a continuance cannot be granted

based on the government’s lack of diligent preparation. The court reviewed the record and determined that the 28month delay in producing discovery to the defendant was due to the government’s “lack of attention” to the case. The court also concluded that the government’s “extraordinary, chronic, and indefensible delay,” warranted rescinding its prior tolling orders. Accordingly, the court dismissed the indictment for violation of the STA.

Next, the court considered whether to dismiss the indictment with or without prejudice. In determining whether to do so, a court shall consider, inter alia : (1) the seriousness of the offense; (2) the facts and circumstances of the case which led to the dismissal; and (3) the impact of a reprosecution on the administration of this chapter and on the administration of justice. 18 U.S.C. § 3162(a)(2). A court may also consider any prejudice to the defendant caused by the delay. Here, the court analyzed the government’s diminished view of the charges ( e.g., the crux of the conspiracy was to defraud the IRS, not the military medical center) and settlements with other defendants ( e.g., one dismissal; two deferred prosecution agreements; and negotiated probationary or short advisory prison terms for the rest) and determined that the seriousness tilted slightly in favor of dismissal with prejudice. Second, the court weighed the culpability of delay-producing conduct in Masood’s favor, finding “the delay falls at the feet of the prosecution and its chronic and inexplicable neglect of this case” and “[t]hat neglect led to the abandonment of the prosecution’s basic discovery obligations for two-and-a-half years[.]” Finally, the court determined that the years’ long collective neglect, which impacted fading memories and disappearing evidence, demanded that the third-and-final factor weighed in favor of dismissal with prejudice. Accordingly, the court granted Masood’s motion to dismiss for STA violations and dismissed the indictment with prejudice.

Eleventh Circuit Holds FBAR Penalties are “Fines” Within Eighth Amendment’s Excessive Fines Clause

In United States v. Schwarzbaum, 127 F.4th 259 (11th Cir. 2025), the Eleventh Circuit held, inter alia, that the Eighth Amendment’s Excessive Fines Clause applies to civil penalties for willfully failing to file a Report of Foreign Bank and Financial Accounts (FBAR) provided in 31 U.S.C. § 5321, creating a circuit split with the First Circuit.

Isac Schwarzbaum, a naturalized U.S. citizen born in Germany, held significant wealth in numerous bank accounts in Switzerland and Costa Rica. Although Schwarzbaum had read the FBAR filing instructions and

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engaged accountants to assist with his filings, he did not file FBARs for tax years 2007 through 2009.

Following a bench trial, the district court determined that Schwarzbaum recklessly violated the FBAR statute, thus satisfying the statute’s willfulness requirement, and imposed a higher civil penalty as authorized under 31 U.S.C. § 5321(a)(5)(C)(i), (D)(ii) (maximum penalty for a willful violation is the greater of $100,000 or 50% of the balance in the account at the time of the violation).

On appeal, the Eleventh Circuit held that the FBAR penalty is a fine subject the Eighth Amendment’s Excessive Fines Clause, reasoning that “even if the FBAR penalty has some remedial purpose, the test in the Excessive Fines context remains whether the purpose of the penalty is solely compensatory” for any losses or expenses incurred by the government. The court held that the FBAR penalties are punitive in nature, reasoning that “[n]o matter how you cut it, it’s apparent that this statute is designed to inflict punishment at least in part.”

The Eleventh Circuit next turned to whether the penalties at issue violated the Excessive Fines Clause, analyzing them account-by-account. The court looked at three nonexhaustive factors: “(i) whether the defendant is in the class of persons at whom the statute was principally directed; (ii) how the imposed penalties compare to other penalties authorized by the legislature; and (iii) the harm caused by the defendant.” First, it concluded that Schwarzbaum is in the class of persons at whom the statute was principally directed, given that the purpose of the Bank Secrecy Act is to require U.S. citizens (like Schwarzbaum) and others to report their transactions and relationships with foreign financial agencies to the IRS. Second, in comparing the imposed penalties against other authorized penalties, the court noted that Congress also authorized the government to pursue criminal fines and imprisonment, and that although the criminal fine pales in comparison to the civil fine for the five accounts at issue, “it is telling that Congress also authorized a criminal penalty of five years’ imprisonment for each of the three years Schwarzbaum failed to file.” Lastly, in analyzing the legislative history, the Eleventh Circuit emphasized Congress’s concern over the debilitating effects of the use of secret institutions on Americans and the American economy along with its assertions that improving compliance with the FBAR reporting requirement is vitally important to sound tax administration.

