Last fall NFIB Small Business Legal Center filed an amicus brief in Marinello v. United States—a case that we warned had major implications for small business taxpayers. As we explained here, the case asked whether federal prosecutors had gone too far in charging a business owner for obstruction of justice for failing to keep records that were not affirmatively required by law. But the good news is that on March 21, 2018, the Supreme Court issued a decision siding with us.
The Court held that criminal tax statutes must be construed narrowly and in context to prevent overreaching. In our brief, we emphasized that it would be wholly improper to view lawful conduct as obstruction of justice simply because it happened to make IRS’ job more difficult. To protect businesses that are acting lawfully and in good faith, the federal government must be prohibited from initiating prosecution unless a business took actions with the intent of obstructing a known investigation.
Writing for the Court, Justice Breyer explained that, in order to bring an obstruction charge, the Government must prove that the defendant was actually aware of a pending tax-related proceeding (i.e., an audit), or that the taxpayer could reasonably foresee a particular IRS investigation unfolding. The Court reaffirmed the principle that courts should “exercise restraint in assessing the reach of a federal criminal statute,” both to avoid results that Congress would not have intended and to safeguard individuals who deserve fair warning of criminal prohibitions “in language that the common world [would] understand…”
Had the Court ruled otherwise, the decision would have greatly complicated tax compliance for small businesses who already spend inordinate time, energy and money on tax issues. And worse, it would have opened the doors for prosecutions against businesses for engaging in completely legitimate practices simply because the government alleges that business might have had some improper motive. As the Court recognized, “it is difficult to imagine a scenario” where the government could not allege that a defendant has “corrupt state of mind.” Accordingly, we must applaud the Supreme Court’s decision, especially in affirming that we cannot rely on “prosecutorial discretion” as a safeguard against overbreadth.