Ultimately, the court determined that a $300,000 penalty ($100,000 for each tax year at issue) levied against one of the accounts—which never exceeded $16,000 during the three tax years at issue—was grossly disproportionate to the offense of concealing the account. But it concluded that the remaining penalties levied against the other accounts were not grossly disproportionate as those accounts held tens of millions of dollars.

Supreme Court Holds 18 U.S.C. § 666 Does Not Make It a Federal Crime for State and Local Officials to Accept Gratuities

In United States v. Snyder, 603 U.S. 1 (2024), the Supreme Court held that the federal statute criminalizing bribery involving state and local officials (18 U.S.C. § 666) does not make it a federal crime for state and local officials to accept gratuities for their past official acts.

James Snyder, the former mayor of Portage, Indiana, was convicted by a jury for accepting an illegal gratuity in violation of 18 U.S.C. § 666(a)(1)(B). In 2013, Portage awarded a local truck company two contracts to purchase trash trucks. In 2014, the company issued a $13,000 check to Snyder. Alleging that the payment was an illegal gratuity, a federal grand jury charged Snyder with bribery. At trial, Snyder argued that the payment was for consulting services he provided and neither Indiana nor Portage prohibited local officials from doing such work.

On appeal, Snyder argued that the bribery statute criminalized only bribes, not gratuities. The Seventh Circuit disagreed and affirmed Snyder’s conviction. Faced with a split among the circuits, the Supreme Court granted certiorari.

Justice Kavanaugh, writing for the majority, concluded that the statute did not make it a federal crime for state and local officials to accept gratuities for their past official acts and that the opposing interpretation offered by the government would “radically upend gratuities rules and turn § 666 into a vague and unfair trap for 19 million state and local officials.” Rather, the Supreme Court concluded, “[section 666’s] focus is targeted: [it] proscribes bribes to state and local officials, while allowing state and local governments to regulate gratuities to state and local officials.”

Supreme Court Holds Federal Bank Fraud Statute Does Not Criminalize Statements That Are Misleading But True

In Thompson v. United States, 604 U.S. 408 (2025), the Supreme Court held that prosecution for making a false statement to the FDIC, in violation of 18 U.S.C. § 1014, requires proving that the statement was false, rather than misleading.

Patrick Thompson took out three loans totaling $219,000 from the same bank, including a $110,000 loan for a law firm equity buy-in and two loans used for home

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improvements. The bank later failed, and the FDIC assumed responsibility for collecting the outstanding loans. As part of that process, the FDIC’s loan servicer sent Thompson an invoice listing a balance due of $269,120.58—the $219,000 that he borrowed plus interest. Thompson called the loan servicer and disputed the balance on the invoice. He told a customer service agent that he had “no idea where the 269 number comes from.” Thompson said, “I borrowed the money, I owe the money—but I borrowed . . . I think it was $110,000.” Thompson later received a call from two FDIC contractors, and he mentioned borrowing $110,000 for “home improvement.”

A federal grand jury charged Thompson with two counts of bank fraud in violation of 18 U.S.C. § 1014, which prohibits knowingly making a false statement or report in a loan or credit application or to influence in any way the action of the FDIC upon any loan. The indictment alleged that Thompson falsely stated to the customer service agent and to the FDIC contractors that he only owed $110,000 that he borrowed for home improvements when he knew that he had borrowed $219,000 and that the $110,000 loan was for his capital contribution to his law firm.

The jury found Thompson guilty on both counts. He subsequently moved for acquittal or a new trial, arguing that the alleged statements were literally true, even if misleading. The district court denied his motion and the Seventh Circuit affirmed as such an argument had already been rejected by binding Seventh Circuit precedent. Thompson appealed to the Supreme Court.

The Supreme Court unanimously held that the statute does not criminalize statements that are misleading but not false. In so holding, the Court looked to the statute’s text and noted that it criminalized “any false statement or report” but did not use the word “misleading.” The Court reasoned that because a misleading statement can be true, the fact that the statement is misleading is not dispositive—only whether it is false. This was different, according to the Supreme Court, from other statutes where Congress criminalized both “false” and “ misleading” statements, indicating that when it intended for the statute to cover both, it included both. The Court also held that falsity is to be determined based on context, not just the literal meaning of the words in isolation. The Court remanded the case back to the Seventh Circuit to determine whether, in light of its holding, Thompson’s statements, based on their context, were false in violation of section 1014.

Justice Alito, in concurrence, offered two examples of how to weigh whether a statement is true or false in context. In one example, a mother notices that a plate of 12 freshly baked cookies has only crumbs remaining and asks her daughter, “Did you eat all of the cookies?” If the child says “I ate three” when she, in fact, ate all 12, her statement is

literally true in isolation but is false in context, as the statement implies that she ate only three cookies. In the other example, two brothers are asked to rake leaves by their parents, but one is distracted and does little work. Afterward, the hardworking brother tells his parents that, “As usual, my brother was a big help.” This statement, taken literally, is false, but if the brother and his parents have spoken about the other’s failure to help with chores, the parents would know that he made the statement ironically to mean that his brother was no help at all. As a result, when viewed in context, the statement was actually true. With these examples as guides, Justice Alito advised the Seventh Circuit to assess whether Thompson’s statements were made to imply that he borrowed only $110,000 and therefore were false when viewed in context.

Second Circuit Holds Use of Means of Identification Must Be at the Crux of Underlying Criminal Offense to Constitute Aggravated Identity Theft

In United States v. Omotayo, 132 F.4th 181 (2d Cir. 2025), the Second Circuit held, inter alia, that the government presented insufficient evidence to sustain the defendant’s conviction for aggravated identity theft (18 U.S.C. § 1028A) because the defendant’s misuse of another person’s “means of identification” was not at the “crux” of what made the underlying offense criminal, as required by Dubin v. United States, 599 U.S. 110 (2023).

Temitope Omotayo and his co-conspirators defrauded victims using several schemes, including a scam in which one conspirator, posing as an employee of a legitimate business, emailed an actual employee and instructed them to submit a payment to a bank account controlled by a coconspirator. Omotayo was responsible for facilitating the transfer and division of fraudulent funds by passing information between the person responsible for finding victims and persuading them to send them money and the person responsible for finding individuals who would open bank accounts the conspirators could use in the scheme. At trial, for example, the government presented evidence that, in one instance, Omotayo “possessed” and “transferred” a fictitious invoice containing the name of a real employee to a co-conspirator who controlled a bank account awaiting a fraudulent payment so that if the bank became suspicious and denied the transfer of funds, the co-conspirator could present the fictitious invoice as proof of the legitimacy of the transaction. The government did not present evidence that the invoice was otherwise used in the scheme.

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Omotayo was ultimately convicted of conspiracy to commit wire fraud (18 U.S.C. § 1349), conspiracy to commit money laundering (18 U.S.C. § 1956(h)), and one count of aggravated identity theft based on the fictitious invoice. He was sentenced to 48 months’ imprisonment for the §§ 1349 and 1956(h) convictions, plus the mandatory twoyear consecutive period for the § 1028A conviction.

On appeal, Omotayo argued that his aggravated identity theft conviction should be vacated, in part, because the government presented insufficient evidence that he used, transferred, or possessed the identity theft victim’s name “during and in relation to” the wire fraud conspiracy, as the Second Circuit required. Soon after he filed his appeal, the Supreme Court decided Dubin which resolved a circuit split by holding that 18 U.S.C. § 1028A applies only where a “defendant’s misuse of another person’s means of identification is at the crux of what makes the underlying offense criminal.”

The Second Circuit agreed with Omotayo, holding that, in light of Dubin, the government had not established that his possession and transfer of the fictitious invoice was at the crux of the wire fraud scheme, as the name on a back-up invoice was not a “key mover” of the fraud. It further determined that the district court plainly erred by instructing the jury that it could find Omotayo guilty of aggravated identity theft if the invoice merely had “a purpose, role, or effect with respect to the [wire fraud conspiracy]” rather than Dubin ’s more demanding standard. Accordingly, the Second Circuit reversed Omotayo’s aggravated identity theft conviction.

Judge Sullivan dissented, agreeing with the majority’s decision that the district court’s jury instruction concerning 18 U.S.C. § 1028A was plainly erroneous under Dubin, but disagreeing that the fictitious invoice was not at the crux of the conspirators’ scheme to defraud.

Sixth Circuit Holds Tracing of Criminal Funds in Commingled Accounts is Required to Prove Violations of 18 U.S.C. § 1957

In United States v. Erker, 129 F.4th 966 (6th Cir. 2025), the Sixth Circuit held that the government must prove that monetary transactions from a commingled account containing both illicit and legitimate funds involved “criminally derived property” to sustain a conviction for money laundering in violation of 18 U.S.C. § 1957, but a jury may infer the criminal character of the funds using accounting methodologies rooted in trust law: the lowest intermediate balance rule or the proceeds-first approach. In so holding, the Sixth Circuit rejected both the “no

tracing” rule employed by most circuits and the strict, dollar-for-dollar approach required by the Ninth Circuit.

Raymond Erker operated a Ponzi scheme in which he lured investors with promises of guaranteed rates of return but instead used the money for personal expenses and risky investments. Erker solicited new funds to pay his investors their expected rate of return and conceal his scheme but eventually ran out of money and could not repay all investors. Ultimately, Erker swindled more than fifty people out of nine million dollars.

A jury convicted Erker of mail fraud, wire fraud, money laundering, and making a false statement under oath. In particular, the money laundering offense charged Erker with knowingly engaging in a monetary transaction in criminally derived property valued greater than $10,000 in violation of 18 U.S.C. § 1957 when he withdrew funds from his bank account.

On appeal, Erker argued that the alleged money laundering transactions were made from a bank account containing both legitimate and illicit funds and the government failed to prove that the withdrawals involved “criminally derived property” instead of his own personal funds. Because 18 U.S.C. § 1957 does not specify when a transaction from a commingled account violates the statute, the Sixth Circuit turned to trust law. The court observed that trust law uses the lowest intermediate balance rule or the proceeds-first approach.

The Sixth Circuit explained that most circuits have determined that tracing tainted funds in a commingled account is not required to prove a violation of 18 U.S.C. § 1957, as adopted explicitly by the Second, Third, and Eleventh Circuits; and implicitly by the First, Fourth, Seventh, Eighth, and Tenth Circuits. The court found the presumption that all funds in a commingled account are tainted to be an “awkward fit” for money laundering that did not comport with the rule of lenity as the rule made it easier to take a person’s liberty than seize property. Additionally, in the Sixth Circuit’s view, this majority rule disregarded the text of the statute and accounting methods historically used to resolve complex questions about commingled assets. Similarly, the court rejected the Ninth’s Circuit’s strict tracing rule requiring the government to prove that every dollar in a transaction constituted criminally derived proceeds because this rule was not “rooted in the statutory text.”

The Sixth Circuit declined to decide which historical accounting approach, the lowest intermediate balance rule or proceeds-first rule, applied in 18 U.S.C. § 1957 prosecutions because Erker’s transactions exceeded the legitimate funds in the commingled account under either approach. But the decision reinforced the importance of tracing commingled funds to show their criminal nature.

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Eleventh Circuit Holds District Court Abused its Discretion by Requiring Government to Prove Elements of a Criminal Conspiracy to Admit Co-conspirator’s Statements

In United States v. Holland, 117 F.4th 1352 (11th Cir. 2024), the Eleventh Circuit held that the district court abused its discretion by requiring the government to prove uncharged conspiracy participants had knowledge of the conspiracy’s illegality in order to admit their statements under Federal Rule of Evidence 801(d)(2)(E), which provides that statements made by a co-conspirator in furtherance of the conspiracy are not hearsay.

John Holland, William Moore, and Ed Cota were charged with violating the Anti-Kickback Statute (42 U.S.C. § 1320a-7b) for their involvement in an illegal healthcare kickback scheme. At trial, the government intended to offer statements by uncharged co-conspirators under Rule 801(d)(2)(E). Over the government’s objection, the district court held a pretrial hearing requiring the government prove by a preponderance of evidence that the uncharged co-conspirators had knowledge of the illegality of the scheme in order to admit their statements. The district court excluded the co-conspirator’s statements, ruling that the government had failed to meet its burden of demonstrating the co-conspirator’s knowledge.

The government appealed arguing that the district court erred by requiring it to prove a co-conspirator’s knowledge of illegality in order for the statement to be admissible. The Eleventh Circuit agreed and reversed the district court.

In doing so, the Eleventh Circuit joined eight other circuits and held that the district court erred by requiring proof that the conspiracy was unlawful, and that proof of an agreement for a shared goal or joint venture was sufficient. The Eleventh Circuit cited over one hundred years of history, noting that as far back as 1917, the Supreme Court held that the co-conspirator exception to the common law hearsay rule did not require knowledge of criminal conduct. These rulings were still applicable, as the Supreme Court has held that applicable jurisprudence from before the adoption of the Federal Rules of Evidence still governed. The Eleventh Circuit further noted that shortly after the adoption of the Federal Rules of Evidence, its predecessor, the Fifth Circuit, held that admissibility of a co-conspirator’s statement does not require proof of an unlawful conspiracy.

Ultimately, the Eleventh Circuit remanded the issue holding that the district court committed an abuse of discretion by misapplying the standard for admissibility under Fed. R. Evid. 801(d)(2)(E), stating that the relevant question the district court should have asked is whether

the out-of-court statements were offered against an opposing party and were made during and in furtherance of a joint venture with that party.

Ninth Circuit Upholds Revenue Agent’s Bank Deposits Analysis Testimony and Application of Sophisticated Means Enhancement

In United States v. Patterson, No. 23-631, 2024 WL 5252239, (9th Cir. December 31, 2024) (unpub.), cert. denied, 145 S. Ct. 2794 (2025), the Ninth Circuit affirmed the defendant’s conviction and sentence, holding, inter alia, that the district court did not err in (1) admitting the IRS revenue agent’s testimony regarding her bank deposits analysis or (2) applying a sophisticated means enhancement to the defendant’s sentence.

Following a jury trial, Ryan Patterson was convicted of three counts of tax evasion in violation of 26 U.S.C. § 7201. He was sentenced to 20 months’ imprisonment.

On appeal, Patterson challenged, inter alia, the sufficiency of the evidence supporting his conviction and the district court’s application of a sophisticated means enhancement to his sentence. Patterson argued that the district court erred in allowing the testimony of an IRS revenue agent (RA) regarding her bank deposits analysis (BDA), which was unsupported by independent documentation and corroboration and that lacked evidence of intermediary analytic steps, such as how the RA determined which were income and non-income items in the bank accounts. As such, Patterson argued that the RA’s testimony concerning the BDA constituted inadmissible hearsay. A split panel of the Ninth Circuit disagreed, concluding that the government had produced sufficient evidence that a BDA was performed, consisting of (1) a spreadsheet listing all deposits made into 24 bank accounts for Patterson and the companies he owned during the relevant tax years; (2) the RA’s testimony about the steps she took to analyze the deposits; and (3) summary charts reflecting the conclusions of the RA's analysis. Thus, the panel held that the absence of documentary proof of the intermediate steps completed by the RA did not mean that no analysis occurred or that no BDA existed. The dissent opined that at trial the jury was asked “to accept, based on [the RA’s] bare-bones say so, that she had determined that Petterson underreported his income.”

The Ninth Circuit also upheld the district court’s application of a sophisticated means sentencing enhancement. The court primarily relied on the RA’s testimony that the government had to undertake the laborious exercise of subpoenaing 24 bank accounts and analyzing the thousands of deposit records associated with them to perform the BDA, which indicated that Patterson used

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sophisticated means to carry out his offenses. The Ninth Circuit also relied on the evidence regarding the methods that Patterson used to conceal income—asking customers to make checks out to him personally, not recording some of his business income, providing incomplete financial records to his tax preparers, and instructing the secretary/ bookkeeper of his companies to get rid of financial records—to conclude that the evidence supported application of the enhancement, even if the district court did not explicitly refer to that evidence.

The dissent opined that the key evidence on which the government's BDA was based did not satisfy the requirements of the Federal Rules of Evidence. As such, in the dissent’s view, Patterson's motion to strike that evidence should have been granted in full.

Third Circuit Holds Government Failed to Prove Defendant Intended to Encourage People “Other Than or in Addition to Co-Conspirators” as Required for § 2T1.9(b)(2) Enhancement

In United States v. Lucidonio, 137 F.4th 177 (3d Cir. 2025), the Third Circuit held that the government failed to meet its burden of showing that employees in a payroll tax scheme were not co-conspirators, such that the 2-level sentencing enhancement under U.S.S.G. § 2T1.9(b)(2) applied.

Nicholas Lucidonio was convicted of a Klein conspiracy (18 U.S.C. § 371) for a multi-year payroll tax scheme involving Tony Luke’s, a cheesesteak restaurant he owned with his father. Employees were issued paychecks, which they were required to endorse back to Tony Luke’s, and received cash for both “on-the-books” and “off-the-books” income. Tony Luke’s underreported employees’ wages and underpaid payroll taxes. Employees received Forms W-2 reflecting only “on-the-books” wages, which resulted in employees underreporting income on their own tax returns. At sentencing, the district court imposed a sentencing enhancement pursuant to U.S.S.G. § 2T1.9(b)(2), which applies when “conduct was intended to encourage persons other than or in addition to co- conspirators to violate the internal revenue laws or impede, impair, obstruct, or defeat the ascertainment, computation, assessment, or collection of revenue.” (emphasis added). Lucidonio appealed.

Lucidonio first asserted that the phrase “conduct was intended to encourage” requires that a person explicitly direct another to violate the Internal Revenue Code or otherwise impede the IRS’s collection of revenue. The Third Circuit rejected that interpretation reasoning that the “unambiguous text” of § 2T1.9(b)(2) lacks such a requirement.

Lucidonio next argued that § 2T1.9(b)(2) was inapplicable because his employees were part of the scheme, and thus he did not encourage someone “other than or in addition to co-conspirators.” The Third Circuit considered whether the government had proven by a preponderance of the evidence that the employees were not “co-conspirators” in the charged conspiracy. The Third Circuit rejected the government’s characterization of any involvement by the employees as “acquiescence” as opposed to “participation,” where the government also asserted “‘the continued success of [Lucidonio’s] payroll fraud depended on employees underreporting their income because ‘honest treatment of tax obligations by employees would rapidly expose the fraud.’”

Thus, the court concluded that the government’s portrayal of the case was “incompatible with holding that it proved by a preponderance of the evidence that the employees did not know of Lucidonio and [his father’s] Klein conspiracy and did not intend both to join it and accomplish its illegal objects.” The Third Circuit pointed to facts including that employees “learned about the conspiracy during onboarding,” “knew that the conspiracy would help them evade taxes,” “understood that Lucidonio kept false sets of records,” “signed back paychecks to Tony Luke’s for onthe-books income in exchange for off-the-books cash,” “asked for certain off-the-books arrangements to remain qualified for state benefits,” and “helped facilitate the conspiracy by not honestly reporting their tax obligations to the IRS.”

Thus, the Third Circuit held that the government failed to meet its burden of showing that the sentencing enhancement applied, vacated the sentence and remanded for resentencing. Upon re-sentencing, the district court sentenced Lucidonio to 18 months, a two month reduction from his original sentence.

Fifth Circuit Holds Categorical Approach Does Not Apply to Mandatory Victims Restitution Act

In United States v. Shah, 95 F.4th 328 (5th Cir. 2024), the Fifth Circuit held, inter alia, that the categorical approach does not apply to the Mandatory Victims Restitution Act (MVRA) because the statute’s “committed by fraud or deceit” prong focuses on the nature of the conduct, not on specific elements of the Anti-Kickback Statute (AKS).

Forest Park Medical Center (FPMC) was a hospital in Dallas, Texas. It was originally established as an “out-ofnetwork hospital,” to take advantage of the higher rates insurers were reimbursing providers for procedures performed outside of a patient’s insurance network. To entice patients to pay its out-of-network charges, FPMC paid surgeons to refer patients to it. The payments were

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made through pass-through entities to disguise the nature of the surgery-referral kickbacks. Additionally, FPMC waived a portion of the patients’ hospital bill. Seven codefendants were convicted of engaging in a $40 million healthcare conspiracy under the AKS (42 U.S.C. § 1320a7b) and the Travel Act (18 U.S.C. § 1952), and for money laundering (18 U.S.C. § 1956(a)(1)(B)(1)). The defendants were sentenced to incarceration and ordered to pay restitution under the MVRA (18 U.S.C. § 3663A).

On appeal, appellants argued, inter alia, that the MVRA did not apply to the AKS conspiracy count because the charge did not have fraud or deceit as an element of the crime. As such, appellants argued that the district court erred by not applying the categorical approach, which focuses on the statutory elements of the crime, as opposed to the nature of the crime itself. As an issue of first impression, and following other federal courts of appeals, the Fifth Circuit held that the categorical approach was inappropriate for the MVRA because the statute’s “committed by fraud or deceit” prong refers to the way in which some offenses against property are committed, which suggests that the way the crime is carried out is relevant to its application. The court went on to note that the MVRA “makes no reference to any elements of a crime against property.”

The Supreme Court denied certiorari in Rimlawi v. United States, 145 S.Ct. 518 (2025). Justice Gorsuch dissented from the denial, expressing doubt that a judge may order restitution in a criminal case based on his own factual findings, without the aid of a jury.

Sixth Circuit Holds Incarcerated Taxpayer Did Not Receive Taxable Income as a Result of Forfeiture and Subsequent Liquidation of Individual Retirement Account

In Hubbard v. Commissioner, 132 F.4th 437 (6th Cir. 2025), the Sixth Circuit held that the forfeiture of an incarcerated taxpayer’s individual retirement account (IRA) constituted a forfeiture of “specific property” which the IRS owned at the time of the district court’s forfeiture order. As a result, the IRS was the “payee” or “distributee” of the forfeited IRA and the taxpayer was not liable for the individual income tax due when the IRS liquidated the

forfeited IRA and deposited the withdrawn funds into another government fund.

Lonnie Hubbard was a licensed pharmacist who owned and operated a “pill mill” through which he sold oxycodone to drug abusers and large amounts of pseudoephedrine to manufacturers of methamphetamine. Hubbard was convicted of numerous drug and money laundering offenses, sentenced to 30 years’ imprisonment, and ordered to forfeit certain property to the IRS, including an IRA. The IRS seized, forfeited, and liquidated the IRA. Several years later, the IRS issued a notice of deficiency to Hubbard stating he owed income tax from the purported “distribution” of the withdrawn IRA funds, the 10% early distribution penalty, as well as delinquency penalties and interest relating to the unfiled return.

Hubbard filed a petition in the Tax Court arguing that the government was responsible for the taxes purportedly due from the liquidation of the forfeited IRA. After conceding several issues relating to the civil penalties and interest, the IRS moved for summary judgment on the underlying tax issue. The Tax Court granted the IRS’s motion, holding that the proceeds from the forfeited, liquidated IRA constituted taxable income to Hubbard because he “received the economic benefit of the funds through satisfaction of his forfeiture liability to the USA.” Hubbard appealed.

On appeal, the Sixth Court held that the forfeiture of Hubbard’s IRA constituted a forfeiture of “specific property” which the government owned once the forfeiture order was entered, rather than a forfeiture of funds that was intended to satisfy a “personal money judgment.” The court then held that the IRS became the “payee” or “distributee” of the forfeited IRA at the time the agency became the owner and took control. As such, the court concluded that Hubbard did not receive any income as a result of the forfeiture of the IRA and was not liable for any individual income taxes upon liquidation of the IRA. Accordingly, the Sixth Circuit reversed the Tax Court and remanded the matter for further proceedings.

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CRIMINAL TAX BULLETIN MARCH 2026

Fifth Amendment

In Re Grand Jury Subpoena, 127 F.4th 139 (9th Cir. 2024) ....................................................................... 1

Sixth Amendment & Speedy Trial Act – 18 U.S.C. § 3161, et seq .

United States v. Masood, No. 22-CR-91, 2025 WL 606482 (D. Md. Feb. 25, 2025) .................................. 2

Eighth Amendment & Civil FBAR Penalties

United States v. Schwarzbaum, 127 F.4th 259 (11th Cir. 2025) ................................................................ 2

Theft of Federal Funds – 18 U.S.C. § 666

United States v. Snyder, 603 U.S. 1 (2024) ................................................................................................ 3

Bank Fraud – 18 U.S.C. § 1014

Thompson v. United States, 604 U.S. 408 (2025) ...................................................................................... 3

Aggravated Identity Theft – 18 U.S.C. § 1028A

United States v. Omotayo, 132 F.4th 181 (2d Cir. 2025) ............................................................................ 4

Money Laundering – 18 U.S.C. § 1957

United States v. Erker, 129 F.4th 966 (6th Cir. 2025) ................................................................................. 5

Evidence

United States v. Holland, 117 F.4th 1352 (11th Cir. 2024) ......................................................................... 6

Evidence & Sentencing

United States v. Patterson, No. 23-631, 2024 WL 5252239, (9th Cir. December 31, 2024) ...................... 6

Sentencing

United States v. Lucidonio, 137 F.4th 177 (3d Cir. 2025) ........................................................................... 7

Restitution

United States v. Shah, 95 F.4th 328 (5th Cir. 2024) ................................................................................... 7

Forfeiture & Restitution

Hubbard v. Commissioner, 132 F.4th 437 (6th Cir. 2025) .......................................................................... 8

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